UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedJune 30, 20202022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-12725
Regis Corporation
(Exact name of registrant as specified in its charter)
Minnesota 41-0749934
State or other jurisdiction of incorporation or organization(I.R.S. Employer Identification No.)
3701 Wayzata Boulevard, Suite 500MinneapolisMinnesota 55416
(Address of principal executive offices)(Zip Code)
(952) 947-7777
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Act:
Title of each class Trading symbolName of each exchange on which registered
Common Stock, $0.05 par value RGSNew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitionsdefinition of "large accelerated filer," "accelerated filer," "smaller reporting company"company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐

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

Smaller reporting company☐☒
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under sectionSection 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes ☐  No ☒
The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which common equity was last sold as of the last business day of the registrant's most recently completed second fiscal quarter, December 31, 2019,2021, was approximately $440,137,327.$78,213,138. The registrant has no non-voting common equity.
As of August 14, 2020,15, 2022, the registrant had 35,626,07845,514,877 shares of Common Stock, par value $0.05 per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the annual fiscal 20202022 meeting of shareholders (the "2020"2022 Proxy Statement") (to be filed pursuant to Regulation 14A within 120 days after the registrant's fiscal year-end of June 30, 2020)2022) are incorporated by reference into Part III.


Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report, as well as information included in, or incorporated by reference from, future filings by the Company with the Securities and Exchange Commission (the SEC) and information contained in written material, press releases and oral statements issued by or on behalf of the Company contains or may contain "forward-looking statements" within the meaning of the federal securities laws, including statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this document reflect management's best judgment at the time they are made, but all such statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied by the statements herein. Such forward-looking statements are often identified herein by use of words including, but not limited to, "may," "believe," "project," "forecast," "expect," "estimate," "anticipate," and "plan." In addition, the following factors could affect the Company's actual results and cause such results to differ materially from those expressed in forward-looking statements. These factorsuncertainties include a potential material adverse impact on our business and results of operations as a result of the uncertain duration and severity of the COVID-19 pandemic, as well as the healthincluding any adverse impact from variants; consumer shopping trends and risk appetitechanges in manufacturer distribution channels; changes in regulatory and statutory laws including increases in minimum wages; laws and regulations could require us to modify current business practices and incur increased costs; changes in economic conditions; changes in consumer tastes, fashion trends and consumer spending patterns; compliance with New York Stock Exchange listing requirements; reliance on franchise royalties and overall success of our stylists, customers and employeesfranchisees’ salons; the return of sales at franchise locations to return to the salon environment; the continued ability of the Company to implement itspre-pandemic levels; new merchandising strategy priorities and initiatives including the re-engineering of our corporate and field infrastructure; our new company-owned back office management system may not yield the intended results on timing and amounts due to COVID-19, efforts by our currentthat utilizes third-party back office management system vendor to make it difficult for our franchisees to convert to our new company-owned system, and the pending litigation with that third-party vendor; the impact of COVID-19 on our key suppliers; the ability to address rent obligations incurred during the government-mandated hibernation of our salons related to the COVID-19 pandemic and the ability to obtain long-term rent concessions; the ability to operate or sell the salons transferred back from TBG; the outcome of the review by the administrator in TBG's insolvency proceedings in the United Kingdom; compliance with credit facility covenants and access to the existing revolving credit facility; our andpreferred supplier arrangements; our franchisees' ability to attract, train and retain talented stylists; financial performancestylists and salon leaders; the success of our franchisees; success of the sale of salons to franchisees; if our capital investments in technology do not achieve appropriate returns;franchisees, which operate independently; our ability to manage cyber threats and protect the security of potentially sensitive information about our guests, franchisees, employees, vendors or Company information; the ability of the Company to maintain a satisfactory relationship with Walmart; the impact of recent actions by Walmart; marketing efforts to drive traffic to our franchisees' salons; changes in regulatory and statutory laws including increases in minimum wages;the successful migration of our franchisees to the Zenoti salon technology platform; our ability to maintain and enhance the value of our brands; premature termination of agreements with our franchisees; reliance on information technology systems; reliance on external vendors; consumer shopping trendsthe use of social media; failure to standardize operating processes across brands; exposure to uninsured or unidentified risks; the effectiveness of our enterprise risk management program; compliance with covenants in our financing arrangement, access to the existing revolving credit facility, and changeswe may face an accelerated obligation to repay our indebtedness; our capital investments in manufacturer distribution channels; competition withintechnology may not achieve appropriate returns; premature termination of agreements with our franchisees; financial performance of Empire Education Group, Inc.; the personal hair care industry;continued ability of the Company to implement cost reduction initiatives and achieve expected cost savings; continued ability to compete in our business markets; reliance on our management team and other key personnel; the continued ability to maintain an effective system of internal controls over financial reporting; changes in tax exposure; failurethe ability to standardizeuse U.S. net operating processes across brands; financial performance of Empire Education Group; the continued ability of the Company to implement cost reduction initiatives; changes in economic conditions; changes in consumer tastesloss carryforwards; potential litigation and fashion trends; failure at our distribution centers; exposure to uninsuredother legal or unidentified risks; relianceregulatory proceedings could have an adverse effect on our management team and other key personnel business; or other factors not listed above. Additional information concerning potential factors that could affect future financial results is set forth under Item 1A of this Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual and periodic reports filed or furnished with the SEC on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.


2
Table of Contents

REGIS CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 20202022
INDEX

Page
   
4
 
1312
1514
26
26
26
26
   
27
29
30
4946
5047
 
5148
10095
10095
10095
95
   
10196
10196
10196
10196
10196
   
10297
10499
105100

3
Table of Contents

PART I

Item 1.    Business
General:
Regis Corporation franchises owns and operates technology-enabledowns hairstyling and hair care salons. The Company is listed on the NYSE under the ticker symbol "RGS." Unless the context otherwise provides, when we refer to the "Company," "we," "our," or "us," we are referring to Regis Corporation, the Registrant, together with its subsidiaries.
As of June 30, 2020,2022, the Company franchised, owned or held ownership interests in 6,9235,576 locations worldwide. The Company's locations consist of 5,2095,395 franchised salons, 1,632105 company-owned salons, and 8276 locations in which we maintain a non-controlling ownership interest of less than 100 percent.interest. Each of the Company's salon concepts generally offer similar salon products and services.
The major services supplied by the salons are haircutting and styling (including shampooing and conditioning), hair coloring and other services. Salons also sell a variety of hair care and other beauty products. We earn revenue for services and products sold at our company-owned salons, product sold to franchisees, and earn royalty revenue based on service and product sales at our franchise locations.   
The Company's franchise salon operations are comprised of 5,209 franchised salons operating in the United States (U.S.), Canada, the United Kingdomlocations and Puerto Rico. The Company'searn revenue for services and products sold at our company-owned salon operations are comprised of 1,632 salons operating in the U.S., Canada, and Puerto Rico.salons. Salons operate primarily under the trade names of Supercuts, SmartStyle, Supercuts, Cost Cutters, First Choice Haircutters and Roosters and they generally serve the value category within the industry. Salons are primarily located in strip center locations and Walmart Supercenters.
Financial information about our segments and geographic areas for fiscal years 2020, 2019,2022 and 20182021 are included in Note 15 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
In fiscal year 2017, we announced plansWe have substantially completed our multi-year transformation to expand the franchise side of our business, through organic growth and by selling certain company-owned salons to franchisees over time, where it made financial sense for the Company and shareholders. The transformation began in fiscal year 2017 and in fiscal year 2018, the Company expanded its franchise business by selling 449 non-mall salons to franchisees, primarily SmartStyle. In fiscal years 2019 and 2020, the Company accelerated its sale of salons to franchisees by selling 767 and 1,475 salons, respectively, across all brands. Management is committed to its strategy to become aan asset-light fully-franchised asset-light company by the end of fiscal year 2021. We plan to sell approximately 800 - 1,000 salons to franchisees in the next twelve months and we will close the remaining salons at their lease expiration or terminate the lease early when it is in the best interest of shareholders.
Additionally, in October 2017, the Company sold substantially all of its mall-based salon business in North America, representing 858 salons, and substantially all of its previous International segment, representing 250 salons in the U.K., to The Beautiful Group (TBG), an affiliate of Regent L.P., a private equity firm based in Los Angeles, California. On June 27, 2019, the Company entered into a settlement agreement with TBG regarding the North American salons, which, among other things, exchanged the franchise agreement for a license agreement. In the second quarter of fiscal year 2020, TBG transferred 207 of its North American mall-based salons to the Company. The 207 North American mall-based salons transferred were the salons that the Company was the guarantor of the lease obligation. See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K for further discussion on the sale of our mall-based salon business and the previous International segment, which are now reported as discontinued operations. The overall goal of the TBG transaction was to reduce the Company's exposure to the mall-based lease obligations.business. As of June 30, 2020, we have 166 TBG2022, 98.1% of our salons andare owned by franchisees. The remaining lease liability of $23 million.
In fiscal year 2018,105 company-owned salons will be sold or closed when the Company closed 605 non-performing company-owned SmartStyle salons and 124 other underperforming salons. In fiscal years 2019 and 2020, the Company closed 133 and 250, respectively, underperforming salons at or near their lease end.

4
Table of Contents

leases expire.
Industry Overview:
The hair salon market is highly fragmented, with the vast majority of locations independently-owned and operated. However, the influence of salon chains, both franchised and company-owned,corporate-owned, continues to grow within this market. Management believes salon chains will continue to have significant influence on this market and will continue to increase their presence.presence due to name recognition and benefits that come with scale.
In nearly every area in which the Company has a salon, there are competitors offering similar hair care services and products at similar prices. The Company faces competition from chains, such as Great Clips, Fantastic Sams, Sport Clips and Ulta Beauty, independently-owned salons, department store salons located within malls, in-home hair services, booth rentals and blow dry bars. The Company also faces competition from other franchise organizations outside of the hair salon industry in attracting new franchisees.
At the individual salon level, barriers to entry are low; however, barriers exist for chains to expand nationally due to the need to establish systems and infrastructure, the ability to recruit franchisees, experienced field and salon management and stylists, and to lease quality sites. The principal factors of competition in the hair care category are quality and consistency of the guest experience, the ability to attract, retain, and train stylists, technology, convenience, location and price. The Company continually strives to improve its performance in each of these areas and to create additional points of brand differentiation versus the competition.
2020 Strategy:
The Company is focused on maximizing shareholder value. In order to successfully maximize shareholder value, we place a balanced approach on our guests, franchisees, employees and shareholders. After carefully considering potential options to enhance shareholder value and based on the success of our vendition strategy in 2019, we reached a decision to fully transition our company-owned salons to a franchise platform and continued these efforts in fiscal year 2020. This strategic initiative is intended to facilitate an ongoing multi-year transformation to a capital-light business that we believe will be better positioned for sustainable growth. We believe the transformation of our salon platform coupled with the investments we are making in technology, marketing and advertising, merchandise and franchisor capabilities will be in the best long-term interests of our shareholders.
The COVID-19 global pandemic and the resulting government-mandated temporary hibernation of our salons greatly impacted our business in the second half of fiscal year 2020. However, we believe the safety strategies we implemented to respond to the global pandemic will allow us to thrive once this pandemic has passed. While we address the immediate crisis, we are still focused on our long-term strategy.
Key Elements of Our Strategy
rgs-20200630_g1.jpg
54
Table of Contents

In fiscal year 2020, the Company executed on various management initiatives to accelerate the growth of its franchise business and to significantly reduce costs to better align costs with the Company’s transition to a fully-franchised business model. The core components of the various management initiatives are focused on improving our performance by establishing core competencies to support franchise growth, eliminating non-essential costs, sourcing trend-driven professional beauty care products, optimizing our supply chain and distributor capabilities, creating industry-leading stylist recruiting and education, offering differentiated brands and consumer-focused marketing and advertising and launching transformational technology to reduce friction and enhance the customer experience.
In order to modernize and continue providing an exceptional guest experience, we opened a technology office in Fremont, California during fiscal year 2019 where we invested in a dedicated Product Engineering team. We have developed a proprietary cloud-based store management and point of commerce solution, OpenSalon Pro™, which launched in fiscal year 2021. Beginning in fiscal year 2021, we also launched an all-new Cost Cutters mobile app for iOS and Android which includes a new loyalty program. The app features same day or advanced bookings, booking history and a digital loyalty program. Additionally, we overhauled the Supercuts mobile app with improved same-day check-in and the ability to book services for the following day, the update represents an alternative to the traditional walk-in model that consumers (and even some states) are demanding, especially in the face of COVID-19 restrictions and wider consumer preference. We have also partnered with Google to improve and streamline the salon discovery and customer booking experience. In 2019, we launched OpenSalon™, Regis' proprietary platform that allows customers to book salon services directly and enables customers to reserve and check-in for various salon services via mobile devices or desktops, for those salons that have chosen to adopt the utilization of such technology. These technology investments are meant to drive traffic to our franchise and company-owned salons.
We continue to evaluate our investments and dis-invest in non-value generating programs while investing in other value generating initiatives. In addition to closing non-performing company-owned salons, we repurposed certain corporate programs, reduced long-term marketing contracts to allow for more agile spending and have invested in our creative digital capabilities to re-position Regis as the leading operator of value brands and technical education.

Salon Franchising Program:
General.    We have various franchising programs supportingfranchise support functions our 5,2095,395 franchised salons as of June 30, 2020,2022, consisting mainly of Supercuts, SmartStyle, Cost Cutters, First Choice Haircutters and Roosters salons. We provide our franchisees with a comprehensive system of business training, stylist education, site approval, and lease negotiation, construction management services, professional marketing, promotion, and advertising programs, and other forms of on-goingongoing support designed to help franchisees build successful businesses. Historically, we have signed the salon lease and then subleased the space to our franchisees. However, moving forward, for all new locations and some lease renewals, franchisees will seek to sign the salon leases directly with the landlords; however, there may be cases where we decide to stay on the lease. We have the right to approve salon leases.
Standards of Operations.    The Company does not control the day-to-day operations of its franchisees, including employment, benefits and wage determination, establishing prices to chargecharged for products and services, business hours, personnel management, and capital expenditure decisions. However, the franchise agreements afford certain rights to the Company, such as the right to approve locations, suppliers and the sale of a franchise. Additionally, franchisees are required to conform to the Company's established operational policies and procedures relating to quality of service, training, salon design and decor and trademark usage. The Company's field personnel make periodic visits to franchised salons to ensure they are operating in conformity with the standards for each franchising program. All of the rights afforded to the Company with regard to franchised operations allow the Company to protect its brands, but do not allow the Company to control theday-to-day franchise operations or make decisions that have a significant impact on the success of the franchised salons. The Company’sCompany's franchise agreements do not give the Company any right, ability or potential to determine or otherwise influence any terms and/or conditions of employment of franchisees’franchisees' employees (except for those, if any, that are specifically related to quality of service, training, salon design, decor and trademark usage), including, but not limited to, franchisees’ employees’franchisees' employees' wages and benefits, hours of work, scheduling, leave programs, seniority rights, promotional or transfer opportunities, layoff/recall arrangements, grievance and dispute resolution procedures, dress code, and/or discipline and discharge.
Franchise Terms.    Pursuant to a franchise agreement with the Company, each franchisee pays an initial fee for each store and ongoing royalties to the Company. In addition, for most franchise concepts,brands, the Company collects advertising funds from franchisees and administers the funds on behalf of the concepts.brands. Franchisees are responsible for the costs of leasehold improvements, furniture, fixtures, equipment, supplies, inventory, payroll costs and certain other items, including initial working capital. The majority of franchise agreements provide the Company a right of first refusal if the store is to be sold and the franchisee must obtain the Company's approval in all instances where there is a sale of a franchise location.

6
Table of Contents

Additional information regarding each of the major franchised brands is listed below:
Supercuts
Supercuts franchise agreements have a perpetual term, subject to termination of the underlying lease agreement or termination of the franchise agreement by either the Company or the franchisee. All new franchisees enter into development agreements, which give them the right to enter into a defined number of franchise agreements. These franchise agreements are site specific. The development agreement provides limited territorial protection for the stores developed under those franchise agreements. Older franchisees have grandfathered expansion rights, which allow them to develop stores outside of development agreements and provide them with greater territorial protections in their markets. The Company has a comprehensive impact policy that resolves potential conflicts among Supercuts franchisees and/or the Company's Supercuts locations regarding proposed store sites.
SmartStyle and Cost Cutters in Walmart Supercenters
The majority of existing SmartStyle and Cost Cutters franchise agreements for salons located in Walmart Supercenters have a five-year term with a five-year option to renew. The franchise agreements are site specific.
Cost Cutters (not located in Walmart Supercenters), First Choice Haircutters and Magicuts
The majority of existing Cost Cutters franchise agreements have a 15-year term with a 15-year option to renew (at the option of the franchisee), while the majority of First Choice Haircutters franchise agreements have a ten year10-year term with a five yearfive-year option to renew. The majority of Magicuts franchise agreements have a term equal to the greater of five years or the current initial term of the lease agreement with an option to renew for two additional five-year periods. The current franchise agreement is site specific. Franchisees may enter into development agreements with the Company, which provide limited territorial protection.
Roosters Men’s Grooming Center
Roosters franchise agreements have a ten-year10-year term with a ten-year10-year option to renew (at the option of the franchisee). New franchisees enter into a franchise agreement concurrent with the opening of their first store, along with a development agreement under which they havewith the right to open two additional locations.
5
Table of Contents

Franchisee Training.    The Company provides new franchisees with training, focusing on the various aspects of salon management, includingincluding: operations, personnel management training, marketing fundamentals and financial controls. Existing franchisees receive training, counseling and information from the Company on a regular basis. The Company provides franchisee salon managers and stylists with access to technical training for franchisees.resources.
Guests
Among other factors, consistent delivery of an exceptional guest experience, haircut quality, convenience, competitive pricing, salon location, inviting salon appearance and atmosphere, differentiating benefits and guest experience elements and comprehensive retail assortments, and engagement through technology all drive guest traffic and improve guest retention.
Guest Experience. Our portfolio of salon concepts enables our guests to select different service scheduling options based upon their preference. We believe the ability to serve walk-in appointments and minimize guest wait times is anare essential elementelements in delivering an efficient guest experience. Our mobile applications and online check-in capabilities, including check-ins directly from Facebook Messenger and Google®, allow us to capitalize on our guests' desire for convenience. WeOur franchisees continue to focus on stylist staffing and retention, optimizing schedules, balancing variable labor hours with guest traffic and managing guest wait times. Our franchise salons are located in high-traffic strip centers and Walmart Supercenters, with guest parking and easy access, and are generally open seven days per week offeringto offer guests a variety of convenient ways to fulfill their beauty needs.
Affordability. The Company strives to offer an exceptional value for its services. In the value category, our guests expect outstanding service at competitive prices. These expectations are met with the average service price of transactions ranging from $19$20 to $23.$28. Pricing decisions are considered on a salon levelsalon-level basis and are established based on local conditions. In response to the COVID-19 global pandemic we implemented a surcharge at our company-owned salons to cover the costs of additional safety measures we put in place. Our franchisees control all pricing at their locations.

7
Table of Contents

Salon Safety, Appearance and Atmosphere. Guest and stylist safety is our first priority and madebecame even more important by the COVID-19 global pandemic.novel strain of coronavirus and all related variants (COVID-19). We have invested heavily in safety and personal protective equipment ensuring social distancing in our salons and training employees on thesesafety measures. As a result of the COVID-19 pandemic, the Company collaborated with infectious disease specialists at the University of Minnesota Medical School. These specialists reviewed the Company's salon and customer journey, as well as new safety training videos on how services are performed with the view of how to best protect customers and stylists. They provided recommendations on the proper personal protective equipment and additional safety measures that have been communicated throughout the our entire salon system to help educate the our franchise partners and stylists to operate salons in a safe manner in a COVID-19 environment. Franchise and company-owned salons have incorporated these recommendations, along with any state specific guidelines, into our operations. The Company's salons range from 500 to 5,000 square feet, with the typical salon approximating 1,200 square feet. Our salon repairs and maintenance program is designed to ensure we invest in salon cleanliness and safety, as well as in maintaining the normal operation of our company-owned salons. Our annual capital expenditures include investmentsThe Company's salons range from 500 to refresh5,000 square feet, with the appeal and comfort of our salons.typical salon approximating 1,200 square feet.
Retail Assortments. The Company's salonsSalons sell nationally recognized hair care and beauty products, as well as a completean assortment of ownedcorporate-owned brand products. The Company's stylistsStylists are compensated and regularly trained to sell hair care and beauty products to their guests. Additionally, guests are encouraged to purchase products after stylists demonstrate their efficacy by using them in the styling of our guests' hair. The top selling brands within the Company's retail assortment includeinclude: L'Oreal Professional Brands, Regis Private Label Brands such as DESIGNLINE and Blossom,Brand, Designline®, and Paul Mitchell. We also continued to expand our e-commerce initiative to distribute our Regis Blossom and DESIGNLINE brandsDesignline brand through new distribution channels, including amazon.comAmazon.com and walmart.com to supplement our existing in-salon sales and raise brand awareness.Walmart.com.
Technology.  Our current pointIn fiscal year 2022, we sold our proprietary back-office salon management system, Opensalon® Pro to a third party, Zenoti. See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of salethis Form 10-K. We expect all of our salons will transition to the Zenoti salon management system has the ability to collect guest and transactional data and enable the Company to invest in guest relationship management, gaining insights into guest behavior, communicating with guests and incenting return visits. The system allow us to monitor guest retention and to survey our guests for feedback on improving the guest experience. Ourfiscal year 2023. We also use mobile applications to allow guests to view wait times and interact in other ways with salons. In fiscal year 2021, our new proprietary back office salon management system will be available to franchisees.
Marketing. We continueOur marketing is brand specific and funded primarily from contractual contributions, based on sales, to investthe brand's cooperative advertising funds. These funds are used largely in marketing to differentiate our priority salon and merchandise brands and drive traffic. This includes leveragingsupport of advertising and media, customer relationship management, digital, mobileother efforts to increase guest traffic to our salons, grow online booking usage, and other one-on-one communicationsimprove overall awareness of and hyper-local tactical efforts. We are increasingly usingaffinity for our owned channels and paid media to support the launches associated with our customer-facing technology such branded applications and new loyalty program. As the pandemic continues, we are addressing consumer mindset by messaging about our Safe Salon Commitment, and have put customer safety and experience at the headbrands. A portion of our Supercuts comeback campaign. We have also decidedmarketing funds are used in support of stylist recruitment to move away fromgrow the previously announced sponsorship between Supercuts and Major League Baseball and select local club partnerships. This is partnumber of efforts to continually reallocate marketing investments into opportunities we believe represent the highest return toactive stylists in our shareholders in the current environment. system.
Stylists
Our Company depends on its stylists to help deliver great guest experiences.
Artistic and Safety Education. We believe in the importance of the ongoing development of our stylists' craft. We aim to be an industry leader in stylist training, including the utilization of both live and digital training that we enhanced significantly during fiscal years 2019 and 2020.training. Our stylists deliver a superior experience for our guests when they are well trainedwell-trained technically and through years of experience. We employ trainers who provide new hire training for stylists joining the Company.Company and train franchisee trainers. We supplement internal training with targeted vendor training and external trainers whothat bring specialized expertise to our stylists. We utilize training materials to help all levels of field employees navigate the runningoperation of a salon and essential elements of guest service training within the context of brand positions. In response to the global COVID-19 pandemic, we have provided stylist training virtually in maintaining social distancing, sanitization, personal protective equipment and other safety protocols to limit the virus spread.
Recruiting. Ensuring that we attract, train and retain our stylists is critical to our success. We compete with all service industries for our stylists; to that end, we continue to enhance our recruiting efforts across all levels within our Company and are focused on showing our stylists a path forward. We also leverage beauty school relationships and participate in job fairs and industry events.
Technology. Our back office salon management systems and salon workstations throughout North America enable communication with salons and stylists, delivery of online and digital training to stylists, salon level analytics on guest retention, wait times, stylist productivity, and salon performance. We are currently making further investments in our back office salon management hardware and salon technology to improve the speed of our systems allowing for stylists to be more productive and improve overall guest and stylist satisfaction.
86
Table of Contents

Salon Support
Our corporate headquarters is referred to as Salon Support. This acknowledges that loving our franchisees, guests and stylists mandatesWe take a service-oriented mentality in supportingto best support our franchisees goalsand stylists in an effort to ensure guest satisfaction by helping our franchisees drive their business, as well as overseeing our company-owned operations.
Organization. Salon Support and our associated priorities are aligned towith our field organizationbrands to enhance the effectiveness and efficiency of the service we provide and optimize the guest experience.provide.
Simplification. Our ongoing simplification efforts focus on aligning our cost structure with our transition to an asset-light franchise model and improving the way we plan and execute across our portfolio of brands. In fiscal year 2020,2022 and 2021, we significantly reduced our field and salon support resources as our portfolio of salons shifts to franchisees. We remain focusedcompleted a corporate reorganization based on eliminating non-essential costs and on profit enhancing initiatives that do not harm the guest experience. We also strivea zero-based budgeting philosophy to ensure every program, communication,each employee was performing the "right work," each team was the "right size" based on resources and report that complicates our operationspriorities and takes time away from our franchisees or guests is assessed for simplification or elimination.overall, we have the "right structure" to succeed as a company. This exercise reduced Salon Support headcount in fiscal year 2022 and 2021.
New Location. In March 2019, we announced a relocation of Salon Support to a new locationis primarily located in Minneapolis, which occurred in April 2020. We believe the new headquarters will facilitate collaboration amongst our internal teams, support our employee recruiting effortsMinnesota while allowing for hybrid and enhance shareholder value. However, due to the COVID-19 pandemic, the majority of our salon support employees are working from home to reduce the risk of the virus spreading. We look forward to everyone returning to the office when it is safer.remote work.
Salon Concepts:
The Company's salon concepts focus on providing high qualityhigh-quality hair care services and professional hair care products. A description of the Company's salon concepts is listed below:
SmartStyle.    SmartStyle salons offer a full range of custom styling, cutting, and hair coloring, as well as professional hair care products and are currently located exclusively in Walmart Supercenters. SmartStyle has primarily a walk-in guest base with value pricing. The Company has 1,317 franchised and 751 company-owned SmartStyle and Cost Cutters salons located in Walmart Supercenters.
Supercuts.    Supercuts salons provide consistent, high qualityhigh-quality hair care services and professional hair care products to its guests at convenient times and locations at value prices. This concept appeals to men, women, and children. The Company has 2,5082,264 franchised and 21018 company-owned Supercuts locations throughout North America.
Signature Style.SmartStyle/Cost Cutters in Walmart stores.    Signature StyleSmartStyle and Cost Cutters salons offer a full range of custom styling, cutting, and hair coloring, as well as professional hair care products and are currently located exclusively in Walmart Supercenters. This concept has primarily a "walk-in" guest base with value pricing. The Company has 1,646 franchised and 49 company-owned SmartStyle and Cost Cutters salons located in Walmart Supercenter locations throughout North American.
Portfolio Brands.   Portfolio Brands salons are made up of acquired regional salon groups operating under the primary concepts of Cost Cutters, First Choice Haircutters, Roosters, Hair Masters, Cool Cuts for Kids, Style America, First Choice Haircutters, Famous Hair, Cost Cutters, Magicuts, Holiday Hair, Fiesta Salons, Roosters and TGF, as well as other concept names. Most concepts offer a full range of custom hairstyling, cutting and coloring services, as well as professional hair care products. The Company has 1,217 Signature Style1,344 franchised and 50538 company-owned Portfolio Brands locations throughout North America.
International Salons.    International salons are franchised locations operating in the United Kingdom, primarily under the Supercuts and Regis concept. These salons offer similar levels of service as our North American salons. Salons are usually located in prominent high-traffic locations and offer a full range of custom hairstyling, cutting and coloring services, as well as professional hair care products. The Company has 141 franchised International locations.
The tables on the following pages set forth the number of system-wide locations (franchised and company-owned) and activity within the various salon concepts.
97
Table of Contents

System-wide location counts
 June 30,
 202020192018
FRANCHISE SALONS:
SmartStyle/Cost Cutters in Walmart stores (1)1,317 615 561 
Supercuts2,508 2,340 1,739 
Signature Style1,217 766 745 
Total franchise locations, excluding TBG mall locations5,042 3,721 3,045 
Total North America TBG mall locations (2)— — 807 
Total North American salons5,042 3,721 3,852 
Total International salons (2)(3)167 230 262 
Total Franchise salons5,209 3,951 4,114 
as a percent of total Franchise and Company-owned salons76.1 %56.0 %50.9 %
COMPANY-OWNED SALONS:   
SmartStyle/Cost Cutters in Walmart stores751 1,550 1,660 
Supercuts210 403 928 
Signature Style505 1,155 1,378 
Mall-based (2)166 — — 
Total Company-owned salons1,632 3,108 3,966 
as a percent of total Franchise and Company-owned salons23.9 %44.0 %49.1 %
OWNERSHIP INTEREST LOCATIONS:   
Equity ownership interest locations82 86 88 
Grand Total, System-wide6,923 7,145 8,168 
 June 30,
 20222021
FRANCHISE SALONS:
Supercuts2,264 2,386 
SmartStyle/Cost Cutters in Walmart stores1,646 1,666 
Portfolio Brands1,344 1,357 
Total North American salons5,254 5,409 
Total International salons (1)141 154 
Total Franchise salons5,395 5,563 
as a percent of total Franchise and Company-owned salons98.1 %95.3 %
COMPANY-OWNED SALONS:  
Supercuts18 35 
SmartStyle/Cost Cutters in Walmart stores49 91 
Portfolio Brands38 150 
Total Company-owned salons105 276 
as a percent of total Franchise and Company-owned salons1.9 %4.7 %
OWNERSHIP INTEREST LOCATIONS:  
Equity ownership interest locations76 78 
Grand Total, System-wide5,576 5,917 

Constructed locations (net relocations)
 Fiscal Years
 202020192018
FRANCHISE SALONS:
SmartStyle/Cost Cutters in Walmart stores (1)4 3 1 
Supercuts39 55 68 
Signature Style4 6 8 
Total North American salons47 64 77 
Total International salons (2)(3)— 1 2 
Total Franchise salons47 65 79 
COMPANY-OWNED SALONS:   
SmartStyle/Cost Cutters in Walmart stores— — 1 
Supercuts9 9 — 
Signature Style6 1 1 
Total North American salons15 10 2 
Total International salons (2)(3)— — 1 
Total Company-owned salons15 10 3 
 Fiscal Years
 20222021
FRANCHISE SALONS:
Supercuts15 21 
SmartStyle/Cost Cutters in Walmart stores1 — 
Portfolio Brands5 10 
Total North American salons21 31 
Total International salons (1)— 1 
Total Franchise salons21 32 
COMPANY-OWNED SALONS:  
Supercuts— 4 
SmartStyle/Cost Cutters in Walmart stores— — 
Portfolio Brands— — 
Total Company-owned salons— 4 
108
Table of Contents

Closed locations
 Fiscal Years
 202020192018
FRANCHISE SALONS:
SmartStyle/Cost Cutters in Walmart stores (1)(29)(18)(4)
Supercuts(102)(72)(72)
Signature Style(43)(33)(40)
Mall locations (2)— (807)(63)
Total North American salons(174)(930)(179)
Total International salons (2)(3)(63)(33)(15)
Total Franchise salons(237)(963)(194)
COMPANY-OWNED SALONS:   
SmartStyle/Cost Cutters in Walmart stores (4)(72)(39)(605)
Supercuts(26)(21)(20)
Signature Style(111)(73)(76)
Mall locations (2)(41)— (14)
Total North American salons(250)(133)(715)
Total International salons (2)(3)— — (14)
Total Company-owned salons(250)(133)(729)
 Fiscal Years
 20222021
FRANCHISE SALONS:
Supercuts(156)(273)
SmartStyle/Cost Cutters in Walmart stores(49)(56)
Portfolio Brands(81)(82)
Total North American salons(286)(411)
Total International salons (1)(13)(14)
Total Franchise salons(299)(425)
COMPANY-OWNED SALONS:  
Supercuts(6)(54)
SmartStyle/Cost Cutters in Walmart stores(15)(252)
Portfolio Brands(40)(307)
Total Company-owned salons(61)(613)
Conversions (including net franchisee transactions) (5)(2)
 Fiscal Years
 202020192018
FRANCHISE SALONS:
SmartStyle/Cost Cutters in Walmart stores (1)727 69 388 
Supercuts231 618 56 
Signature Style490 48 7 
Mall locations (2)— — 870 
Total North American salons1,448 735 1,321 
Total International salons (2)(3)— — 262 
Total Franchise salons1,448 735 1,583 
COMPANY-OWNED SALONS:   
SmartStyle/Cost Cutters in Walmart stores(727)(71)(388)
Supercuts(176)(513)(32)
Signature Style(545)(151)(15)
Mall locations (2)207 — (884)
Total North American salons(1,241)(735)(1,319)
Total International salons (2)(3)— — (262)
Total Company-owned salons(1,241)(735)(1,581)

 Fiscal Years
 20222021
FRANCHISE SALONS:
Supercuts19 130 
SmartStyle/Cost Cutters in Walmart stores28 405 
Portfolio Brands63 212 
Total Franchise salons110 747 
COMPANY-OWNED SALONS:  
Supercuts(11)(125)
SmartStyle/Cost Cutters in Walmart stores(27)(408)
Portfolio Brands(72)(214)
Total Company-owned salons(110)(747)

_______________________________________________________________________________
(1)Franchised SmartStyle salons in Walmart stores include salons originally opened as Magicuts locations in Canadian Walmart stores that were rebranded to SmartStyle.
11
Table of Contents

(2)In October 2017, the Company sold substantially all of its mall-based salon business in North America, representing 858 salons, and substantially all of its previous International segment, representing approximately 250 salons in the UK, to TBG, who operated these locations as franchise locations until June 2019. TBG has subsequently closed many of those salons and since June 2019, operates the North American salons under a license agreement. The mall-based business and the previous International segment have been reported as a discontinued operation. On December 31, 2019, mall-based salons were acquired from TBG and are included in continuing operations under the Company-owned segment from January 1, 2020. See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K for further discussion.
(3)Canadian and Puerto Rican salons are included in the North American salon totals.
(4)In January 2018, the Company closed 597 non-performing company-owned SmartStyle locations.
(5)(2)During fiscal years 2020, 2019,2022 and 2018,2021, the Company acquired 27, 32,0 and zero1 salon locations, respectively, from franchisees. During fiscal years 2020, 2019,2022 and 2018,2021, the Company sold 1,475, 767,110 and 1,581748 salon locations, respectively, to franchisees.

Salon Markets and Marketing:
9
Table of Contents
Franchised Salons
Most franchise concepts maintain separate advertising funds that provide comprehensive marketing and sales support for each system. The Supercuts advertising fund is the Company's largest advertising fund and is administered by a council consisting of primarily franchisee representatives. The council has overall control of the advertising fund's expenditures and operates in accordance with terms of the franchise operating and other agreements. All stores, franchised and company-owned, contribute to the advertising funds. Depending on the brand, the funds are allocated to the brand contributing market for media placement and local marketing activities or to the creation of national advertising and system-wide activities.
Company-Owned Salons
The Company utilizes various marketing vehicles for its salons, including traditional advertising, guest relationship management, digital marketing programs and promotional/pricing based programs. Most marketing vehicles including radio, print, online, digital and television advertising are developed and supervised at the Company's Salon Support headquarters. The Company reviews its brand strategy with the intent to create more clear communication platforms, identities and differentiation points for our brands to drive consumer preference.
Affiliated Ownership Interest:
The Company maintains a non-controlling 55.1% ownership interest in Empire Education Group, Inc. (EEG), which is accounted for as an equity method investment. See Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. EEG operates accredited cosmetology schools. We entered into an agreement to sell our stake in EEG to the controlling owner in fiscal year 2020, while enhancing our relationship in order to recruit stylists directly from beauty school.the closing of which is pending state approvals. The transactionsale is not expected to close in fiscal year 2021, at which timehave a significant impact on the Company expects to record an immaterial non-operating gain.Company's operations or financial position.
Corporate Trademarks:
The Company holds numerous trademarks, both in the United StatesStates. and in many foreign countries. The most recognized trademarks are "SmartStyle®"SmartStyle®," "Supercuts®"Supercuts®," "Regis Salons®Salons®," "Cost Cutters®Cutters®," "First Choice Haircutters®Haircutters®," "Roosters®" and "Magicuts®"Magicuts®."
Corporate Employees:Human Capital Management:
Our Culture
We are committed to our purpose of Unleashing the Beauty of Potential, which is supported by our four core values:
Foster Trust.    Create powerful relationships by acting with empathy and integrity.
Create Community.    Connect and collaborate with all your partners. Share the challenges as much as you celebrate the wins.
Be Brave.    Dream big and courageously challenge the status quo.
Own It.    You are empowered. Take responsibility and own your role and your results.
These values support a collaborative and inclusive culture that is critical to the success and growth of our Company. To help reinforce our values and incorporate them into everything we do, we have a values committee comprised of cultural ambassadors who serve as the voice of employees and help ensure a best-in-class employee experience.
Our People
As of June 30, 2020,2022, the Company hademployed approximately 9,000 full630 employees; 122 of whom were corporate employees serving the Company's headquarters in Minnesota, 10 of whom served at its product engineering headquarters in California, 52 of whom provided artistic education to its hair care salons, and part-timethe remainder of whom served as field employees worldwide,or at its company-owned salons. The Company offers flexible work arrangements such as hybrid and remote work.
Diversity and Inclusion
The Company promotes diversity of thoughts, backgrounds, experiences, and ideas. As of June 30, 2022, racial minorities comprise over 32% of the Company's U.S. workforce, which is summarized below.
•68% White
•12% Hispanic or Latinx
•9% Asian
•6% Black or African American
•1% American Indian or Alaska Native
•1% Native Hawaiian
•3% Two or more races
Also, 85% of the Company's entire workforce are women and 15% are men. Additionally, 67% of the Company's leadership positions are held by women.
10
Table of Contents

Families First
One hundred years ago, the Company began as a family business and its support of families continues today. It offers up to 16 weeks of parental leave, including adoption, up to 12 of which approximately 8,000are paid, so that parents have time to focus on their newest family members. It also offers flexible work arrangements, including full-time telecommuting. Additionally, the Company offers flexible paid time off, which allows employees were located in the United States. to control their time away from work based on individual needs, not years of service.
Other Compensation and Benefits
The Company believesalso takes care of its people by offering competitive compensation and benefits packages that are designed to support the total well-being and promote the full potential of our employees and their families. These include short- and long-term incentive packages, an employee relationsstock purchase plan, retirement plans, health, dental, and vision benefits, basic life insurance, long-term disability coverage, and wellness and employee assistance programs. The Company analyzes market trends and monitors its own compensation practices to attract, retain, and promote employees and reduce turnover and associated costs. In addition, its short- and long-term incentive plans are amicable.aligned with its core values and key business objectives, which are intended to motivate strong performance.
Development and Engagement
Continuous employee development and engagement are essential to creating a high-performance culture. In fiscal year 2022, we increased our investment in learning and development. In addition to the resources available on our internal Learning Hub, we launched our Beauty of Series, which consists of interactive sessions designed to help our employees unleash their potential. This series included the following topics. The Beauty of Being Remarkable, where employees learned the importance of self-promotion in both their personal and professional lives. The Beauty of Wellness, which was designed to help employees manage stress more effectively and create healthy habits and coping skills. And The Beauty of Being Tech-Enabled, where panelists discussed how technology fueled and disrupted their industries.
We survey our employees to provide them with an opportunity to share anonymous feedback with management in a variety of areas, including support from leadership, communication and collaboration, growth and career opportunities, available resources, and recognition. Leaders reviewed the results to determine opportunities and develop action plans for their teams to improve engagement and the overall employee experience. We introduced Regis Listens, which highlights offerings that we've implemented as a result of employee feedback to show employees that we are listening.
Corporate Responsibility
The Company will not do business with organizations that employ or condone unfair labor practices. Instead, it partners with companies who share its commitment to ethical business conduct and fair labor practices. The Company also specifically condemns human trafficking and abuse of child labor.
1211
Table of Contents

Information About Our Executive Officers:Officers of the Registrant:
Information relating to the Executive Officers of the Company follows:
NameAgePosition
Hugh SawyerJohn Davi6644 Chairman, Executive Vice President, Chief Digital Officer
Matthew Doctor35 President and Chief Executive Officer
Eric BakkenMichael Ferranti5339 Executive Vice President, and President of FranchiseChief People Officer
Chad KapadiaJim Lain5158 Executive Vice President, and Chief TechnologyOperating Officer
James TownsendSuarez4447 Senior Vice President, Merchandising and Education
Andra Terrell51 Senior Vice President, General Counsel and Corporate Secretary
Kersten Zupfer47 Executive Vice President, and Chief Marketing Officer
Kersten Zupfer45Executive Vice President and Chief Financial Officer
Shawn Moren53Executive Vice President and Chief Talent Officer
Amanda Rusin38Senior Vice President and General Counsel and Secretary
Hugh Sawyer has served as President and Chief Executive Officer, as well as a member of the Board of Directors, since April 2017. He was elected Chairman of the Company's Board of Directors in January 2020. Before joining Regis Corporation, he served as a Managing Director of Huron Consulting Group Inc. (Huron) from January 2010 to April 2017. While at Huron, he served as Interim President and CEO of JHT Holdings, Inc. from January 2010 to March 2012, as the Chief Administrative Officer of Fisker Automotive Inc. from January 2013 to March 2013 and as Chief Restructuring Officer of Fisker Automotive from March 2013 to October 2013, and as Interim President of Euramax International, Inc. from February 2014 to August 2015. Mr. Sawyer has served as President or CEO of nine companies (including Regis) and on numerous Boards of Directors. In February 2018, Mr. Sawyer was appointed to the Board of Directors of Huron.
Eric Bakken has served as President of Franchise and Executive Vice President since April 2017. He also served as Executive Vice President, Chief Administrative Officer, Corporate Secretary and General Counsel from April 2013 to January 2018. He also served as Interim Chief Financial Officer from September 2016 to January 2017. He served as Executive Vice President, General Counsel and Business Development and Interim Corporate Chief Operating Officer from 2012 to April 2013 and performed the function of interim principal executive officer between July 2012 and August 2012. Mr. Bakken joined the Company in 1994 as a lawyer and became General Counsel in 2004.
Chad KapadiaJohn Davi was appointed to Executive Vice President and Chief Technology Officer in June 2018.October 2021, and Executive Vice President and Chief Digital Officer in July 2022. Prior to joining the Company, he served as Chief Product Officer for BriteCore, Senior Vice President of Product at MINDBODY, Inc, founding Vice President of Product for Diffbot, and Head of Engineering for Cisco Systems' Media Solutions Group.
Matthew Doctor was appointed to President and Chief Executive Officer in May 2022, after holding such position on an interim basis since December 2021. Previously, he served as Executive Vice President and Chief Strategy Officer since February 2021. Prior to joining the Company, he was Chief Financial Officer of Kava Restaurants LLC, a Tim Horton's franchisee. Earlier in his career, Mr. Doctor worked in business development at Restaurant Brands International and was in investment banking with J.P. Morgan.
Michael Ferranti was appointed to Executive Vice President and Chief People Officer in December 2021. Previously, he served as Senior Vice President, People and Culture since March 2021. Before joining Regis Corporation, hethe Company, Mr. Ferranti served as Head of Engineering at Target Corporation's New VenturesM&A and Accelerators.Franchising for Subway Restaurants U.S. and Canada on their Development team. Prior to Target Corporation,Subway Restaurants, Mr. KapadiaFerranti held a variety of senior leadership roles with Le Pain Quotidien, KraftHeinz and Restaurant Brands International.
Jim Lain was appointed to Executive Vice President and Chief Operating Officer in December 2021. Previously, he served as President of Portfolio Brands since December 2020, President of SmartStyle since June 2021, and Executive Vice President and Chief Operating Officer since November 2013. Before joining the Company, Mr. Lain served as Vice President at Gap, Inc. from August 2006 to November 2013.
James Suarez was appointed to Senior Vice President, Merchandising and Education in technology positionsFebruary 2022. Prior to his promotion to Senior Vice President, Merchandising and Education, Mr. Suarez had 25 years of increasing responsibility including Chief Technology Officercombined salon operations and Product Headeducation experience at Swissclear Global,the Company.
Andra Terrell was appointed to Senior Vice President, General Counsel and Corporate Secretary in February 2022. Prior to joining the Company, she served as Deputy General Counsel and Assistant Secretary of Cajun Operating Company for the Church's Chicken and Texas Chicken brands. Ms. Terrell also served as Assistant General Counsel - Franchise for Luxottica Retail, Assistant General Counsel for General Nutrition Centers Inc., Franchise Counsel for Precision Tune Auto Care, Inc. and as an Engineering Leader and founding memberGeneral Counsel of Netflix,Decorating Den Systems, Inc.'s Content Platform Engineering and Media Pipeline.
Kersten Zupfer was appointed to Executive Vice President and Chief Financial Officer in November 2019. BeforeFor more than 13 years before her promotion to Chief Financial Officer, sheMs. Zupfer served in accounting and finance roles of increasing leadership at Regis for more than 13 years. Most recently, shethe Company. Ms. Zupfer served as Senior Vice President and Chief Accounting Officer since November 2017, prior to which she served as Vice President, Corporate Controller and Chief Accounting Officer since December 2014.
James Townsend was appointed as Executive Vice President and Chief Marketing Officer in April 2019. Before joining Regis Corporation, James was a Partner and Chief Development Officer for 72andSunny. Prior to 72andSunny, James served as Vice President of Client Services at Huge, Inc.; led the global Yahoo business for advertising agency, Goodby, Silverstein & Partners; led the San Francisco office of digital agency, Code and Theory; was the Executive Producer of the award-winning music company, The Rumor Mill; and started his career at Ogilvy in New York City.
Shawn Moren was appointed to Executive Vice President and Chief Talent Officer in August 2019. She also served as the Senior Vice President and Chief Human Resources Officer from August 2017 to August 2019. Before joining Regis Corporation, she served as Senior Vice President, Human Resources, for Bluestem Group, Inc. from July 2013 to August 2017. Prior to that, she served as Vice President, Human Resources, Retail, Supply Chain & Corporate for SUPERVALU during 2013 and as Group Vice President, Human Resources for SUPERVALU from March 2012 to March 2013.
Amanda Rusin was appointed as Senior Vice President and General Counsel and Secretary in January 2018. Before joining Regis Corporation, she served as Assistant General Counsel at Polaris Industries, Inc. from September 2015 to December 2017 and Senior Attorney at Polaris Industries, Inc. from June 2014 to September 2015. Before joining Polaris Industries, Inc. She served as Commercial Director at Cargill, Incorporated from August 2013 to May 2014 and Attorney at Cargill, Incorporated from June 2008 to August 2013.
1312
Table of Contents

Governmental Regulations:
The Company is subject to various federal, state, local and provincial laws affecting its business, as well as a variety of regulatory provisions relating to the conduct of its beauty relatedbeauty-related business, including health and safety. DuringAt the third and fourthend of fiscal quartersyear 2020, the majority of 2020, state and local governments where we operate temporarily mandated the closure of our franchise and company-owned salons in the response to the COVID-19 global pandemic. These pandemic related government-mandated closures havecontinued into fiscal year 2021 and may continue throughout the pandemic.even into fiscal year 2022 in parts of Canada. We monitor state and local regulations carefully to ensure the safety orof our stylists and guests.
In the United States, the Company's franchise operations are subject to the Federal Trade Commission's Trade Regulation Rule on Franchising (the FTC Rule) and by state laws and administrative regulations that regulate various aspects of franchise operations and sales. The Company's franchises are offered to franchisees by means of an offering circular/a disclosure document containing specified disclosures in accordance with the FTC Rule and the laws and regulations of certain states. The Company has registered its offering of franchises with the regulatory authorities of those states in which it offers franchises and in which suchwhere registration is required. State laws that regulate the franchisee/franchisor relationship presently exist in a substantial number of states and, in certain cases, apply substantive standards to this relationship. Such laws may, for example, require that the franchisor deal with the franchisee in good faith, may prohibit interference with the right of free association among franchisees, and may limit termination of franchisees without payment of reasonable compensation. The Company believes that the current trend is for government regulation of franchising to increase over time. However, such laws have not had, and the Company does not expect such laws to have, a significant effect on the Company's operations.
In Canada, the Company's franchise operations are subject to franchise laws and regulations in the provinces of Ontario, Alberta, Manitoba, New Brunswick, and Prince Edward Island.Island and British Columbia. The offering of franchises in Canada occurs by way of a disclosure document, which contains certain disclosures required by the applicable provincial laws. The provincial franchise laws and regulations primarily focus on disclosure requirements, although each requires certain relationship requirements, such as a duty of fair dealing and the right of franchisees to associate and organize with other franchisees.
The Company believes it is operating in substantial compliance with applicable laws and regulations governing all of its operations.
The Company maintains an ownership interest in EEG.Empire Education Group, Inc. Beauty schools derive a significant portion of their revenue from student financial assistance originating from the U.S. Department of Education's Title IV Higher Education Act of 1965. For the students to receive financial assistance at the school,schools, the beauty schools must maintain eligibility requirements established by the U.S. Department of Education. In 2020, wethe Company signed an agreement to sell our ownership interest in EEG to the other owner. The transaction is expected to close in fiscal year 2021.after receipt of state ownership transfer approvals.
Financial Information about Foreign and North American Operations
Financial information about foreign and North American marketsoperations is incorporated herein by reference to Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 and segment information in Note 15 to the Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.
Available Information
The Company is subject to the informational requirements of the Securities and Exchange Act of 1934, as amended (Exchange Act). The Company therefore files periodic reports, proxy statements and other information with the Securities and Exchange Commission (SEC). Such reports may be obtained by visiting the Public Reference Room of the SEC at 100 F Street NE, Washington, DC 20549, or by calling the SEC at 1-800-SEC-0330. All of our reports, proxy and information statements and other information are available on the SEC's internet site (www.sec.gov).
Financial and other information can be accessed in the Investor InformationRelations section of the Company's website at www.regiscorp.com. The Company makes available, free of charge, copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.

1413
Table of Contents


Item 1A.    Risk Factors
Business and Industry Risks
The impact of the COVID-19 pandemic, including variants, and the measures implemented to contain the spread of the virus have had, and are expected tomay continue to have, a material adverse impact on our business and results of operations.
Our operations expose us to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus (COVID-19)COVID-19, that has spread globally. COVID-19 has had, and willmay continue to have, an adverse impact on our operations, including the temporary closure of all of our company-owned salons and almost all of our franchise locations for most of the fourth quarter of fiscal year 2020; implementation of a furlough program in the fourth quarter for a substantial majority of our workforce across our corporate office, field support and distribution centers; and temporary reductions in the pay for executives and other working employees at different levels for approximately two months during the fourth quarter of fiscal year 2020.operations. The pandemic may affect the health and welfare of our stylist community, customers, franchise partners or headquartersSalon Support personnel. As of the date of this filing, a majority of our company-owned and franchise salons have re-opened after having been temporarily closed for several weeks and/or months during the fourth quarter of fiscal year 2020. While most of our salons have been ableacross essentially all geographies are allowed to re-open, we expect thatbe open; however, states may again decide to again require the closure of salons as the level of COVID-19 positive cases continue to fluctuate, as we have already seen in California. Each time we are required to close and re-open salons, we will continue to experience the risks and business impacts described here, and further requirements to again close salons or limit and/or modify services or operations may exacerbate these impacts.fluctuate.
The unprecedented uncertainty surrounding COVID-19, including the rapidly changing governmental directives, public health challenges and progress, macroeconomic consequences and market reactions thereto, makes it more challenging for our management to estimate the future performance of our business and develop strategies to resume and/or continue operations or generate growth or achieve our initial or any revised objectives for calendar year 2020 and fiscal year 2021. In particular, the uncertainty around COVID-19 will likely delay and/or impair our ability to convert to a fully-franchised model by the end of calendar year 2020 as we had previously expected or for the net cash proceeds we had expected, and we may need to explore other transactions, such as closing or selling off certain salons.
In addition, as our stores are able to resume operations, someSome of our franchisees, many of whom were in the early stages of developing their businesses prior to the onset of the pandemic, have chosen, or may choose, not to due to a variety of factors, resume operation of their salons and/or they are facing challenges rehiring employees, reestablishing operations with their landlords and other vendors, and attracting customers back to their salons. As a result, in addition to our prior decision to suspend collection of franchise ad fund fees from our franchisees from April 1, 2020 through June 30, 2020, many of our franchisees have requested reductions or other modifications to their royalty payments or other amounts due to us, which may be critical to their ability to reestablishingreestablish operations, and they may simply be unable or unwilling to make lease, royalty or other payments to us and may be unable to continue to operate or may need to close the salon.their salons. The removal or reduction of these payments, including the added expense associated with closed locations where the Companywe may have residual lease liability, has and is expected to continue to adverselyhave, an adverse impact on our revenues and cash flows. Customers and employees may behave been cautious about returning to personal service providers, and we and our franchisees are incurring substantial additional costs to ensureproviders. Furthermore, as a result of the safety of our employees and customers. While we may experience an initial increased customer demand for our services and products when businesses’ resume operation, there is no assurance that such immediate increase will be sustained. Furthermore,pandemic, many of our customers have themselves experienced adverse financial impacts, from the pandemic, including loss of disposable income, which may limit their spending on personal care, including purchasing of beauty products, or have identified other means for hair care during the pandemic.care. The trend of increased remote work and utilization of advanced video-conferencing technology has led to a less-formal work environment, which could impact the frequency of our hair care services. In addition, efforts to lift restrictions on individuals’ daily activities and businesses’ normal operationsCOVID-19 may result in a resurgence of COVID-19 and potentially prolong and intensify the impact of the crisis, includingcause additional workersworkers' compensation claims and customer claims associated with the pandemic. Further, the pandemic could impact workers at our headquarters or compromise the performance of our Fremont, CA technology center.
As a result, COVID-19 has negatively affected, and willmay continue to negatively affect, our revenue, increaseincreased the cost of salon operations increase our investment in safety equipment and potentially exposeexposed us to additional liability, the combination of which willhas reduced and may continue to reduce our profitability, including the profitability of our franchisees. In addition, we retain a residual real estate lease liability of $817.7$501.3 million for company-owned and nearly all franchise stores.salons that either sublease the premises of their location from us or that require us to guarantee the franchisee's lease. The combination of the revenue reduction, obligations we ultimately owe to landlords, and other costs both related and unrelated to COVID-19 could significantly reduce or exhaust our available liquidity over time and limit our ability to access liquidity sources. While the economic impact of COVID-19 to our franchisees may be reduced by financial assistance under the Coronavirus Aid, Relief, and Economic Security (CARES) Act or other similar COVID-19 related federal and state programs, such programs may not have a positive impact on our corporate financial results and we believe we are currently ineligible for these programs.
15
Table of Contents

Among other things, while we have begun to call employees back to work, the temporary furlough of most of our employees has impacted various operational and risk management functions, including our audit and financial reporting function. These reductions could temporarily impair our ability to timely and accurately report information to regulators and our shareholders and impair our business risk management protocols. Additionally, some stylist employees have chosen not to return to the salon environment during the time of COVID-19.
We cannot reasonably estimate the length or severity of theThe COVID-19 pandemic but we currently anticipate a material adverse impact on our financial position and results of operations. Thecaused disruption to the global economy and to our business, along with a sustained decline in our stock price,which may lead to triggering events that may indicate thatprevent our recovery of the carrying value of certain assets, including accounts receivables, long-lived assets, intangibles, and goodwill, may not be recoverable.goodwill. Assessing goodwill for impairment can be difficult to predict because, among other things, it requires management to make assumptions and to apply judgment, including forecasting future sales and expenses, and selecting appropriate discount rates, all of which can be affected by economic conditions and other factors that can be difficult to predict. Prior to the COVID-19 pandemic, the Company had been derecognizing Company-owned goodwill as partfactors.

14
Table of the calculationContents

Consumer shopping trends and changes in manufacturer choice of gain or lossdistribution channels may negatively affect both service and product revenues.
Our salons are partly dependent on the salevolume of customer foot traffic around their locations to generate both service and product revenues. Customer foot traffic may be adversely affected by changing consumer shopping trends that favor internet-based shopping or alternative shopping methods or locations. In recent years, we have experienced substantial declines in foot traffic in some shopping malls that changed traffic patterns at those salons to franchisees. Based onthat may affect our revenues and impact the resultshealth of items referenced above, the Company recognizedour brands.
In addition, we are experiencing a non-cash impairment charge to fully impair the carrying valueproliferation of goodwill related to our Company-owned reporting unit in the third quarteralternative channels of fiscal year 2020.
COVID-19,distribution, such as blow dry bars, booth rental facilities, discount brick-and-mortar and the volatile local, regional and global economic conditions stemming from the pandemic,online professional product retailers, as well as reactionsmanufacturers selling directly to consumers online, all of 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 with little advance notice. These trends could reduce the volume of foot traffic around our salons, and in turn, our revenues may be adversely affected.
Changes in regulatory and statutory laws, such as increases in the minimum wage and changes that make collective bargaining easier, and the costs of compliance and non-compliance with such laws, may result in increased costs to our business.
With 5,576 locations and approximately 630 employees worldwide, our financial results can be adversely impacted by regulatory or statutory changes in laws. Due to the number of people we or our franchisees employ, laws that increase minimum wage rates, employment taxes, overtime requirements or costs to provide employee benefits or administration may result in additional costs to our Company or our franchisees.

15
Table of Contents

We are subject to laws and regulations that could require us to modify our current business practices and incur increased costs, which could have an adverse effect on our business, financial condition and revenues.
In our U.S. markets, numerous laws and regulations at the federal, state and local levels can affect our business. Legal requirements are frequently changed and subject to interpretations, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations. If we fail to comply with any present or future laws or regulations, we could be subject to future pandemicsliabilities or resurgencesa prohibition on the operation of COVID-19, including government mandates,our salons.
A number of U.S. states, Canadian provinces, and municipalities in which we do business with have recently increased, or are considering increasing, the minimum wage, with increases generally phased over several years depending upon the size of the employer. Increases in minimum wages and overtime pay result in an increase in our costs, and our ability to offset these increases through price increases may be limited. In fact, increases in minimum wages have increased our costs over the last five years. In addition, a growing number of states, provinces and municipalities have passed, or are considering passing, requirements for paid sick leave, family leave, predictive scheduling (which imposes penalties for changing an employee's shift as it nears), and other requirements that increase the administrative complexity of managing our workforce. Finally, changes in labor laws designed to facilitate union organizing, could increase the likelihood of some of our employees being subjected to greater organized labor influence. If a significant portion of our employees were to become unionized, it would have an adverse effect on our business and financial results.
Increases in minimum wages, administrative requirements and unionization could also precipitatehave an adverse effect on the performance of our franchisees, especially if the National Labor Relations Board (NLRB) treats our franchisees as "joint employers" with us or aggravateif our franchisees are classified as large employers under minimum wage statutes because of their affiliations with us. In addition, we must comply with state employment laws, including the California Labor Code, which has stringent requirements and penalties for non-compliance.
Various state and federal laws govern our relationships with our franchisees and our potential sale of a franchise. If we fail to comply with these laws, we may subject the Company and our personnel to claims lodged by our franchisees, as well as federal and state government agencies, and those claims may include, among others, fraud, misrepresentation, unfair business practices and wrongful terminations. As a result of those claims, we could be liable for fines, damages, stop orders or other risk factors identifiedpenalties. A franchisee or government agency may bring legal action against us based on the franchisee/franchisor relationship. Also, under the franchise business model, we may face claims and liabilities based on vicarious liability, joint-employer liability or other theories or liabilities. All such legal actions could not only result in this Form 10-K,changes to laws and interpretations, which could make it more difficult to appropriately support our franchisees and, consequently, impact our performance, but could also result in turnexpensive litigation with our franchisees, third parties or government agencies, which could materiallyadversely affect both our profits and our important relationships with our franchisees. In addition, other regulatory or legal developments may result in changes to laws or to the franchisee/franchisor relationship that could negatively impact the franchise business model and, accordingly, our profits.
We are also subject to federal statutes and regulations, including the rules promulgated by the U.S. Federal Trade Commission, as well as certain state laws governing the offer and sale of franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on non-competition provisions and on provisions concerning the termination or non-renewal of a franchise. Some states require that certain materials be filed for a franchisor to be registered and approved before franchises can be offered or sold in that state. The failure to obtain or retain licenses or approvals to sell franchises could have a material adverse effect on our business, financial condition, results of operations and prospects.
In addition to employment and franchise laws, we are also subject to a wide range of federal, state, provincial and local laws and regulations in the jurisdictions in which we operate, including those affecting public companies, product manufacturing and sale and those governing the franchisee/franchisor relationship. Compliance with new, complex, and changing laws may cause our expenses to increase. In addition, any non-compliance with laws or regulations could result in penalties, fines, product recalls and enforcement actions or otherwise restrict our ability to market certain products or attract or retain employees, which could adversely affect our business, financial condition liquidity, results of operations (including revenues and profitability) and/or stock price. Further, COVID-19 may also affect our operating and financial results, certain litigation or regulatory risks or the value of our salon brands in a manner that is not presently known to us or that we currently do not consider to present significant risks to our operations.
To date we have been successful in selling our company-owned salons to franchise owners and we are re-engineering our corporate and field infrastructure to support a fully-franchised portfolio, which involves risks to our financial condition and results of operations in both our company-owned and franchise portfolios.operations.
We have been successful in selling our company-owned salons to franchise owners and, as a result, our inability to re-engineer the infrastructure and reduce our costs on timing and in amounts necessary to effectively support a fully-franchised salon portfolio may reduce the anticipated economic benefit
16
Table of the transformationContents

Changes in the near term. Furthermore,general economic environment may impact our effortsbusiness and results of operations.
Changes to re-engineerthe U.S., Canada and reduce the corporateU.K.'s economies have an impact on our business. General economic factors that are beyond our control, such as recession, inflation, deflation, tax rates and field infrastructure devotedpolicy, energy costs, unemployment trends, extreme weather patterns, viruses, pandemics, stay-at-home orders and other casualty events that influence consumer confidence and spending, may impact our business and results of operations. In particular, visitation patterns to supporting company-owned storesour salons can be adversely impacted by increases in unemployment rates and decreases in discretionary income levels.
Changes in consumer tastes, hair product innovation, fashion trends and consumer spending patterns may impairimpact our revenue.
Our success depends, in part, on our ability to effectively supportanticipate, gauge and react in a timely manner to changes in consumer tastes, hair product innovation, fashion trends and consumer spending patterns. If we do not timely identify and properly respond to evolving trends and changing consumer demands for hair care or services, our sales may decline. The recent trend to work remotely reduces foot traffic in downtowns, city centers, and other business districts where our salons are located, causing a reduction in our revenue.
As of June 30, 2022, we were not in compliance with New York Stock Exchange listing requirements.
In June 2022, we received written notice from the remaining company-owned salonsNew York Stock Exchange ("NYSE") that we did not meet certain NYSE continued listing standards. Under the NYSE continued listing standards, the Company is required to maintain (a) a minimum average closing price of $1.00 per share over a period of 30 consecutive trading days, and diminish(b) an average market capitalization of at least $50.0 million over a period of 30 consecutive trading days, and at the valuesame time, total stockholders' equity equal to or greater than $50.0 million. If we are unable to improve our stock price to over $1.00 by December 13, 2022 and our market capitalization to greater than $50.0 million by December 13, 2023, we will be subject to the NYSE’s suspension and delisting procedures. We are closely monitoring the closing share price of those salons while we own them,our common stock and are considering all available options. We intend to regain compliance with the NYSE listing standards by pursuing measures that are in the best interest of the Company and our shareholders. A delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of our common stock; reducing the number of investors willing to hold or acquire our common stock, which challengescould negatively impact our ability to sell such salonsraise equity financing; limiting our ability to franchisees,issue additional securities or obtain additional financing in the future; decreasing the amount of news and adversely impacts the timinganalyst coverage of venditionsus; and net cash proceeds we generate from the sales process. In addition, as a resultcausing us reputational harm with investors, our employees, and parties conducting business with us.
17
Table of the impacts of the COVID-19 pandemic, all company-owned salons were temporarily closed for several weeks, which has caused, among other things, a loss of stylists and customers, and which could diminish the value and timing of the salons in any future transfer of the ownership as part of our continued commitment to converting to a fully-franchised model.Contents

Operating Risks
We are now substantially dependent on franchise royalties and product salesthe overall success of our franchisees' salons.
We are now substantially dependent on franchise royalties and the overall success of our franchisees’franchisees' salons. It customarily takes new franchisees time to develop their salons and increase their sales. Further, a number of our historically successful and more experienced franchisees are onboarding new salon operations. This could adversely impact our revenue and profitability during this next stage of our transformation. Additionally, we expect that our franchisees will purchase products and services from us for their businesses, but there is no assurance that they will do so in quantities or at wholesale pricing levels consistent with our expectations or past practices. Further, in order toTo support and enhance our franchisees’franchisees' businesses, we may need to invest in certain unanticipated new capabilities and/or services and we will need to determine the appropriate amount of investment to optimize the success of our franchisees, while ensuring that the level of investment supports our expected return on those investments. If we are not able to identify the right level of support and effectively deliver those resources to our franchisees, our results of operations and business may be adversely affected. Furthermore, our transition to a fully-franchised model may expose us to additional legal, compliance and operational risks specific to this different business model, including the business failure of unproven new salon owners.
Sales at franchise locations may not return to pre-pandemic levels.
16
TableSales at most of Contents

our franchise locations have not returned to their pre-pandemic levels causing our franchisees to earn less profits or incur losses. Franchisees may be unable to pay their royalties or rents as they come due, which could decrease cash collections and increase our cash outflows if the franchisee subleases from us or we guarantee the lease. Franchisees may decide to close their salons and there may not be another franchisee willing to take over the business, which would decrease the size of our fleet and our revenues.
We have made significant investments in company-owned technology, including a new back office salon management system that may not yield results on the timing or amounts we expect due to the COVID-19 pandemicexited our wholesale distribution business and pending litigation that has been filed by our existing back office salon management system supplier.
Investments made in company-owned technology, including the Company's new, internally developed back office salon management system, OpenSalon Pro, may not yield the profitable results on the timing or in amounts that we anticipate. Further, the COVID-19 pandemic may impact our ability to successfully launch this new system on the timing and levels of profitability we had originally anticipated. In addition, our existing point of sale system supplier has challenged the development of certain parts of our technology systems in litigation brought in the Northern District of California, case No. 20-cv-02181-MMC. We have vigorously denied the allegations made by this third-party supplier and have asserted certain counterclaims against the third party. However, the dispute regarding our ownership and involvement of certain key personnel may be costly and distracting, and the outcome is currently uncertain. Further, this litigation may delay the migration or ultimate success of our new technology.
COVID-19 may impact the operations of the Company's key suppliers, including its merchandise, personal protective equipment (PPE) and technology suppliers.
The Company depends upon the support of a small number of critical suppliers, including its merchandise, PPE and technology providers, including its third-party point of sale system supplier. We have experienced limited disruption in operations from these suppliers. The continuing impacts of the COVID-19 pandemic may pose additional disruptions in our supply chain or in the in the availability of products and services, or could increase the prices we pay to our suppliers, which could result in a material impact to our own operations.
The Company and its franchisees’ efforts to address rent obligations incurred during the government-mandated hibernation of and ongoing government-imposed operational limits placed on our salons related to the COVID-19 pandemic are ongoing and the ability to obtain long-term rent concessions is important to our future success.
The Company and its franchisees’ efforts to address rent obligations incurred during the government-mandated hibernation and ongoing government-imposed operational limits placed on our salons related to the COVID-19 pandemic are ongoing and the ability to obtain long-term rent concessions is important to our future success. While we and our franchisees have paid a significant portion of the rent due through August 2020 after giving effect to various abatement and deferral structures in place for certain lease agreements, certain of our landlords have alleged that we are in default of our leases with them. If we are unable to reach an agreement with these landlords, we or our franchisees may face eviction proceedings and/or incur costs related to litigation which could be expensive, and may jeopardize the ability to continue operations at the impacted salons and may impact our relationships with the landlords or our franchisees. The Company or franchisees also may choose from time to time to cease operations at certain salons where profitability is especially impacted by rent obligations and other challenges related to the COVID-19 pandemic. Should this occur, we may incur significant costs associated with lease terminations and winding down of operations at the affected salons if we are unable to find a replacement franchisee or determine that it is uneconomic to operate the affected salon as a company-owned business since the Company is the primary tenant on the lease for corporate and substantially all franchised salons. Whether the Company would recoup its costs from the affected franchisee for their obligations under the sublease to the Company for these locations is uncertain.
The COVID-19 pandemic has also adversely affected our franchisees ability to open organic and venditioned salons. Franchisees have delayed some openings and will likely continue to evaluate the pace and quantity of salon development, including purchasing salons from the Company, until more clarity on the post-COVID-19 operating environment emerges. Delays in organic development or the Company’s transfer of existing corporate salons to franchisees in this environment may also reduce the purchase price of such venditioned salons, the royalties and other fees received from franchisees, lead to disputes with franchisees, overall have an adverse effect on our revenues, and could result in future impairment charges, especially if the effects of the pandemic extend for a significant amount of time or grow in severity. In addition, the commercial real estate industry, including our landlords, are experiencing tenants requesting rent abatements and reductions during COVID-19, which could lead to an increase in tenant evictions and vacant spaces, landlord bankruptcies, mall and/or shopping center foreclosures, and as a result, the properties at which the Company and its franchisees operate may not be as appealing for our customers to visit and therefore cause a decrease in foot traffic and revenue at the impacted salons.
17
Table of Contents

We may face challenges operating the salons that TBG transferred back to us, and our inability to operate them successfully, close them, or transfer these salons to new ownership could adversely affect our business, financial condition, results of operations and cash flows.
On December 31, 2019, we re-acquired certain assets that were used in the operation of the mall-based salon business in the United States and Canada at which we had residual real estate lease liability from our original sale of the salons to TBG. The transfer was consummated in connection with an assignment for the benefit of creditors by TBG. The assets acquired in connection with the salon reacquisition are, in the aggregate, unprofitable and the total lease liability related to the salons is approximately $23 million as of June 30, 2020. We are attempting to renegotiate these lease obligations; however, the outcome of those negotiations is currently uncertain. In addition to the salons, we assumed limited liabilities for certain employee benefit related payments. In connection with the reacquisition of the salons, we also terminated certain other agreements we had with TBG that we had already recorded a full reserve against the promissory notes evidencing TBG’s obligations to us. As a result of our reacquisition of these salons in connection with TBG assignment for the benefit of creditors, there is a risk that a creditor of TBG could seek to void or otherwise challenge the transfer as a preference transaction. If a TBG creditor was successful in making such a claim, we could remain liable on the leases without the ability to operate the salons to generate revenue to fund the lease obligations.
While we believe the salons transferred back to us have been able to continue operations without any significant disruptions so far, except for the impacts arising out of COVID-19, these salons have experienced significant changes in recent years and, as a result, there is a risk of increased levels of employee attrition, customer losses, and supplier interruption. A loss of key personnel or material erosion of the employee base, particularly our stylists, as well as fruition of other risks could adversely affect our results of operations and could diminish the value of the salons in any future transfer of the ownership of these salons to new ownership as part of our continued commitment to converting to a fully-franchised model. If we are not able to successfully operate these salons, we may not be able to generate sufficient revenue to cover the lease liabilities for these salons. As a result, we may be compelled to close certain salons or sell the assets at depressed values. In the meantime, we expect that our operation of these salons may adversely impact our results of operations. Our inability to successfully operate the salons or transfer them to new stable ownership, could adversely affect our business, financial condition, results of operations and cash flows.
TBG’s transfer of salons in the United Kingdom to the Bushell Investment Group, which became our franchisee, is subject to review by the administrator in TBG’s insolvency proceeding in the United Kingdom.
As previously announced, we entered into a franchisepreferred supplier agreement with a third party.
We exited our wholesale distribution business and entered into a preferred supplier agreement with a supplier. This change has and will continue to reduce our future revenue. If our new supplier is unable to source the Bushell Investment Group (Bushell), which acquired over 100 salonsproducts at the prices expected by our franchisees, our franchisees' profitability and our profitability may be adversely impacted. Further, economic instability and other impactful events and circumstances in the United Kingdom from TBGregions in December 2019. The transaction occurred in connection with TBG’s insolvency proceedingswhich our supplier and their manufacturers are located, the financial instability of our supplier, our supplier's failure to meet our terms and conditions or our supplier standards, product safety and quality issues, disruption or delay in the United Kingdom. While we do not have any financial obligations in connection with the salons transferred to Bushell, the administrator in TBG’s insolvency proceeding has a legal obligation to reviewtransportation of products from our originalsupplier and subsequent transactions with TBG in the United Kingdom. If the administrator were to challenge our original transaction with TBG, the administrator could seek remedies to effectively unwind the economics of the original transaction or impair the ability of Bushell to continue operating these salons as our franchisee. While we do not expect the administrator to identify any concerns with our original or any subsequent transaction, any allegations against the validity of these transactions could disrupt the operation of the salons by Bushell and we could face significant adverse financial impacts or management distraction.
If we fail to comply with any of the covenants in our existing financing arrangement, we may not be able to access our existing revolving credit facility, and we may face an accelerated obligation to repay our indebtedness.
If we fail to comply with our existing financing arrangements, it may cause a default under our financing arrangement, which could limit our ability to obtain new replacement financing or additional financing under our existing credit facility, require us to pay higher levels of interest or accelerate our obligation to repay our indebtedness. We believe that the amendment of our financing arrangement in May 2020 will allow us to remain in compliance with the revised covenants notwithstanding the impactstheir manufacturers to our business of converting to a fully-franchised modelsalons, transport availability and cost, transport security, inflation and other impacts arising out of COVID-19; however, significantfactors relating to the suppliers and continued business disruptions could ultimately impairthe areas in which they are located are beyond our ability to comply with the new liquidity covenant, which could preclude our ability to access our credit facility or accelerate our debt repayment obligation, which is now secured by a lien on substantially all of the Company's assets.

18
Table of Contents

control.
It is important for us and our franchisees to attract, train and retain talented stylists and salon leaders.
Guest loyalty is strongly dependent upon the stylists who serve our guests and the customer experience in our franchised and company-owned salons. Qualified, trained stylists are key to a memorable guest experience that creates loyal customers. In order to profitably grow our business, it is important for our franchisees and company-owned salons to attract, train and retain talented stylists and salon leaders and to adequately staff our salons. Because the salon industry is highly fragmented and comprised of many independent operators, the market for stylists is typically highly competitive. In addition, labor shortages and increases in minimum wage requirements may impact the number of stylists considering careers outside the beauty industry. In somemost markets, we and our franchisees have experienced a shortage of qualified stylists.stylists or a reduction in the hours stylist will work. 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 have experienced declines in enrollment, revenues, and profitability in recent years. If the cosmetology school industry sustains further declines in enrollment or some schools close entirely, or if stylists leave the beauty industry, we expect that we and our franchisees would have increased difficulty staffing our salons in some markets. In addition, we have observed that some stylistsWe are not comfortable coming backmaking significant investments in programs to the salon environment during COVID-19attract and the enhanced unemployment amounts provided by the federal government during COVID-19 in some cases decreases stylists' incentive to come back to work during COVID-19.retain stylists. If our company-owned salons or franchiseesstrategies 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 variabilityvolatility or sales could decline and our results of operations could be adversely affected.
18
Table of Contents

Our continued success depends, in part, on the success of our franchisees, which operate independently.
As of June 30, 2020, approximately 76.1%2022, 98.1% of our salons were franchised locations, and we continue to pursue conversion to a fully-franchised model.locations. We derive revenues associated with our franchised locations primarily from royalties fees and product sales to franchised locations.fees. Our financial results are therefore substantially dependent upon the operational and financial success of our franchisees. As a franchise business, we increase our focusare dependent on our franchise business, our dependence on our franchisees grows.franchisees.
We have limited control over how our franchisees’franchisees' businesses are run.operated. Though we have established operational standards and guidelines, theyfranchisees own, operate, and oversee the daily operations of their salon, locations including employee-related matters and pricing. If franchisees do not successfully operate their salons in compliance with our standards, our brand reputation and image could be harmed, and our financial results could be affected. Additionally, if franchisees do not price their goods and services competitively, the franchisee may fail to maximize the financial performance of their salon. We could experience greater risks as the scale of our franchise ownersfranchised salons increases. Further, some franchise owners may not successfully execute the rebranding and/or turnaround of under-performing salons whichthat we have transferred to them particularly in the post-COVID environment.them.
In addition, our franchisees are subject to the same general economic risks as our Company, and their results are influenced by competition for both guests and stylists, market trends, price competition and disruptions in their markets and business operations due to public health issues, including pandemics, severe weather and other external events. Like us, they rely on external vendors for some critical functions and to protect their company data. They may also be limited in their ability to open new locations by an inability to secure adequate financing, especially sincebecause many of them are small businesses with much more limited access to financing than our Company or by the limited supply of favorable real estate for new salon locations, or by government-mandated restrictions on salon operations due to COVID-19 or other pandemics.locations. They may also experience financial distress as a resultbecause of over-leveraging, which could negatively affect our operating results as a result ofdue to delayed or non-payments to us. The bankruptcy, default, abandonment, or other default or breach by or of a franchisee could also expose us to lease liability under leases, which are generally sub-leased by usdue to our franchisees.lease guarantees or subleases as explained previously.
A deterioration in the financial results of our franchisees, or a failure of our franchisees to renew their franchise agreements or closure of locations could adversely affect our operating results through decreased royalty payments fees and product revenues.
19
Table of Contents

The sale of company-owned salons to franchisees may not improve our operating results and could cause operational difficulties.
In August 2019, the Company announced our plan to convert to a fully-franchised platform over time. While we have had significant success in converting our salons to franchisees, our continued success will depend on a number of factors, including franchisees’ ability to improve the results of the salons they purchase, their ability and interest in continuing to grow their business, and their willingness to purchase salons during the COVID-19 pandemic and government-imposed closure and operational limitations.fees. We also must continue to attract qualified franchisees and work with them to make their businessbusinesses 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 be insufficient to offset the loss of revenues. Also, our gross margins on wholesale product sales are lower than our gross margins on retail product sales. Furthermore, the timing of decreasing operating costs may significantly lag the transfer to franchisees, because it takes time to reduce the general and administrative costs directly or indirectly associated with a transferred salon.
In addition, challenges in supporting our expanding franchise system could cause our operating results to suffer. If we are unable to effectively select and train new franchisees and support our growing franchisee base, it could affect our brand standards, cause disputes between us and our franchisees, and potentially lead to material liabilities.
Our business is dependent on franchisees continuing to operate. If a franchisee exits the franchise system, we need to recruit an existing or new franchisee to run that salon location or our capital investments in developing new technology-enabled capabilities and improving current technology infrastructure do not achieve appropriate returns, our financial condition and results of operations may be adversely affected.
We are currently making, and expect to continue to make, strategic investments in technology to improve guest experiences and improve our back-office systems, including, without limitation, our OpenSalon mobile application and platform that we launched in 2019salon count would decline and our OpenSalon Prorevenues would decline. A decline in salon management system that we launched in August 2020. These investments might not providecount could also reduce the anticipated benefits or desired return and could expose us to additional legal and compliance risks. Furthermore, somevalue of the Company’s technology capabilities and developments involve third party partnerships, on whichour brands. Additionally, we are dependent. If these partnerships are not successful, the capabilitiesdependent on our franchisees to grow their business in order for our business to grow. However, franchisees may not fully achievehave access to capital, labor, etc., to support their anticipated returns. In addition, if we are unable to successfully protect any intellectual property rights resulting fromgrowth.
19
Table of Contents

Data security and data privacy compliance requirements could increase our investments, the value received from those investments may be eroded, which could adversely affect our financial condition. Among other things, targeting the wrong investment opportunities, failing to successfully meet our strategic objectives when making the correct investments, being unable to make new concepts scalable or achieving appropriate market or franchisee adoption, and/or making an investment commitment significantly above or below our needs could adversely affect our financial conditioncosts, and results of operations. Further, our existing third-party back office salon management supplier may try to make our franchisees' transition to OpenSalon Pro difficult or costly, which could cause our anticipated benefits or desired returns from our new back office salon management technology to decrease.
Cybersecuritycybersecurity incidents could result in the compromise of potentially sensitive information about our guests, franchisees, employees, vendors or companyCompany and expose us to business disruption, negative publicity, costly government enforcement actions or private litigation and our reputation could suffer.
The normal operations of our business and our new investments in technology involve processing, transmissiontransmitting and storage ofstoring potentially sensitive personal information about our guests, as well as employees, franchisees, vendors and our Company.Company, all of which require the appropriate and secure utilization of such information and subjects us to increased focus regarding our data security compliance. Cyber-attacks, including ransomware, designed to gain access to sensitive information by breaching mission critical systems of large organizations and(and their third-party vendorsvendors) are constantly evolving and high profilehigh-profile electronic security breaches leading to unauthorized release of sensitive guest information have occurred at a number of large U.S. companies in recent years. Furthermore, there has been heightened legislative and regulatory focus on data security in the U.S. and abroad, including requirements for varying levels of customer notification in the event of a data breach. These laws are changing rapidly and vary among jurisdictions. We will continue our efforts to meet any applicable privacy and data security obligations; however, it is possible that certain new obligations may be difficult to meet and could increase our costs. We rely on commercially available systems, software, and tools to provide security for processing, transmitting, and storing of sensitive information. As this risk of cyber-attacks increases, our related insurance premiums may also increase. Despite the security measures and processes we have in place, our efforts and(and those of our third-party vendors,vendors) to protect sensitive guest, employee, franchisee, Companyvendor, and employeeCompany information may not be successful in preventing a breach in our systems or detecting and responding to a breach on a timely basis. As a result of a security incident or breach in our systems, our systems could be interrupted or damaged, and/or sensitive information could be accessed by third parties. If that occurred, our guests could lose confidence in our ability to protect their information, which could cause them to stop visiting our salons altogether or our franchisees could exit the system due to lack of confidence as well.confidence. Such events could also lead to lost future sales and adversely affect our results of operations. In addition, as the regulatory environment relating to retailers and other companies' obligations to protect sensitive data becomes stricter, a material failure on our part to comply with applicable regulations could potentially subject us to fines, orpenalties, other regulatory sanctions, and potentially toor lawsuits with the possibility of substantial damages. These laws are changing rapidlyThe costs to remediate security incidents or breaches that may occur could be material. Also, as cyber-attacks become more frequent, intense, and vary among jurisdictions.sophisticated, the costs of proactive defensive measures may increase. Furthermore, while our franchisees are independently responsible for data security at their franchised salon locations, a breach of guestsecurity incident or vendor databreach at a franchised salon location could also negatively affect public perception of our brands. More broadly, our incident response preparedness and disaster recovery planning efforts may be inadequate or ill-suited for a security incident and we could suffer disruption of operations or adverse effects to our operating results.
20
Table of Contents

Our ability to franchise our company-owned SmartStyle salons and successfully operate this business issalon operations are dependent on our relationship with Walmart.
AtAs of June 30, 2020,2022, we had 2,0681,695 SmartStyle or Cost Cutters salons within Walmart locations, including 4 salons opened during fiscal year 2020 (net of relocations).locations. Walmart is our largest landlord, and we believe we are Walmart’s largest tenant.landlord. Our business within each of those 2,0681,695 salons relies primarily on the traffic of visitors to the Walmart in which it is located,location, so our success is tied to Walmart’sWalmart's success in bringing shoppers into their stores. We have limited control over the locations and markets in which we open new SmartStyle locations, as we only have potential opportunities in locations offered to us by Walmart. Furthermore, Walmart has the right to (a) close up to 100 of our salons per year for any reason, upon payment of certain penalties; tobuyout fees; (b) terminate lease agreements for breach, such as if we failed to conform with required operating hours, subject to a notice and cure period; (c) non-renew the lease agreements if our salons fail to reach certain sales thresholds; and (d) to terminate the lease if the Walmart store in which it sits is closed. Furthermore, in an effort to manage traffic flow and direction during COVID-19, Walmart has elected at some stores to close one or more of its primary entryways. We have found that when the entry way nearest to our salon is closed, foot traffic in the salon is materially reduced. We are currently discussing this issue and other issues related to COVID-19 with Walmart, but there is no assurance they will be resolved. In fiscal year 2017, we began franchising select SmartStyle branded locations. Future franchising activity will requireis dependent upon a continued relationship between us and be limited by theWalmart, as well as Walmart's approval of Walmartour proposed franchisee on a location by locationlocation-by-location basis. Walmart may not give their approval to franchise some or all of our company-owned salons. Further, Walmart may attempt to impose changes to the terms and conditions of our agreements, which aremay be contrary to our economic interests. Operating both company-owned and franchised SmartStyle salons adds complexity in overseeing franchise compliance and coordination with Walmart.
Recent actions by Additionally, there are various remodel requirements of our franchisees, whether it be upon lease expiration or the remodeling of a Walmart have materially impacted our SmartStyle franchise operations.
Inlocation. To the fourth fiscal quarter of 2020,extent Walmart issued a mandatory mask requirement for customers who visit their U.S. store operations. In order to enforce this requirement, Walmart has closed several entrances to its stores including entrances ataccelerates the frontpace of their brickown store remodels, our stores in remodeled Walmart locations would be held to the same standard. The cost of these remodels may be prohibitive to our franchisees and mortar locations where many of our SmartStyle and Cost Cutters salons are located. Although we appreciate and support Walmart’s national effort to require the use of masks by their customers their decision to close entrances located near our salons has materially reduced customer traffic and salon revenues in both our franchise and company-owned operations. We have addressed these issues directly with Walmart and are hopeful that this will prove to be a temporary policy. However, we cannot be certain when or if Walmart will reopen their store entrances. As a result, this could lead to further deterioration in, or subsequent closures of, our SmartStyle or Cost Cutters brands during the periodCompany bearing a portion of the pandemiccost, or as long as Walmart continues to close these entrances or potentially expose Regis to litigation, sublease rent default exposure, or could compelclosures if the Company to pursue certain other remedies from Walmart up to or including litigation and/or terminationremodel requirement is not satisfied.

20
Table of certain locations.Contents

Our future growth and profitability may depend, in part, on our ability to build awareness and drive traffic with advertising and marketing efforts and on delivering a quality guest experience to drive repeat visits to our salons.
Our future growth and profitability may depend on the effectiveness, efficiency and spending levels of our marketing and advertising efforts to drive awareness and traffic to our salons. In addition, delivering a quality guest experience is crucial in order to drive repeat visits to our salons. We are developing our marketing and advertising strategies, includingwhich might include national and local campaigns, to build awareness, drive interest, consideration and traffic to our salons. We are also focusing on improving guest experiences to provide brand differentiation and preference and toas well as ensure we meet our guests’ needs.guests' needs are met. If our marketing, advertising, and improved guest experience efforts do not generate sufficient customer traffic and repeat visits to our company-owned and franchise-owned salons, our business, financial condition, and results of operations may be adversely affected.
Changes in regulatory Our future growth and statutory laws, such as increases inprofitability may depend on the minimum wageeffectiveness, efficiency and changes that make collective bargaining easier,spending levels of our marketing and advertising efforts to drive awareness and traffic to our salons. Additionally, we plan to increase our digital marketing efforts, and the costssuccess of compliance and non-compliance with such laws, may result in increased costs tothose efforts are dependent upon our business.
With 6,923 locations and approximately 9,000 employees worldwide, our financial results can be adversely impacted by regulatory or statutory changes in laws. Duefranchisee's migration to the numberZenoti salon technology platform and customers opting-in to receive marketing messages from us.
Our success depends substantially on the migration of people weour Franchisees to the Zenoti salon technology platform.
The success of our digital marketing efforts discussed previously, as well as providing franchisees with back-office and salon management, including walk-in or advanced appointments, is dependent upon our franchisees employ, laws that increase minimum wage rates, employment taxes, overtime requirements or costs to provide employee benefits or administration may result in additional costs to our Company.
21
Tablefranchisees' adoption of Contents

A number of U.S. states, Canadian provincesthe Zenoti point-of-sale software. We previously developed a mobile application, platform and municipalities insalon management system called Opensalon Pro, which we do business have recently increased or are considering increasing the minimum wage, with increases generally phased over several years dependingsold to Soham, Inc. ("Zenoti"), in fiscal year 2022. That agreement requires us to receive certain payments based upon the sizemigration of our salons to the employer. Increases in minimum wages and overtime pay increase our costs, and our ability to offset these increases through price increases may be limited. In fact, increases in minimum wages increased our costs over the last five years. In addition, a growing number of states, provinces, and municipalities have passed or are considering requirements for paid sick leave, family leave, predictive scheduling (which imposes penalties for changing an employee’s shift as it nears), and other requirements that increase the administrative complexity of managing our workforce. Finally, changes in labor laws, such as recent legislation in Ontario and Alberta designed to facilitate union organizing, could increase the likelihood ofZenoti software. Additionally, some of our employees being subjected to greater organized labor influence. If a significant portion of our employees were to become unionized, it would have an adverse effect on our businesstechnology capabilities will require development by Zenoti, and financial results.
Increases in minimum wages, administrative requirements and unionization could also have an adverse effect on the performance of our franchisees, especiallythus if our franchisees are treated as a "joint employer" with us by the National Labor Relations Board (NLRB) or as a large employer under minimum wage statutes because of their affiliation with us. In addition, we must comply with state employment laws, including the California Labor Code, which has stringent requirements and penalties for non-compliance.
Various state and federal laws govern our relationship with our franchisees and our potential sale of a franchise. If we fail to comply with these laws, we could be liable for damages to franchisees and fines or other penalties. A franchisee or government agencynot developed, may bring legal action against us based on the franchisee/franchisor relationship. Also, under the franchise business model, we may face claims and liabilities based on vicarious liability, joint-employer liability, or other theories or liabilities. All such legal actions not only could result in changes to laws and interpretations, making it more difficult to appropriately support our franchisees and, consequently, impacting our performance, but, also, such legal actions could result in expensive litigation with our franchisees, third parties or government agencies that could adversely affect both our profits and our important relations with our franchisees. In addition, other regulatory or legal developments may result in changes to laws or the franchisee/franchisor relationship that could negatively impact the franchise business model and, accordingly, our profits.
In addition to employment and franchise laws, we are also subject to a wide range of federal, state, provincial and local laws and regulations, including those affecting public companies, product manufacture and sale, and governing the franchisee/franchisor relationship, in the jurisdictions in which we operate. Compliance with new, complex and changing laws may cause our expenses to increase. In addition, any non-compliance with laws or regulations could result in penalties, fines, product recalls and enforcement actions or otherwise restrict our ability to market certain products or attract or retain employees, which could adversely affect our business, financial conditiondigital marketing efforts as well as providing our franchisees with critical functionality and results of operations.information.
Our success depends substantially on the value of our brands.
Our success depends, in large part, on our ability to maintain and enhance the value of our brands, our customers’customers' connection to our brands and a positive relationship with our franchisees. Declining franchisee revenue reduces the advertising funds available to invest in the brands and a decline in the Company's investment in its brands could reduce brand awareness and the overall value of our brands. Brand value can be severely damaged even by isolated incidents, particularly if the incidents receive considerable negative publicity, including via social media or if they result in litigation. Some of these incidents may relate to the way we manage our relationshiprelationships with our franchisees, our growth strategies, our development efforts or the ordinary course of our, or our franchisees’,franchisees' business. Other incidents may arise from events that may be beyond our control and may damage our brands, such as actions taken (or not taken) by one or more franchisees or their employees relating to health, safety, welfare or otherwise;otherwise, litigation and claims;claims, security breaches or other fraudulent activities associated with our back officeback-office management or payment systems;systems, and illegal activity targeted at us or others. Consumer demand for our products and services and our brands’brands' value could diminish significantly if any such incidents or other matters erode consumer confidence in us or our products or services, whichservices. This could result in lower sales and, ultimately, lower royalty income, and in turnwhich could materially and adversely affect our business and operating results.
Premature termination of franchise agreements can cause losses.
Our franchise agreements may be subject to premature termination in certain circumstances, such as failure of a franchisee to cure a default, monetary or otherwise, a franchisee bankruptcy, or abandonment of the franchise. If terminations occur for these or other reasons, we may need to enforce our right to damages for breach of contract and related claims, which could cause us to incur significant legal fees and expenses and/or to take back and operate such salons as company-owned. Any damages we ultimately collect could be less than the projected future value of the fees and other amounts we would have otherwise collected under the franchise agreement. In addition, with many of our brands, we remain liable under the lease and, therefore, will be obligated to pay rent or enter into a settlement with the landlord, and we may not be made whole by the franchisee. A significant loss of franchisee agreements due to premature terminations could hurt our financial performance or our ability to grow our business.
2221
Table of Contents

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,hacker attempts, security breaches and natural disasters. Certain capabilities or entire systems may be outdated or have limited functionality. These management information systems may require upgrades or replacements periodically, which involve implementation and other operational risks. In addition, certain of our management information systems are currently developed and maintained by external vendors includingand we are transitioning our back officefranchisees onto the Zenoti salon management system, and some are outdated or of limited functionality, not owned by the Company or not exclusively provided by the Company.technology platform beginning in fiscal year 2023. The failure of our management information systems to perform as we anticipate, to meet the continuously evolving needs of our business, or to 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. TheseFurther, if our external vendors'vendors fail to adequately provide technical support for any one of our key existing management information systems or if new or updated components are not integrated smoothly, we could experience service disruptions that could result in the loss of important data, increase our expenses, decrease our revenues and generally harm our business, reputation and brands. Also, any such conduct with respect to our franchisees could also result in litigation.
We rely on external vendors for products and services critical to our operations.
We rely on external vendors for the manufacture, supply and distribution of our owned brand products, other retail products we sell, and products we use during salon services, such as color and chemical treatments. We also rely on external vendors for various services critical to our operations and the security of certain Company data. Our dependence onupon vendors exposes us to operational, reputational, financial and compliance risk.
If our product offerings do not meet our guests’guests' expectations regarding safety and quality, we could experience lost sales, increased costs, and exposure to legal and reputational risk. All of our vendors must comply with applicable product safety laws, and we are dependent on them to ensure that the products and packages we buy, for either use on a guest during a service or resale to the public, comply with all safety and quality standards. Events that give rise to actual, potential or perceived product safety concerns or mislabeling could expose us to government enforcement action and/or private litigation and result in costly product recalls and other liabilities.
Our vendors are also responsible for the security of certain Company data, as discussed above. In the event thatIf one of our key vendors becomes unable to continue to provide products and services, or their systems fail, or are compromised or the quality of their systems deteriorate, we may suffer operational difficulties and financial loss.
Consumer shopping trends and changes in manufacturer choiceThe use of distribution channelssocial media may negatively affect both service and product revenues.have an adverse effect on our reputation.
Both our franchised and company-owned salons are partly dependent on the volume of traffic around their locations in order to generate both service and product revenues. Supercuts salons and most of our other brands are located mainly in strip center locations, which have been significantly impacted by landlord closures due to COVID-19, and SmartStyle salons are located within Walmart Supercenters, so they are especially sensitive to Walmart traffic. Customer traffic may be adversely affected by changing consumer shopping trends that favor alternative shopping locations, such as the internet. In recent years, we have experienced substantial declines in traffic in some shopping malls in particular and traffic patterns at those salons affect our potential product sales revenues and impact the health of our brands.
In addition, we are experiencing a proliferation of alternative channels of distribution, like blow dry bars, booth rental facilities, discount brick-and-mortar and online professional products retailers, and manufacturers selling direct to consumers online, which may negatively affect our product and service revenue. Also, product manufacturers may decide to utilize these other distribution channels to a larger extent than in the past and they generally have the right to terminate relationships with us with little advance notice. These trends could reduce the volume of traffic around our salons, and in turn, our revenues may be adversely affected.
23
Table of Contents

If we are not able to successfully compete in our business markets, our financial results may be affected.
Competition on a market by market basis remains challenging as many smaller chain competitors are franchise systems with local operating strength in certain markets and the hair salon industry as a whole is fragmented and highly competitive for customers, stylists and prime locations. Therefore, our ability to attract guests, raise prices and secure suitable locations in certain markets can be adversely impacted by this competition. Our strategies for competing are complicated by the fact that we have multiple brands in multiple segments, which compete on different factors.
We also face significant competition for prime real estate, particularly in strip malls. We compete for lease locations not only with other hair salons, but with a wide variety of businesses looking for similar square footage and high-quality locations.
Furthermore, our reputation is critical to our ability to compete and succeed. OurHowever, our reputation may be damaged by negative publicity on social media or other channels regarding the quality of products or services we provide. There has been a substantial increase in the use of social media platforms, which allow individuals to be heard by a broad audience of consumers and other interested persons. Negative or false commentary regarding us or the products or services we offer may be posted on social media platforms at any time. Customers value readily available information and may act on information without further investigation or regard to its accuracy. The harm to our reputation may be immediate, without affording us an opportunity for redress or correction. Our reputation may also be damaged by factors that are mostly or entirely out of our control, including actions by a franchisee or a franchisee’sfranchisee's employee.
We also use social media platforms as marketing tools. As laws and regulations rapidly evolve to govern the use of these platforms, the failure by us, our employees or third parties acting at our direction, to abide by applicable laws and regulations in the use of these platforms could adversely affect our business, financial condition and revenues.
Failure to simplify and standardize our operating processes across our brands could have a negative impact on our financial results.
We expect standardization of operating processes across our brands, marketing and products to enable us to simplify our operating model and decrease our costs and believe failure to do so could adversely impact our ability to grow revenue and realize further efficiencies within our results of operations.
22
Table of Contents

Our enterprise risk management program may leave us exposed to unidentified or unanticipated risks.
We maintain an enterprise risk management program that is designed to identify, assess, mitigate and monitor the risks that we face. There can be no assurance that our frameworks or models for assessing and managing known risks, compliance with applicable laws and related controls will effectively mitigate risk and limit losses in all market environments or against all types of risk in our business. If conditions or circumstances arise that expose flaws or gaps in our risk management or compliance programs, the performance and value of our business could be adversely affected.
Insurance and other traditional risk-shifting tools may be held by, or made available to, us in order to manage certain types of risks, but they are subject to terms such as deductibles, retentions, limits and policy exclusions, as well as risk of denial of coverage, default or insolvency. If we suffer unexpected or uncovered losses, or if any of our insurance policies or programs are terminated for any reason or are not effective in mitigating our risks, we may incur losses that are not covered or that exceed our coverage limits and could adversely impact our results of operations, cash flows and financial position.
The franchise agreements require each franchisee to maintain specified insurance coverages and levels. Certain extraordinary hazards, however, may not be covered, and insurance may not be available (or may be available only at prohibitively expensive rates) with respect to many other risks. Moreover, any loss incurred could exceed policy limits and policy payments made to franchisees may not be made on a timely basis. Any such loss or delay in payment could have a material and adverse effect on a franchisee's ability to satisfy its obligations under its franchise agreement, including its ability to make royalty payments.
Financial and Economic Risks
If we fail to comply with any of the covenants in our existing financing arrangement, we may not be able to access our existing revolving credit facility, and we may face an accelerated obligation to repay our indebtedness.
If we fail to comply with our existing financing arrangements, such a failure may cause a default under our financing arrangement, which could limit our ability to obtain new replacement financing or additional financing under our existing credit facility, require us to pay higher levels of interest or accelerate our obligation to repay our indebtedness. The impacts of significant business disruptions could ultimately impair our ability to comply with our covenants, which could preclude our ability to access our credit facility or accelerate our debt repayment obligation, which is secured by a lien on substantially all of the Company's assets.
If our capital investments in developing new and improving current technology infrastructure do not achieve appropriate returns, our financial condition and results of operations may be adversely affected.
We are currently making, and expect to continue to make, strategic investments in technology to increase traffic to salons and improve guest experiences, including without limitation, our mobile applications. These investments may not provide the anticipated benefits or desired return and could expose us to additional legal and compliance risks. Furthermore, some of our technology capabilities and developments involve third-party partnerships that we are dependent on. If these partnerships are unsuccessful, the technology-enabled capabilities may not fully achieve their anticipated returns.
Premature termination of franchise agreements can cause losses.
Our franchise agreements may be subject to premature termination in certain circumstances, such as failure of a franchisee to cure a default, monetary or otherwise, a franchisee bankruptcy, voluntary termination, or abandonment of the franchise. If terminations occur for these or other reasons, we may need to enforce our right to damages for breach of contract and related claims, which could cause us to incur significant legal fees and expenses and/or to take back and operate such salons as company-owned salons. Any damages we ultimately collect could be less than the projected future value of the fees and other amounts we would have otherwise collected under the franchise agreement. In addition, with many of our brands, we remain liable under the lease and, therefore, will be obligated to pay rent or enter into a settlement with the landlord, and we may not be made whole by the franchisee. A significant loss of franchisee agreements due to premature terminations could hurt our financial performance or our ability to grow our business.
23
Table of Contents

Empire Education Group, Inc. may be unsuccessful, which could adversely affect our financial results.
In 2020, we entered into an agreement to sell to the other owner our 55.1% ownership stake in Empire Education Group, Inc. (EEG), an operator of accredited cosmetology schools. The transaction is subject to regulatory approval before it can close, and there is no guarantee that the regulatory approval will occur, which has been delayed, in part, due to COVID-19. Due to poor financial performance of EEG, we fully impaired the investment in prior years. If the transaction does not close as anticipated and EEG is unsuccessful in executing its business plan, or if economic, regulatory and other factors, including declines in enrollment, revenue and profitability continue for the for-profit secondary education market, our financial results may be affected by certain potential liabilities related to this investment.
Failure to control costs may adversely affect our operating results.
We must continue to control our expense structure. Failure to manage our cost of product, labor and benefit rates, advertising and marketing expenses, operating lease costs, other store expenses, or indirect spending could delay or prevent us from achieving increased profitability or otherwise adversely affect our operating results.
If we are not able to successfully compete in our business markets, our financial results may be affected.
Competition on a market-by-market basis remains challenging as many smaller chain competitors are franchise systems with local operating strength in certain markets and the hair salon industry, as a whole, is fragmented and highly competitive for customers, stylists and prime locations. Therefore, our ability to attract guests, raise prices and secure suitable locations in certain markets can be adversely impacted by this competition. Our strategies for competing are complicated by the fact that we have multiple brands in multiple segments, which compete on different factors. We also face significant competition for prime real estate, particularly in strip malls. We compete for lease locations not only with other hair salons, but with a wide variety of businesses looking for similar square footage and high-quality locations. If we are unable to successfully compete, we may lose market share and our ability to grow same-store sales and increase our revenue and earnings may be impaired.
Corporate Structure and Governance Risks
We rely on our management team and other key personnel.
We depend on the skills, working relationships and continued services of key personnel, including our management team and others throughout our Company. We are also dependent on our ability to attract and retain qualified personnel, for whom we compete with other companies both inside and outside our industry. We may be required to increase wages and/or benefits to attract and retain qualified personnel or risk considerable turnover. Our business, financial condition or results of operations may be adversely impacted by the unexpected loss of any of our management team or other key personnel, or more generally if we fail to identify, recruit, train and/or retain talented personnel. In addition, our business may be harmed if we lose too many individuals with institutional knowledge.
If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results and prevent or detect material misstatement due to fraud, which could reduce investor confidence and adversely affect the value of our common stock.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and effectively prevent and detect material fraud. If we cannot provide reliable financial reports or prevent or detect material fraud, our operating results could be materially misstated. We identified an error in our quarterly financial statements related to the derecognition of goodwill associated with company-owned salons that were sold in the quarter ended December 31, 2019 that resulted in a revision to our financial statements for that quarter. As a result, we concluded that a material weakness in our internal control over the accounting for non-cash goodwill derecognition existed until the end of the quarter ended March 31, 2020, at which time the conditions causing the material weakness no longer existed and are not expected to exist. There can be no assurances that we will be able to prevent future control deficiencies from occurring, which could cause us to incur unforeseen costs, reduce investor confidence, cause the market price of our common stock to decline or have other potential adverse consequences.

24
Table of Contents

We could be subject to changes in tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities.
We are subject to income taxes in the U.S. and other foreign jurisdictions. Significant judgment is required in determining our tax provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are subject to the examination of our income tax returns, payroll taxes and other tax matters by the Internal Revenue Service and other tax authorities and governmental bodies. The CompanyWe regularly assessesassess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of itsour provision for income taxes and payroll tax accruals. There can be no assurances as to the outcome of these examinations. Although we believe our tax estimates are reasonable, the final determination of tax audits, and any related litigation, could be materially different from our historical tax provisions and employment taxes. The results of an audit or litigation could have a material effect on our Consolidated Financial Statements in the period or periods for whichwhere that determination is made.
Our Also, in the future, our effective income tax rate in the future could be adversely affected by a number of factors, including changes in the mix of earnings in countries with different statutory tax rates, changes in tax laws or the outcome of income examinations.
FailureOur ability to simplifyuse our U.S. net operating loss carryforwards to offset future taxable income may be subject to certain limitations.
Utilization of the net operating loss carryforwards may be subject to an annual limitation if an ownership change under Section 382 of the Internal Revenue Code of 1986 occurs. An ownership change could be triggered by subsequent sales of securities by us or our stockholders and standardizesuch a change of ownership may limit our utilization of net operating processes across our brandslosses.
Litigation and other legal or regulatory proceedings or claims and the outcome of such litigation, proceedings or claims, including possible fines and penalties, could have a negative impactan adverse effect on our financial results.
We expect standardization of operating processes across our brands, marketing and products to enable us to simplify our operating model and decrease our costs and believe failure to do so could adversely impact our ability to grow revenue and realize further efficiencies within our results of operations.

24
Table of Contents

Empire Education Group may be unsuccessful which could adversely affect our financial results.
In 2020, we entered into an agreement to sell our 55% ownership stake in Empire Education Group (EEG), an operator of accredited cosmetology schools to the other owner. The transaction is subject to regulatory approval before it can close, and there is no guarantee that the regulatory approval will occur, which has been delayed in part due to COVID-19. Due to poor financial performance, we fully impaired the investment in prior years. If the transaction does not close as anticipated and EEG is unsuccessful in executing its business plan, or if economic, regulatory and other factors, including declines in enrollment, revenue and profitability continue for the for-profit secondary education market, our financial results may be affected by certain potential liabilities related to this investment. The transaction is expected to close in fiscal year 2021, at which time the Company expects to record an immaterial non-operating gain.
Failure to control costs may adversely affect our operating results.
We must continue to control our expense structure. Failure to manage our cost of product, labor and benefit rates, advertising and marketing expenses, operating lease costs, other store expenses or indirect spending could delay or prevent us from achieving increased profitability or otherwise adversely affect our operating results.
Changes in the general economic environment may impact our business and resultsany loss contingency accruals may be inadequate to cover actual losses.
From time-to-time in the ordinary course of operations.
Changesour business operations, we are subject to the U.S., Canadianlitigation, including potential class action and United Kingdom economies have an impact on our business. General economic factors that are beyond our control, such as recession, inflation, deflation, tax rates and policy, energy costs, unemployment trends, extreme weather patterns, viruses, pandemics, stay-at-home orderssingle-plaintiff litigation, arbitration and other casualty eventslegal or regulatory proceedings or claims. Litigation to defend ourselves against claims by third parties, or to enforce any rights that influence consumer confidence and spending, may impact our business. In particular, visitation patterns to our salons can be adversely impacted by increases in unemployment rates and decreases in discretionary income levels.
Changes in consumer tastes, hair product innovation, fashion trends and consumer spending patterns may impact our revenue.
Our success depends in part on our ability to anticipate, gauge and react in a timely manner to changes in consumer tastes, hair product innovation, fashion trends and consumer spending patterns. If we do not timely identify and properly respond to evolving trends and changing consumer demands for hair care, our sales may decline. Furthermore, we may accumulate additional inventory andhave against third parties, may be required to mark down unsold inventory to prices that are lower than normal prices,necessary, which could adversely impactrequire significant time commitments from our marginsmanagement team and could further adversely impactresult in substantial costs and diversion of our resources, which may cause an adverse effect on our business, financial condition and resultsrevenues. We establish accruals for potential liabilities arising from litigation and other legal or regulatory proceedings or claims when potential liabilities are probable and the amount of operations.
Operational failure at one of our distribution centers would impact our ability to distribute products.
the loss can be reasonably estimated based on currently available information. We operate two distribution centers, one near Chattanooga, Tennessee, and one near Salt Lake City, Utah. These supply our North America company-owned salons and many of our franchisees with retail products to sell and products used during salon services. They also provide 3PL services for other third-party manufacturersmay still incur legal costs for a profit. If there werematter even if we have not accrued a technology failure, natural disasterliability. In addition, actual losses may be higher than the amount accrued for a certain matter or in the aggregate. Any resolution of litigation or other catastrophic event that caused one of the distribution centers to be inoperable, it would cause a disruption in our business and could negatively impact our revenues.
Our enterprise risk management program may leave us exposed to unidentifiedlegal or unanticipated risks.
We maintain an enterprise risk management program that is designed to identify, assess, mitigate, and monitor the risks that we face. There can be no assurance that our frameworks or models for assessing and managing known risks, compliance with applicable law, and related controls will effectively mitigate risk and limit losses in all market environments or against all types of risk in our business. If conditions or circumstances arise that expose flaws or gaps in our risk management or compliance programs, the performance and value of our business could be adversely affected.
Insurance and other traditional risk-shifting tools may be held by or available to the Company in order to manage certain types of risks, but they are subject to terms such as deductibles, retentions, limits and policy exclusions,regulatory proceedings as well as risk of denial of coverage, default or insolvency. If we suffer unexpected or uncovered losses, or if any of our insurance policies or programs are terminated for any reason or are not effective in mitigating our risks, we may incur losses that are not covered or that exceed our coverage limits andclaims could adversely impactaffect our results of operations, cash flows andbusiness, financial position.
The franchise arrangements require each franchisee to maintain certain insurance coverages and levels. Certain extraordinary hazards, however, may not be covered, and insurance may not be available (or may be available only at prohibitively expensive rates) with respect to many other risks. Moreover, any loss incurred could exceed policy limits and policy payments made to franchisees may not be made on a timely basis. Any such losscondition or delay in payment could have a material and adverse effect on a franchisee’s ability to satisfy its obligations under its franchise arrangement, including its ability to make royalty payments.revenues.

25
Table of Contents

We rely on our management team and other key personnel.
We depend on the skills, working relationships, and continued services of key personnel, including our management team and others throughout our organization. We are also dependent on our ability to attract and retain qualified personnel, for whom we compete with other companies both inside and outside our industry. Our business, financial condition or results of operations may be adversely impacted by the unexpected loss of any of our management team or other key personnel, or more generally if we fail to identify, recruit, train and/or retain talented personnel. Additionally, the Chief Executive Officer's employment agreement may end before the Company's multi-year strategic transformation is complete, or before the impact of the pandemic has been stabilized. Further, any successor candidate, no matter how well-qualified, may not be successful in a post-COVID environment.

Item 1B.    Unresolved Staff Comments
None.

Item 2.    Properties
In December 2019, theThe Company sold the corporate office consisting of a 139,000 square foot, two building complex in Edina, Minnesota that was owned by the Company. In March 2019, the Company signed a ten-year lease for a newleases its corporate headquarters in Minneapolis, Minnesota withand the move to the new headquarters completedlease expires in April 2020.
2030. The Company also operates officesoperated an office in Toronto, Canada and Fremont, CA under long-term leases.California related to its product engineering business, which it will exit in fiscal year 2023.
In fiscal year 2019,2022, the Company soldexited its distribution centers located in Chattanooga, Tennessee and Salt Lake City, Utah and signed long-term leasesagreements to continue to operatesublease the facilities in the locations. The Chattanooga facility utilizes 230,000 square feet while the Salt Lake City facility utilizes 210,000 square feet.short-term before a full lease novation in fiscal years 2023 and 2024.
The Company also leases the premises in which approximately 92%88% of ourits franchisees operate and has entered into corresponding sublease arrangements with thethese franchisees. Generally, these leases have a five yearfive-year initial term and one or more five-year renewal options. All lease costs are passed through to the franchisees. Remaining franchisees who do not enter into sublease arrangements with the Company negotiate and enter into leases on their own behalf. As leases renew, the Company intends for franchisees to sign the non-Walmart leases directly so it will no longer be the primary tenant.
The Company operates all of its salon company-owned locationssalons under leases or license agreements. Salons operating within strip centers, malls and Walmart Supercenters have leaseslease agreements with original terms of at least five years, generally with the ability to renew at the Company's option, for one or more additional five yearfive-year periods. Salons operating within department stores in Canada operate under license agreements, while freestanding or shopping center locations have real property leases comparable to the Company's company-owned locations.
None of the Company's salon leases are individually material to the operations of the Company, and the Company expects that it will be able to renew its leases on satisfactory terms as they expire or identify and secure other suitable locations. See Note 6 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

Item 3.    Legal Proceedings
The Company is a defendant in various lawsuits and claims arising out of the normal course of business. Like certain other franchisors, the Company has been faced with allegations of franchise regulation and agreement violations. Additionally, because the Company may be the tenant under a master lease for a location subleased to a franchisee, the Company faces allegations of non-payment of rent and associated charges. Further, similar to 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 9 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

Item 4.    Mine Safety Disclosures
Not applicable.
26
Table of Contents

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer RepurchasePurchases of Equity Securities
Regis common stock is listed and traded on the New York Stock Exchange under the symbol "RGS."
As of August 14, 2020,15, 2022, Regis had approximately 1,2001,125 shareholders of record. The closing stock price was $9.31$1.27 per share on August 14, 2020.15, 2022.
In accordance with its capital allocation policy, the Company does not pay dividends.
The following graph compares the cumulative total shareholder return on the Company's stock for the last five years with the cumulative total return of the Standard and Poor's 500 Stock Index and the cumulative total return of a peer group index (the Peer Group) constructed by the Company. In addition, the Company has included the Standard and Poor's 400 Midcap Index and the Dow Jones Consumer Services Index in this analysis because the Company believes these two indices provide a comparative correlation to the cumulative total return of an investment in shares of Regis Corporation.
The Peer Group consists of the following companies: Boyd Gaming Corp., Brinker International, Inc., The Cheesecake Factory, Inc., Cracker Barrel Old Country Store, DineEquity,Inc., Dine Brands Global, Inc., Fossil Group, Inc., Fred's,Franchise Group, Inc., Jack in the Box, Inc., Papa John's International, Inc., Penn National Gaming, Inc., Planet Fitness, Inc., Revlon, Inc., Sally Beauty Holdings, Inc., Service Corporation International, The Cheesecake Factory,Ulta Beauty, Inc. and Ulta Salon, Cosmetics & Fragrance Inc.Winmark Corporation. The Peer Group is a self-constructed peer group of companies that have comparable annual revenues and market capitalization and are in the franchise industry, beauty industry, or other industries where guest service, multi-unit expansion or franchise play a part. Information regarding executive compensation will be set forth in the 20202022 Proxy Statement.
The comparison assumes the initial investment of $100 in the Company's common stock, the S&P 500 Index, the Peer Group, the S&P 400 Midcap Index and the Dow Jones Consumer Services Index on June 30, 20152017 and that dividends, if any, were reinvested.
27
Table of Contents

Comparison of 5Five Year Cumulative Total Return
Assumes Initial Investment of $100
June 30, 20202022
rgs-20220630_g1.jpg
 June 30,
 201720182019202020212022
Regis$100.00 $161.05 $161.64 $79.65 $91.14 $10.52 
S & P 500100.00 114.37 126.29 135.77 191.15 170.86 
S & P 400 Midcap100.00 113.50 115.05 107.35 164.49 140.41 
Dow Jones Consumer Services Index100.00 119.57 136.11 145.76 201.67 142.15 
Peer Group100.00 101.26 122.30 93.22 155.12 128.66 
28
Table of Contents

rgs-20200630_g2.jpg
 June 30,
 201520162017201820192020
Regis$100.00 $79.00 $65.16 $104.95 $105.33 $51.90 
S & P 500100.00 103.99 122.60 140.23 154.83 166.45 
S & P 400 Midcap100.00 101.33 120.14 136.37 138.22 128.97 
Dow Jones Consumer Services Index100.00 101.83 118.10 141.21 160.76 172.15 
Peer Group100.00 105.05 110.14 110.55 125.61 89.82 
Share Issuance Program

On February 3, 2021, the Company filed a $150.0 million shelf registration statement and $50.0 million prospectus supplement with the SEC under which it may offer and sell, from time to time, up to $50.0 million worth of its common stock in "at-the-market" offerings. During fiscal year 2022, the Company issued 9.3 million shares for proceeds of $38.4 million offset by fees of $1.2 million. There were no shares issued in the fiscal quarter ended June 30, 2022. On June 30, 2022, $11.6 million remains under the prospectus supplement, which equates to 10.7 million shares based on the share price as of June 30, 2022.
The Company issued the following common stock through its share issuance program:
Fiscal Years
20222021
Issued Shares9,295,618 — 
Average Price (per share)$4.13 $— 
Price range (per share)$3.76 - $5.99$— 
Total$38.4 million$— 
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 June 30, 2020,2022, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program. All repurchased shares become authorized but unissued shares of the Company. The timing and amounts of any repurchases depends on many factors, including the market price of the common stock and overall market conditions. There were no shares repurchased in the fiscal year ended June 30, 2022. As of June 30, 2020,2022, 30.0 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million shares remained outstanding under the approved stock repurchase program.
28
Table of Contents

authorized for repurchase. The Company repurchased the followingdoes not anticipate repurchasing shares of common stock through its share repurchase program:
Fiscal Years
202020192018
Repurchased Shares1,504,000 8,605,430 1,469,057 
Average Price (per share)$17.50 $17.94 $16.86 
Price range (per share)$16.25 - $18.49$15.29 - $19.75$15.55 - $17.90
Total$26.4 million$154.4 million$24.8 million
The following table shows the stock repurchase activity by the Company or any “affiliated purchaser” of the Company, as defined in Rule 10b-18(a)(3) under the Exchange Act, by month for the three months ended June 30, 2020:
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (in thousands)
4/1/20 - 4/30/20— $— 29,974,657 $54,573 
5/1/20 - 5/31/20— — 29,974,657 54,573 
6/1/20 - 6/30/20— — 29,974,657 54,573 
Total— $— 29,974,657 $54,573 
forseeable future.

Item 6.    Selected Financial DataReserved
Beginning with the period ended September 30, 2017, the operations of the mall-based business and International segment were accounted for as a discontinued operation. All periods presented reflect the mall-based business and International segment as a discontinued operation.
The following table sets forth selected financial data derived from the Company's Consolidated Financial Statements in Part II, Item 8 of this Form 10-K. The table should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
 Fiscal Years
 20202019201820172016
 (Dollars in thousands, except per share data)
Revenues$669,729 $1,069,039 $1,235,479 $1,292,800 $1,314,762 
Operating (loss) income (1)(145,338)(22,119)(5,139)12,550 21,865 
(Loss) income from continuing operations (1)(172,194)(20,122)59,621 (3,295)(8,085)
(Loss) income from continuing operations per diluted share$(4.79)$(0.48)$1.27 $(0.07)$(0.17)

 June 30,
 20202019201820172016
 (Dollars in thousands)
Total assets, including discontinued operations$1,342,794 $682,837 $856,735 $1,011,488 $1,036,761 
Long-term debt, including current portion206,395 119,810 90,000 120,599 120,435 

(1)The following significant items affected each of the years presented:
•During fiscal year 2020, the Company recorded a $40.2 million non-cash goodwill impairment charge, a $22.6 million non-cash long-lived asset impairment charge (See Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this form 10-K), a loss on the sale of salons to franchisees of $27.3 million and the results were materially impacted by the COVID-19 pandemic.Not applicable.
29
Table of Contents

•During fiscal year 2019, the Company recorded a $21.8 million restructuring charge related to TBG mall locations (See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this form 10-K), $4.6 million of non-cash fixed asset impairment charges and $2.9 million of net gain on salons sold to franchisees.
•During fiscal year 2018, the Company recorded a $68.1 million income tax benefit resulting from the federal rate reduction and a partial release of the U.S. valuation allowance as a result of the Tax Cuts and Jobs Act (the “Tax Act”), $41.2 million ($32.5 million, net of taxes) of expenses associated with the January 2018 SmartStyle portfolio restructure and other related costs, $11.1 million of non-cash fixed asset impairment charges, $8.0 million of gain on company-owned life insurance policies, and $2.7 million ($2.2 million, net of taxes) of severance expense related to terminations.
•During fiscal year 2017, the Company recorded $7.9 million of non-cash fixed asset impairment charges, $8.4 million of severance expense related to the termination of former executive officers including the Company's Chief Executive Officer, $7.7 million of non-cash tax expense related to tax benefits on certain indefinite-lived assets that the Company cannot recognize for reporting purposes and $5.3 million of expense for a one-time non-cash inventory expense related to salon tools.
•During fiscal year 2016, the Company recorded a $13.0 million other than temporary non-cash impairment charge to fully impair its investment in EEG, $10.5 million of non-cash fixed asset impairment charges and $7.9 million of non-cash tax expense related to tax benefits on certain indefinite-lived assets that the Company cannot recognize for reporting purposes.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results.
BUSINESS DESCRIPTION
Regis Corporation (RGS)(the Company) franchises, owns and operates beauty salons. As of June 30, 2020,2022, the Company franchised, owned or held ownership interests in 6,923 worldwide locations.5,576 locations worldwide. Our locations consisted of 6,8415,500 system-wide North American and International salons, and in 8276 locations where we maintain a non-controlling ownership interest less than 100 percent.interest. Each of the Company’sCompany's salon concepts generally offer similar salon products and services.services and serve the mass market. As of June 30, 2020,2022, we had approximately 9,000630 corporate employees worldwide. See discussion within Part I, Item 1.1 of this Form 10-K.
In October 2017,On June 30, 2022, the Company sold substantially allits Opensalon Pro (OSP) software-as-a-service solution to Soham Inc. for a purchase price of $20.0 million in cash plus up to an additional $19.0 million in cash contingent upon the number of salons that migrate to Soham's Zenoti product as their salon technology platform. The Company received $13.0 million in proceeds in June 2022. The remaining $7.0 million of the purchase price is subject to holdbacks including $4.0 million of the proceeds retained in escrow to be paid upon completion of the Company’s refinancing, $1.0 million once the Company ends its mall-basedarrangement with its former third-party salon technology provider in December 2022 and $2.0 million of proceeds held back until general indemnity provisions are satisfied within 18 months from closing. As a result of the sale, the Company classified the OSP business as discontinued operations in North America, representing 858 company-owned salons, and substantially all of its International segment, representing approximately 250 company-owned salons, to TBG. In the second quarter of fiscal year 2020, TBG transferred 207 of its North American salons to the Company. Seefinancial statements as discussed in Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K, as the results of operations for the mall-based business and International segment are accounted for as a discontinued operation for all periods presented.
In January 2018, the Company closed 597 non-performing company-owned SmartStyle salons. The 597 non-performing salons generated negative cash flow of approximately $15 million during the twelve months ended September 30, 2017. The action delivers on the Company's commitment to restructure its salon portfolio to improve shareholder value and position the Company for long-term growth. A summary of costs associated with the SmartStyle salon restructuring for fiscal year 2018 is as follows:
Financial Line ItemFiscal Year 2018
(Dollars in thousands)
Inventory reservesCost of Service$656
Inventory reservesCost of Product586
SeveranceGeneral and administrative897
Long-lived fixed asset impairmentDepreciation and amortization5,460
Asset retirement obligationDepreciation and amortization7,680
Lease termination and other related closure costsRent27,290
Deferred rentRent(3,291)
Total$39,278
30
Table of Contents10-K.

In addition, the Company recorded approximately $1.9 million of other related costs to the SmartStyle restructuring, primarily warehouse related costs. Substantially all related costs associated with the SmartStyle salon restructuring requiring cash outflow were complete as of June 30, 2018.
As part of the Company's strategic transition to a fully-franchised model, the Company is selling salons to franchisees. The impact of these transactions are as follows:
 Fiscal Years
20222021
(Dollars in thousands)
Salons sold to franchisees110 748
Cash proceeds received$— $8,437 
Loss from sale of salon assets to franchisees, net$(2,334)$(16,696)
 Fiscal YearsIncrease (Decrease)
20202019201820202019
(Dollars in thousands)
Salons sold to franchisees (1)1,475 7671,582 708 (815)
Cash proceeds received$91,616 $94,787 $11,582 $(3,171)$83,205 
Gain on sale of venditions, excluding goodwill derecognition$49,660 $69,973 $4,140 $(20,313)$65,833 
Non-cash goodwill derecognition(76,966)(67,055)(3,899)(9,911)(63,156)
(Loss) gain from sale of salon assets to franchisees, net$(27,306)$2,918 $241 $(30,224)$2,677 
The Company shifted its product business from a wholesale model to a third-party distribution model as part of its asset-light transformation. In fiscal year 2022, the Company exited its distribution centers and ceased selling products to franchisees. Going forward, franchisees will source product from a third-party distribution partner and the Company receives a royalty payment based on franchisee purchases. This change has significantly decreased both the Company's franchise product revenue and general and administrative expense, including the Franchise distribution costs discussed in Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. In fiscal years 2022 and 2021, the Company experienced the following charges related to the plan to exit the distribution centers:
 Fiscal Years
 20222021
 Financial Statement Caption(Dollars in thousands)
Inventory reserve (1)Inventory reserve$7,655 $— 
Inventory valuation adjustment (2)Company-owned salon expense2,823  12,068 
Gain from disposal of distribution center assetsInterest income and other, net— (14,997)
____________________________________________________________________________

(1) FiscalIncludes charges in the third and fourth quarter of fiscal year 2018 includes2022 associated with the mallliquidation of distribution center inventory, which primarily related to reserving for personal protective equipment acquired as a result of the COVID-19 pandemic.
(2)Due to the reduction in company-owned salons, transferredthe Company cannot redistribute inventory from closed salons causing an increase to The Beautiful Group for no proceeds.the reserve. Also included in fiscal year 2021 was the write-off of marketing and promotional items.
30
Table of Contents

RESULTS OF OPERATIONS
The Company reports its operations in two operating segments: Franchise salons and Company-owned salons, effective October 2017. The Company's operating segments are its reportable operating segments. Prior to this change, the Company had four operating segments: North American Value, North American Premium, North American Franchise and International.
Beginning with the period ended September 30, 2017, the mall-based business and International segment were accounted for as discontinued operations for all periods presented. Discontinued operations are discussed at the end of this section. See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K for further discussion on this transaction.
The Company realigned its field leadership team beginning in the first quarter of fiscal year 2018. An outcome of this reorganization is that the costs associated with senior district leaders were moved out of cost of goods sold and site operating expense and into G&A. This change affected one month of comparability during the fiscal year ended June 30, 2018. The estimated impact of the field reorganization (decreased) increased Cost of Service, Site Operating expense and General and Administrative expense by $(2.4), $(0.4) and $2.8 million, respectively, for fiscal year 2018. This expense classification does not have a financial impact on the Company's reported operating loss, reported net (loss) income or cash flows from operations.salons.
COVID-19 Impact:
During the second half of fiscal year 2020,years 2022 and 2021, the global coronavirus pandemic (COVID-19) had an adverse impact on our operations, including the closure of all company-owned salonsoperations. The COVID-19 pandemic continues to impact salon guest visits and almost all franchise locations from March 2020 due to government mandates. Salons continued to be closed until April 23, 2020 when franchise salons began re-opening slowly, as government, state and local restrictions eased. As of June 30, 2020, approximately 87% of franchise salons were open. Company-owned salons were closed through May 21, 2020 and are gradually re-opening. As of June 30, 2020, approximately 54% of company-owned salons were open. As salons re-open, the Company is taking additional measures across its portfolio of franchise and company-owned salons to facilitate customer and employee safety. Asfranchisee staffing, resulting in a result, COVID-19 has and will continue to negatively affectsignificant reduction in revenue and profitability. To offsetIn response to COVID-19, the lossCompany received Canadian rent relief, Canadian wage relief and U.S. employee retention payroll tax credits. In fiscal years 2022 and 2021, the Company received the following amounts in rent and wage assistance:
 Fiscal Years
 20222021
 Financial Statement Caption(Dollars in thousands)
Canadian rent reliefRent$1,235 $— 
Canadian wage reliefCompany-owned salon expense1,966  1,629 
U.S. employee retention payroll tax creditCompany-owned salon expense— 1,547 
Additionally, in December 2021, the Company paid $2.5 million of revenue, in April 2020, we implemented a furlough program for a majority ofsocial security contributions that had been deferred under the workforce across the corporate office, field support, and distribution centers; and reductions in the pay for executives and other working employees.CARES Act. The furlough program was in effect for the majority of the fiscal fourth quarter. Despite actions taken to resume business operations, COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, as well as reactions to future pandemics or resurgences of COVID-19, could potentially prolong and intensify theultimate impact of the global crisis on our business.
The economic disruptionCOVID-19 pandemic in both the short- and long-term is not currently estimable due to the uncertainty surrounding the duration of the pandemic, the emergence and impact of new COVID-19 was determined to be a triggering eventvariants and as a result, management assessed its long-term assets, including long-lived salon assets, right of use assets, goodwill and other intangibles for impairment. See Note 1changing government restrictions. Additional impacts to the Consolidated Financial Statements in Part II, Item 8,business may arise that we are not aware of this Form 10-K for further discussion on the pandemic.

31
Table of Contents

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

System-wide same-store sales (1) by concept are detailed in the table below:
Fiscal Years
20222021
SmartStyle5.7 %(26.7)%
Supercuts22.1 (25.8)
Portfolio Brands11.2 (24.8)
Total14.8 %(25.8)%
____________________________________________________________________________
Fiscal Years
202020192018
SmartStyle(5.5)%1.0 %(0.2)%
Supercuts(4.2)(0.2)1.9 
Signature Style(3.7)(0.8)0.5 
Total, excluding TBG mall-locationsN/A(0.1)N/A
TBG mall-locationsN/A(4.5)N/A
Total(4.4)%(0.5)%0.9 %

(1)System-wideFiscal years 2022 and 2021 system-wide same-store sales are calculated as the total change in sales for system-wide franchise and company-owned locations for more than one year (including TBG mall locations in 2019) that were open on a specific day of the week during the current period and the corresponding prior period. TBG salons were not a franchise locations in 2018 or 2020 so they are by definition excluded from same-store sales in 2018 and 2020. 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.

3231
Table of Contents

Consolidated Results of Operations
The following table sets forth, for the periods indicated, certain information derived from our Consolidated Statement of Operations. The percentages are computed as a percent of total revenues, except as otherwise indicated.and the increase (decrease) is measured in basis points.
 Fiscal Years
 20222021202220212022
 (Dollars in millions)% of Total Revenues (1)Increase (Decrease)
Royalties$65.8 $52.4 23.8 %12.7 %1,110 
Fees11.6 10.2 4.2 2.6 160 
Product sales to franchisees15.1 56.7 5.5 13.8 (830)
Advertising fund contributions32.6 22.0 11.8 5.3 650 
Franchise rental income130.8 127.4 47.4 30.9 1,650 
Company-owned salon revenue20.2 143.0 7.3 34.7 (2,740)
Cost of product sales to franchisees (2)17.4 43.8 115.2 77.2 3,800 
Inventory reserve7.7 — 2.8 — N/A
General and administrative65.3 96.4 23.7 23.4 30 
Rent9.4 40.8 3.4 9.9 (650)
Advertising fund expense32.6 22.0 11.8 5.3 650 
Franchise rent expense130.8 127.4 47.4 30.9 1,650 
Company-owned salon expense22.0 141.2 8.0 34.3 (2,630)
Depreciation and amortization6.2 21.7 2.2 5.3 (310)
Long-lived asset impairment0.5 13.0 0.2 3.2 (300)
Goodwill impairment13.1 — 4.7 — N/A
Operating loss (3)(28.9)(94.7)(10.5)(23.0)1,250 
Interest expense(12.9)(13.2)(4.7)(3.2)(150)
Loss from sale of salon assets to franchisees, net(2.3)(16.7)(0.8)(4.1)330 
Interest income and other, net(0.3)15.9 (0.1)3.9 (400)
Income tax (expense) benefit (4)(2.0)5.4 (4.5)5.0 N/A
Loss from discontinued operations, net of taxes(39.4)(10.1)(14.3)(2.5)(1,180)
Net loss (3)(85.9)(113.3)(31.1)(27.5)(360)
____________________________________________________________________________
 Fiscal Years
 20202019201820202019201820202019
 (Dollars in millions)% of Total Revenues (1)Basis Point (Decrease) Increase
Service revenues$331.5 $749.7 $899.3 49.5 %70.1 %72.8 %(2,060)(270)
Product revenues137.6 225.6 258.7 20.5 21.1 20.9 (60)20 
Franchise royalties and fees73.4 93.8 77.4 11.0 8.8 6.3 220 250 
Franchise rental income127.2 — — 19.0 — — N/AN/A
Cost of service (2)222.3 452.8 530.6 67.1 60.4 59.0 670 140 
Cost of product (2)84.7 128.8 140.6 61.6 57.1 54.3 450 280 
Site operating expenses71.5 141.0 154.1 10.7 13.2 12.5 (250)70 
General and administrative131.0 177.0 174.0 19.6 16.6 14.1 300 250 
Rent76.4 131.8 183.1 11.4 12.3 14.8 (90)(250)
Franchise rent expense127.2 — — 19.0 — — N/AN/A
Depreciation and amortization37.0 37.8 58.2 5.5 3.5 4.7 200 (120)
Long-lived asset impairment22.6 — — 3.4 — — N/AN/A
TBG restructuring2.3 21.8 — 0.3 2.0 — (170)200 
Goodwill impairment40.2 — — 6.0 — — N/AN/A
Operating loss(145.3)(22.1)(5.1)(21.7)(2.1)(0.4)(1,960)(170)
Interest expense(7.5)(4.8)(10.5)(1.1)(0.4)(0.8)(70)40 
(Loss) gain from sale of salon assets to franchisees, net(27.3)2.9 0.2 (4.1)0.3 — (440)30 
Interest income and other, net3.4 1.7 5.2 0.5 0.2 0.4 30 (20)
Income tax benefit (3)4.6 2.1 69.8 2.6 9.6 685.0 N/AN/A
Income (loss) from discontinued operations, net of taxes0.8 5.9 (53.2)0.1 0.6 (4.3)(50)490 

(1)Cost of service is computed as a percent of service revenues. Cost of product sales to franchisees is computed as a percent of product revenues.sales to franchisees.
(2)Excludes depreciation and amortization expense.
(3)Total is a recalculation; line items calculated individually may not sum to total due to rounding.
(4)Computed as a percent of loss from continuing operations before income taxes. The income taxes basis point change is noted as not applicable (N/A) as the discussion below is related to the effective income tax rate.


3332
Table of Contents

Fluctuations in major revenue categories, operating expenses and other income and expense were as follows:Fiscal Year Ended June 30, 2022 Compared with Fiscal Year Ended June 30, 2021
Consolidated Revenues
Consolidated revenues primarily include revenues of company-owned salons, product and equipment sales to franchisees franchise royalties and fees and franchise rental income. The following tables summarize revenues and same-store sales by concept, as well as the reasons for the percentage change:
 Fiscal Years
 202020192018
 (Dollars in thousands)
Franchise salons:
Product excluding TBG$50,411 $42,915 $34,638 
TBG product2,010 16,990 19,065 
Total franchise product52,421 59,905 53,703 
Royalties and fees73,402 93,761 77,394 
Franchise rental income127,203 — — 
Total, Franchise salons253,026 153,666 131,097 
Franchise same-store sales (decrease) increase (1)(4.4)%0.3 %2.1 %
Company-owned salons:   
SmartStyle$203,361 $208,531 $283,942 
Supercuts54,121 383,380 463,644 
Signature Style159,221 323,462 356,796 
Total, Company-owned salons416,703 915,373 1,104,382 
Company-owned salon same-store sales (decrease) increase (2)(4.4)%(0.4)%0.4 %
Consolidated revenues$669,729 $1,069,039 $1,235,479 
Percent change from prior year(37.4)%(13.5)%(4.4)%

(1)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. Fiscal year 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 salons were not a franchise location in fiscal years 2018 or 2020 so by definition they are not included in franchise same-store sales in 2018 or 2020. TBG same-store sales are excluded from fiscal year 2019 same-store sales to be comparative to fiscal years 2018 and 2020.
(2)Company-owned same-store sales are calculated as the total change in sales for company-owned locations that were open on a specific day of the week during the current period and the corresponding prior period. Fiscal year company-owned same-store sales are the sum of company-owned same-store sales computed on a daily basis. Locations relocated within a one-mile radius are included in same-store sales as they are considered to have been open in the prior period. Company-owned same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.


34
Table of Contents

Fiscal Year Ended June 30, 2020 Compared with Fiscal Year Ended June 30, 2019
Consolidated Revenues
Consolidated revenues are primarily comprised of service and product revenues, as well as franchise royalties, and fees, advertising feesfund contributions, product sales to franchisees, franchise rental income and rental income.company-owned salon revenue.
Consolidated revenuerevenues decreased $399.3$135.7 million, or 37.4%. Service33.0%, during fiscal year 2022. Royalty revenue increased $13.4 million during fiscal year 2022 due to higher franchise system-wide sales and product revenue decreased $418.1 million and $88.0 million, respectively.a higher average franchise salon count during the year. The declineoverall decrease in service and product revenue is primarilydue to the resultsale of the Company's sale ofcompany-owned salons to franchisees, the closure of company-owned salons which contributed $105.4 million to the decline and the government-mandated salon closuresreduction in the fourth quarter.product sales to franchisees of $41.6 million. During fiscal year 2020, 1,4482022, 110 salons were sold to franchisees, net of buy backs, and 487360 and 6221 system-wide salons were closed and constructed, respectively (2020(2022 Net Salon Count Changes). The impactAdditionally, our sales continue to consolidated revenue due to the sale of salons to franchiseesbe challenged by labor issues with active stylists and closure of salons was $412.4 million. Additionally, the decline in revenue was a result of the temporary closure of all franchise and company-owned salons in the fourth quarter due to the COVID-19 pandemic. Royalties and fees decreased $20.4 million due to the refunding of $14.9 million of previously collected contributions to the cooperative advertising funds. Additionally, as a result of the Company's adoption of Topic 842, the Company now records revenue related to franchise leases and this adoption resulted in $127.2 million increase in franchise rental income for the year.stylist hours worked below pre-COVID levels.
Service RevenuesRoyalties
The decrease of $418.1During fiscal year 2022, royalties increased $13.4 million, or 55.8%25.6%, in service revenues during fiscal year 2020 was primarily due to 2020 Net Salon Count Changes. The impact to service revenue due to the sale of salons to franchisees and closure of salons was $350.8 million. Additionally, the temporary closure of salons in the fourth quarter and company-owned same-store service sales decreases also contributed to the decrease in service revenue. The company-owned same-store service sales decrease of 3.3% during fiscal year 2020 was primarily due to a 7.4% decrease in same-store guest transactions, partially offset by an increase of 4.1% inhigher average ticket price.franchise salon count and higher franchise system-wide sales.
Product RevenuesFees
The decrease of $88.0 million, or 39.0%, in product revenues duringDuring fiscal year 2020 was primarily due to 2020 Net Salon Count Changes. The impact to product revenue due to the sale of salons to franchisees and closure of salons was $61.6 million. Company-owned same-store product sales decrease of 8.7% and the temporary closure of salons in the fourth quarter also contributed to the decrease in product sales. For fiscal year 2020, the decrease in company-owned same-store product sales was the result of a decrease in company-owned same-store transactions of 12.8%, partially offset by an increase in average ticket price of 4.1%.
Royalties and Fees
The decrease of $20.42022, fees increased $1.4 million, or 21.7%, in royalties and fees for fiscal year 2020 was primarily due to the refunding rebate from the Company's third-party distributor included in fees, which was a new source of $14.9 million of previously collected contributionsrevenue in fiscal year 2022. Training revenues also increased year over year. See Note 2 to the cooperative advertising fundsConsolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Product Sales to provide temporary reliefFranchisees
Product sales to our franchisees decreased $41.6 million, or 73.4%, during fiscal year 2022, primarily due to the Company's shift in its product business to a third-party distribution model. The Company expected revenue from product sales to decrease significantly during fiscal year 2022 and the declineexpects it to continue to decrease in royaltiesfiscal year 2023.
Advertising Fund Contributions
Advertising fund contributions increased $10.6 million, or 48.2%, during fiscal year 2022, primarily due to a higher average franchise salon count in fiscal year 2022 and system-wide sales and an increase in the fourth quarter is duecontribution rate that had been reduced in the first half of fiscal year 2021 in response to government-mandated salon closures. Total franchised locations open at June 30, 2020 were 5,209 as compared to 3,951 at June 30, 2019.COVID-19.
Franchise Rental Income
The increase of $127.2 million inDuring fiscal year 2022, franchise rental income isincreased $3.4 million, or 2.7%, primarily due to a higher average franchise salon count.
Company-owned Salon Revenue
During fiscal year 2022, company-owned salon revenue decreased $122.8 million, or 85.9%, due to the adoptiondecrease in company-owned salons as a result of Topic 842the sale of salons to franchisees and salon closures, a decline in product sales, and exiting our third-party logistic revenue associated with the closure of our warehouses in fiscal year 2020. Prior to the adoption, the Company recorded franchise rental income and expense on a net basis.
Cost of Service
The 670 basis point increase in cost of service as a percent of service revenues during fiscal year 2020 was due to higher minimum wage and commissions and inefficient stylist hours.2022.
Cost of Product Sales to Franchisees
The 4503,800 basis point increase in cost of product as a percent of product revenue during fiscal year 20202022 was primarily due to the shift into lower margin wholesale product sales. Margins on retail product sales were 47.6% and 50.8% for fiscal years 2020 and 2019, respectively. Margins on wholesale product sales were 23.6% and 21.2% for fiscal years 2020 and 2019, respectively. The increase in wholesale product margins inCompany reducing prices to liquidate distribution center inventory.
Inventory Reserve
During fiscal year 2020 were2022, the Company recorded an inventory reserve charge of $7.7 million related to distribution center inventory, primarily driven by lower sales to TBG.consisting of personal protective equipment the Company no longer believes is marketable. During fiscal year 2021, the Company recorded an inventory reserve charge of $12.1 million, which was included in company-owned salon expense in connection with our distribution center exit strategy.

3533
Table of Contents

Site Operating Expenses
The decrease of $69.5 million, or 49.3%, in site operating expenses during fiscal year 2020 was due to a net reduction in company-owned salon counts, a decrease in cooperative advertising expense and a decrease in marketing spend. Salons sold to franchisees and closed salons accounted for $37.8 million of the decline. The Company records advertising expense as the contributions are received as it has an obligation to spend the funds to support the brands. In fiscal year 2020, the Company refunded $14.9 million in advertising fees that were previously collected to provide temporary relief to our franchisees. Marketing expense declined as part of our strategic shift to a full-franchised business model.
General and Administrative
The decrease of $46.1$31.1 million, or 26.0%32.3%, in general and administrative expense during fiscal year 20202022 was primarily due to lower administrative and field management salaries duecompensation resulting from headcount reductions and a decrease in part to the Company's furlough program in response to the COVID-19 pandemic and reductions in headcount as we align our cost structure with our transition to an asset-light franchise model. Stock compensation benefitsexpenses associated with a changethe distribution centers closed in performance awards assumptions also contributed to the decreasefiscal year over year.2022.
Rent
The decrease of $55.4$31.4 million, or 42.1%77.0%, in rent expense during fiscal year 20202022 was primarily due to the net reduction in salon counts associated withthe number of company-owned salons. Additionally in fiscal year 2022, the Company accrued less rent deemed uncollectible from franchisees. Partially offsetting the decrease was a $0.9 million broker fee incurred in fiscal year 2022 related to exiting the Company's distribution centers.
Advertising Fund Expense
Advertising fund expense increased $10.6 million, or 48.2%, during fiscal year 2022, primarily due to a higher average franchise strategy. Additionally, two monthssalon count in fiscal year 2022 and system-wide sales and an increase in the contribution rate that had been reduced in the first half of fiscal year 2021 in response to COVID-19.
Franchise Rent Expense
During fiscal year 2022, franchise rent abatement from Walmartexpense increased $3.4 million, or 2.7%, primarily due to a higher average franchise salon count.
Company-owned Salon Expense
Company-owned salon expense decreased $119.2 million, or 84.4%, during fiscal year 2022, primarily due to the reduction in company-owned salons, a reduction in the inventory reserve charge and a decline in percentage rent, both due to COVID-19 salon closures, also contributed to the decline, but were partially offset by rent inflation.
Franchise Rent Expense
The increase in franchise rent expense is due to the adoption of Topic 842 in fiscal year 2020. Prior to the adoption, the Company recorded franchise rental income and expense on a net basis.product sales.
Depreciation and Amortization
The decrease of $0.9$15.5 million, or 2.4%71.4%, in depreciation and amortization during fiscal year 20202022 was primarily due to the net reduction in company-owned salon counts, partially offset by an intangible asset impairment of $2.5 million.count and no depreciation expense in fiscal year 2022 related to the distribution center assets that were derecognized in fiscal year 2021.
Long-Lived Asset Impairment
In fiscal year 2020,2022, the Company recorded a long-lived asset impairment charge of $22.6$0.5 million, which represents a right of use (ROU) asset impairment charge of $0.5 million. In fiscal year 2021, the Company recorded a long-lived asset impairment charge of $13.0 million, which included a right of useROU asset impairment of $17.4$9.5 million. PriorThe decrease in long-lived asset impairment was primarily due to the Adoption of ASC 842more salon ROU assets being impaired in prior periods.
Goodwill Impairment
During fiscal year 2020, we did not record a right of use asset so there was no impairment consideration. Additionally, salon asset impairment increased in fiscal year 2020.
TBG Mall Restructuring
In fiscal year 2020, the Company incurred professional fees associated with acquiring salons from TBG. In fiscal year 2019,2022, the Company recorded a reserve against a note receivable of $8.0 million and accounts receivables of $12.7 million due from TBG primarily for inventory shipments.
Goodwill Impairment
In fiscal year 2020, Company recorded $40.2 million of goodwill impairment relatedcharge of $13.1 million. See Note 1 to the Company-owned reporting unit. The Company's forecasted cash flows for company-owned salons decreased significantly due to the impactConsolidated Financial Statements in Part II, Item 8, of the COVID-19 pandemic. As a result, the carrying value of the Company-owned reporting unit exceeded its fair value resulting in a full impairment of goodwill.this Form 10-K.
Interest Expense
The increase of $2.7$0.3 million decrease in interest expense forduring fiscal year 20202022 was primarily due to interest charges associated with the Company's long-term financing liabilities and the interest associated with the additional borrowingincurred in fiscal year 2020.

2021 related to the financing liabilities associated with our sale leasebacks. Interest expense is expected to increase in fiscal year 2023 as fees related to the credit amendment signed in the first quarter of 2023 are amortized as interest expense over the new term of the credit agreement. Additionally, under the terms of the amended credit agreement, we expect interest expense to increase in the fourth quarter of fiscal year 2023.
3634
Table of Contents

(Loss)/GainLoss from Sale of Salon Assets to Franchisees, net
The $14.4 million decrease in the loss from the sale of salon assets to franchisees,franchises, net
In during fiscal year 2020, the loss from sale of salon assets to franchisees2022 was $27.3 million, including non-cash goodwill derecognition of $77.0 million. In fiscal year 2019, the gain from sale of salon assets to franchisees was $2.9 million, including non-cash goodwill derecognition of $67.1 million. The decrease year over year isprimarily due to lower proceeds per salonfewer salons sold in fiscal year 2020 compared to fiscal year 2019 as the Company sold more Supercuts salons in fiscal year 2019, which typically vendition for greater proceeds than other concepts. In fiscal year 2020, average proceeds per salon were $62.1 thousand compared to $123.6 thousand in fiscal year 2019.2022.
Interest Income and Other, net
The increasedecrease of $1.6$16.2 million or 93.9%, in interest income and other, net during fiscal year 20202022 was primarily due to the $15.0 million gain onassociated with the sale ofleases for the Company's headquarters of $2.5 million, partially offset by a declinedistribution centers that was recognized in interest income.fiscal year 2021.
Income TaxesTax (Expense) Benefit
During fiscal year 2020,2022, the Company recognized a tax benefitexpense of $4.6$(2.0) million, with a corresponding effective tax rate of 2.6% as(4.5)%, compared to recognizing a tax benefit of $2.1$5.4 million, with a corresponding effective tax ratesrate of 9.6%5.0% during fiscal year 2019.
2021. See Note 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
IncomeLoss from Discontinued Operations, net of Income Taxes
IncomeIn fiscal year 2022, the loss from discontinued operations decreased $5.1 million, or 85.9%, during fiscal year 2020, due toincludes the lapping of income tax benefits associated with the wind-down and transfer of legal entities related to discontinued operations recognized in the second quarter of fiscal year 2019, partially offset by beneficial actuarial adjustments recognized in the current year.
Fiscal Year Ended June 30, 2019 Compared with Fiscal Year Ended June 30, 2018
Consolidated Revenues
Consolidated revenues are primarily comprised of service and product revenues, as well as franchise royalties and fees. Service revenue decreased $149.7 million, or 16.6%, primarily due to the sale of salons to franchisees and a decline in company-owned same-store service sales of 0.3%. The Company closed 133 company-owned salons, constructed (net of relocations) 10 company-owned salons and sold (net of buybacks) 735 company-owned salons during fiscal year 2019 (2019 Net Salon Count Changes). Product revenue decreased $33.1 million or 12.8% due to lower sales to TBG and a system-wide decline of retail sales of 2.4% excluding TBG. Partially offsetting these decreases was an increase in royalty and fee revenue of $16.4 million, or 21.1%, due to the net addition of 644 non-TBG franchisees during the year.
Service Revenues
The $149.7 million decrease in service revenues during fiscal year 2019 was primarily due to the 2019 Net Salon Count Changes and a decrease in company-owned same-store service sales of 0.3%, which was primarily a result of a 4.7% decrease in same-store guest visits, partially offset by a 4.4% increase in average ticket price. Service revenues were also unfavorably impacted by a cumulative adjustment in the prior year related to discontinuing a piloted loyalty program that occurred in the prior year.
Product Revenues
The $33.1 million decrease in product revenues during fiscal year 2019 was primarily due to 2019 Net Salon Count Changes, a decline in product sold to TBG, the lapping of a one-time benefit related to discounted close-out product sales as part of the SmartStyle operational restructuring in the prior year and a decline in system-wide same-store product sales excluding TBG of 2.4%. The decrease in system-wide same-store product sales excluding TBG was primarily a result of a 6.0% decrease in transactions, partially offset by an increase in average ticket price of 3.6%.
Royalties and Fees
The increase of $16.4 million in royalties and fees during fiscal year 2019 was primarily due to higher royalties and advertising fund revenue due to an increase of 644 non-TBG franchisees in fiscal year 2019 and an increase of 0.3% in same-store sales at franchised locations excluding TBG.
37
Table of Contents

Cost of Service
The 140 basis point increase in cost of service as a percent of service revenues during fiscal year 2019 was primarily due to state minimum wage increases, a favorable shrink adjustment in the prior year and a one-time benefit from a settlement in fiscal year 2018.
Cost of Product
The 280 basis point increase in cost of product as a percent of product revenues during fiscal year 2019 was primarily due to higher discounting, the shift to lower margin wholesale product sales, favorable shrink adjustment in the prior year and a one-time benefit from a settlement in the prior year, partially offset by inventory reserves in the prior year related to the January 2018 SmartStyle portfolio restructure and lower franchise product sold to TBG. Margins on retail product sales were 50.8% and 52.0% in fiscal years 2019 and 2018, respectively. Margins on wholesale product sales were 21.2% and 21.6% in fiscal years 2019 and 2018, respectively.
Site Operating Expenses
Site operating expenses decreased $13.0 million during fiscal year 2019 due primarily to the 2019 Net Salon Count Changes, partially offset by higher advertising fund expense due to the increase in franchise salon counts, higher employment litigation reserves and higher contract maintenance, repairs and services costs related to open salons.
General and Administrative
General and administrative expense increased by $3.0 million during fiscal year 2019 primarily due to an $8.0 million gain in the prior year associated with life insurance proceeds, increased stock compensation and professional fees, partially offset by lower administrative, corporate and field salaries and bonuses.
Rent
Rent expense decreased by $51.3 million during fiscal year 2019 primarily due to lease termination fees and other related closure costs associated with the January 2018 SmartStyle portfolio restructure and the 2019 Net Salon Count Changes, partially offset by rent inflation.
Depreciation and Amortization
Depreciation and amortization expense decreased $20.4 million during fiscal year 2019, primarily due to costs in the prior year associated with returning certain SmartStyle locations to their pre-occupancy condition in connection with the January 2018 SmartStyle restructuring and lower depreciation due to a reduced salon base and lower salon asset impairments.
TBG Mall Restructuring
In fiscal year 2019, the Company recorded a reserve against a note receivable of $8.0 million and accounts receivables of $12.7 million due from TBG based on TBG’s inability to meet the requirements of the promissory notes, including non-payment of amounts due to the Company. The $8.0 million note relates to prior year inventory shipments and the $12.7 million of receivables primarily relates to current year inventory shipments. The remaining charge relates to reserves in connection with the settlement agreement with TBG in June 2019. There were no related TBG mall restructuring charges in fiscal year 2018.
Interest Expense
Interest expense decreased by $5.7 million during fiscal year 2019 primarily due to a lower outstanding principal and lower interest rates associated with the revolving credit facility compared to the retired senior term note and the lapping of the premium and unamortized debt discount expense associated with retirement of the senior term note in March 2018.
Gain from sale of salon assets to franchisees, net

In fiscal year 2019, the gain from sale of salon assets to franchisees was $2.9 million, including non-cash goodwill derecognition of 67.1 million. In fiscal year 2018, the gainloss from the sale of salons assets to franchisees was $0.2OSP, including goodwill derecognition of $38.4 million, including $3.9 million of non-cash goodwill derecognition.
Interest Income and Other, net
The $3.5 million decrease in interest income and other, net duringpartially offset by proceeds from the sale. In fiscal year 2019 was primarily due to prior year income from transition services related to TBG and the lapping of interest income associated with life insurance contracts settled in June 2018.
38
Table of Contents

Income Taxes
During fiscal year 2019, the Company recognized an income tax benefit of $2.1 million on $22.3 million of2021, loss from continuing operations before income taxes as compared to recognizing income tax benefit of $69.8 million on $10.2 million of loss from continuing operations before income taxes during fiscal year 2018. The recorded tax provision and effective tax rate for the twelve months ended June 30, 2019 were different than what would normally be expected primarily due to the deferred tax valuation allowance.
Additionally, the Company is currently paying taxes in Canada and certain states in which it has profitable entities.
See Note 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Income (Loss) from Discontinued Operations
Income from TBG discontinued operations was $5.9 million during fiscal year 2019 primarily due to tax benefits associated withincludes the wind-down and transfer of legal entities. During fiscal year 2018, the Company recognized $53.2 million of loss, net of taxesincome generated from TBG discontinued operations, primarily due to asset impairment charges based on the sale prices and the carrying values of the mall-based salon business and the International segment, the recognition of net loss of amounts previously classified within accumulated other comprehensive income, professional fees associated with the transactions and losses from operations.OSP software subscriptions. See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. In fiscal year 2023, we expect to record gains relate to discontinued operations as we receive cash related to the release of holdbacks of the purchase price in connection with the sale of OSP.
3935
Table of Contents

Results of Operations by Segment
Based on our internal management structure, we report two segments: Franchise salons and Company-owned salons. See Note 15 to the Consolidated Financial Statements in in Part II, Item 8, of this Form 10-K. Significant results of continuing operations are discussed below with respect to each of these segments.

Franchise Salons
Fiscal Years
20202019201820202019
(Dollars in millions)Increase (Decrease)
Revenue
Product$50.4 $42.9 $34.6 $7.5 $8.3 
Product sold to TBG2.0 17.0 19.1 (15.0)(2.1)
Total Product$52.4 $59.9 $53.7 $(7.5)$6.2 
Royalties and fees (1)73.4 93.8 77.4 (20.4)16.4 
Franchise rental income127.2 — — 127.2 — 
Total franchise salons revenue (2)$253.0 $153.7 $131.1 $99.4 $22.6 
Franchise same-store sales (3)(4.4)%0.3 %2.1 %
Operating income$35.2 $36.4 $34.0 $(1.2)$2.4 
Operating (loss) income from TBG(2.3)(20.2)1.6 17.9 (21.9)
Total operating income (2)$32.9 $16.1 $35.6 $16.7 $(19.5)

Fiscal Years
202220212022
(Dollars in millions)Increase (Decrease) (1)
Royalties$65.8 $52.4 $13.4 
Fees11.6 10.2 1.4 
Product sales to franchisees15.1 56.7 (41.6)
Advertising fund contributions32.6 22.0 10.6 
Franchise rental income130.8 127.4 3.4 
Total franchise revenue (1)$255.8 $268.7 $(12.9)
Franchise same-store sales (2)15.0 %(24.5)%
Operating loss$(11.8)$(24.6)$12.8 
(1)Includes $1.6 million and $1.2 million of royalties related to TBG during the fiscal years 2019 and 2018, respectively._______________________________________________________________________________
(2)(1)Total is a recalculation; line items calculated individually may not sum to total due to rounding.
(3)(2)Franchise same-store sales in fiscal year 2022 and 2021 are calculated as the total change in sales for salons that have been a franchise location for more than one yearlocations that were open on a specific day of the week during the current period and the corresponding prior period. Quarterly and year-to-dateYear-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 salons were not a franchise location in fiscal years 2018 or 2020 so by definition they are not included in franchise same-store sales in 2018 or 2020. TBG same-store sales are excluded from fiscal year 2019 same-store sales to be comparative to fiscal years 2018 and 2020.

Franchise same-store sales by concept are detailed in the table below:
Fiscal Years
202020192018
SmartStyle(9.7)%(5.6)%(3.0)%
Supercuts(4.0)%0.8 %2.1 %
Signature Style(3.5)%0.1 %2.1 %
Total(4.4)%0.3 %2.1 %
40
Table of Contents


Fiscal Year Ended June 30, 20202022 Compared with Fiscal Year Ended June 30, 20192021
Franchise Salon Revenues
Franchise salon revenues increased $99.4decreased $12.9 million during fiscal year 2020, excluding franchise rental income recorded as a result of the adoption of Topic 842, franchise salon revenues decreased $27.8 million compared to the prior comparable period.2022. The decrease in franchise revenue was primarily due to the refund of previously collected contributions to the cooperative advertising funds, a waiver of fourth quarter advertising fees, as well as franchisedecrease in product sales to TBG. Royalties were flat year over year despite the increase in franchise salon count,franchisees due to the fourth quarter government-mandatedCompany's shift to third-party distributors, partially offset by higher royalties and advertising fund contributions due to a higher average salon closures. Franchiseescount and increase in system-wide sales. During fiscal year 2022, franchisees purchased (net of Company buybacks) 1,448110 salons from the Company and constructed (net of relocations) and closed 4721 and 237 franchise-owned299 franchise salons, respectively.
Franchise Salon Operating IncomeLoss
During fiscal year 2020, Franchise2022, franchise salon operations generated operating incomelosses of $32.9$11.8 million, and generated an increaseoperating loss of $16.7$24.6 million during fiscal year 2021. The operating loss improved during fiscal year 2022 compared to the prior comparable period. The increase was primarilyperiod due to the decrease in TBG mall restructuring costs.
Cash Generated from Salons Sold to Franchisees
During fiscal years 2020 and 2019, the Company generated $91.6 million and $94.8 million of cash respectively, from the sale of company-owned salons to franchisees. The decrease is due to lower proceeds per salon sold partially offset by an increase in the number of salons sold.
Fiscal Year Ended June 30, 2019 Compared with Fiscal Year Ended June 30, 2018
Franchise Salon Revenues
Franchise salon revenues increased $22.6 million during fiscal year 2019 due to a $8.3 million increase in franchise product sales and a $16.4 million increase in royalties and fees as a result of higher franchise salons counts,decrease in general and administrative expense and rent, partially offset by lower product sales to TBG. Our franchisees constructed (net of relocations) 65 salons, purchased (net of Company buybacks) 735 salons from the Company and closed 156 salons (excluding TBG mall locations).
Franchise Salon Operating Income
Franchise salon operating income excluding TBG increased $2.4$13.1 million due to higher product and royalty revenue as a result of the increase in franchise salon count. Franchise salon operating income including TBG, decreased $19.5 million during fiscal year 2019 due to the TBG restructuring charge of $21.8 million related primarily to notes and accounts receivable reserves.
Cash Generated from Salons Sold to Franchisees
During fiscal years 2019 and 2018, the Company generated $94.8 million and $11.6 million of cash respectively, from the sale of company-owned salons to franchisees.


goodwill impairment charge.
4136
Table of Contents

Company-owned Salons
Fiscal Years
202220212022
(Dollars in millions)(Decrease) Increase (1)
Total revenue$20.2 $143.0 $(122.8)
Operating loss$(9.5)$(70.0)$60.5 
Total company-owned salons105 276 

_______________________________________________________________________________
Fiscal Years
20202019201820202019
(Dollars in millions)Increase (Decrease)
Total revenue$416.7 $915.4 $1,104.4 $(498.7)$(189.0)
Company-owned same-store sales(4.4)%(0.4)%0.4 %(400 bps)(80 bps)
Operating (loss) income$(96.1)$58.3 $50.5 $(154.4)$7.8 
Salon counts1,6323,1083,966

(1)
Fiscal Years
202020192018
SmartStyle(4.4)%1.5 %0.3 %
Supercuts(5.3)%(2.3)%1.7 %
Signature Style(4.0)%(1.3)%(0.2)%
Total(4.4)%(0.4)%0.4 %

Total is a recalculation; line items calculated individually may not sum to total due to rounding.
Fiscal Year Ended June 30, 20202022 Compared with Fiscal Year Ended June 30, 20192021
Company-owned Salon Revenues
Company-owned salon revenues decreased $498.7$122.8 million in fiscal year 2020,2022, primarily due to the closure of a net 250 salons and the sale of 1,448 company-owned salons (net of buybacks) to franchisees during the year and the government-mandated temporary closure of our salons in third and fourth quarters due to the COVID-19 pandemic. The decreases were also due to company-owned same-store sale decrease of 4.4%. The company-owned same-store sales decrease was due to a decrease of 7.7% in same-store guest transactions, which were negatively impacted by the COVID-19 pandemic. This decrease was partially offset by an increase of 3.3% in average ticket prices.2022 Net Salon Count Changes.
Company-owned Salon Operating (Loss) IncomeLoss
During fiscal year 2020, the2022, company-owned salon operations incurred an operating loss of $96.1improved $60.5 million, compared to operating income of $58.3 million in the prior comparable period. The decreaseimprovement in the loss during fiscal year 2022 was primarily due to the $71.9 million reduction in operating income due to the reduction in company-owned salons, the recording of a $40.2 million goodwill impairment charge due to the economic disruption of COVID-19, the closure of company-owned salons due to the COVID-19 pandemic, same-store sales decline and the right of use asset impairment. These declines were partially offset by an overall decline inreduced general and administrative expense and marketing spend.
Fiscal Year Ended June 30, 2019 Compared with Fiscal Year Ended June 30, 2018
Company-owned Salons Revenues
Company-owned salon revenues decreased $189.0 million in fiscal year 2019, primarily duerelated to the 2019 Net Salon Count Changes and same-store sales decrease of 0.4%. The same-store sales decrease was due tosalaries, a 4.7% decrease in same-store guest visits, partially offset by a 4.3% increase in average ticket price.
Company-owned Salon Operating Income
Company-owned salon operating income increased $7.8 million during fiscal year 2019, primarily due to long-lived asset impairment and the January 2018 SmartStyle portfolio restructure consistingexiting of lease termination and other related closure costs and costsloss-generating company-owned salons. We expect losses associated with returning the company-owned segment to decrease as we reduce the number of remaining salons to pre-occupancy condition, and field general and administrative savings primarily due to lower headcount. These increases were partially offset by the 2019 Net Salon Count Changes, state minimum wage increases, rent inflation and marketing investments.
42
through closures or lease buyoutsTable of Contents.

Corporate
Fiscal Year Ended June 30, 2020 Compared with Fiscal Year Ended June 30, 2019
Corporate Operating Loss (1)
Corporate operating loss of $82.1 million decreased $14.5 million during fiscal year 2020, primarily driven by lower general and administrative salaries and stock compensation benefits associated with a change in performance awards assumptions during the year, partially offset by the prior year's franchise convention cost, which was recorded as Corporate expenses in fiscal year 2020 compared to Franchise expense in fiscal year 2019.
Fiscal Year Ended June 30, 2019 Compared with Fiscal Year Ended June 30, 2018
Corporate Operating Loss (1)
Corporate operating loss of $96.6 million increased $5.3 million during fiscal year 2019 primarily driven by a prior year gain of $8.0 million associated with life insurance proceeds, partially offset by savings realized from Company initiatives, including lowering headcount and lower incentive compensation.

(1)  The Corporate operating loss consists primarily of unallocated general and administrative expenses, including expenses associated with salon support, depreciation and amortization related to our corporate headquarters and unallocated insurance, benefit and compensation programs, including stock-based compensation.
Recent Accounting Pronouncements
Recent accounting pronouncements are discussed in Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

37
Table of Contents

LIQUIDITY AND CAPITAL RESOURCES
In August 2022, the Company reached an agreement to amend its credit agreement and extend the maturity to August 2025 from March 2023. Under the amendment, the revolving credit facility was converted to a $180.0 million term loan and $55.0 million revolving credit facility with the minimum liquidity covenant reduced to $10.0 million from $75.0 million. The amended credit agreement includes typical provisions and financial covenants, including minimum EBITDA, leverage and fixed-charge coverage ratio covenants, the latter two of which are not tested until December 31, 2023. See additional discussion under Financing Arrangements and Note 8 and Note 16 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Sources of Liquidity
Funds generated by operating activities, available cash and cash equivalents proceeds from sale of salons sold to franchisees, and our borrowing agreements are our most significant sources of liquidity. The Company believes it has sufficient liquidity, cash on hand and borrowing capacity, to meet its obligations in the next twelve months and beyond.
As of June 30, 2020,2022, cash and cash equivalents were $113.7$17.0 million, with $110.9, $2.6$14.9 and $0.2$2.1 million within the United States Canada and Europe,Canada, respectively.
The Company hasAs of June 30, 2022, the Company's borrowing arrangements include a credit agreement which provides for a $295.0$277.5 million five-year unsecured revolving credit facility that expires in March 2023, of which $96.5$81.9 million was available as of June 30, 2020.2022. The Company's liquidity per the agreement includes the unused available balance under the credit facility, unrestricted cash and cash equivalents and the shortfall in the gap in expected proceeds from the sale of salon assets of $20.9 million as of June 30, 2022. Total liquidity per the agreement was $119.8 million compared to a minimum liquidity covenant of $75.0 million as of June 30, 2022. See additional discussion under Financing Arrangements and NoteNotes 8 and 16 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Additionally, on February 3, 2021, the Company filed a $150 million shelf registration and $50 million prospectus supplement with the Securities and Exchange Commission under which it may offer and sell, from time to time, up to $50 million worth of its common stock in "at-the-market" offerings. Net proceeds from sales of shares under the "at-the-market" program, if any, may be used to, among other things, fund working capital requirements, repay debt and support of our brands and franchisees. The timing and amount of sales of shares, if any, will depend on a variety of factors, including prevailing market conditions, the trading price of shares, and other factors as determined by the Company. During fiscal year 2022, the Company issued 9.3 million shares and received net proceeds of $37.2 million.
Uses of Cash
The Company closely manages its liquidity and capital resources. The Company's liquidity requirements depend on key variables, including the performance of the business, the level of investment needed to support its business strategies, 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 toin 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 response to the COVID-19 pandemic, as well as its multi-year strategic plan as discussed within Part I, Item 1.
Cash Requirements
The Company's most significant contractual cash requirements as of June 30, 2022 were lease commitments. See Note 6 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K for further detail. Additionally, the Company is committed to purchasing $1.8 million of Designline inventory in the first quarter of fiscal year 2023. This inventory will be sold to our third-party supplier and customers.
43
38
Table of Contents

Cash Flows
Cash Flows (Used In) Provided byfrom Operating Activities
During fiscal year 2020,2022, cash used in operating activities was $86.4$38.6 million. Cash fromused in operations declinedimproved due to higher royalties, lower revenuesgeneral and marginsadministrative expense, lower rent and the refundingexiting of the cooperative advertising funds to Franchisees as a direct result of the COVID-19 pandemic, as well as lower same-store sales,loss-generating company-owned salons. These improvements were partially offset by $2.5 million of social security contributions that had been deferred under the eliminationCARES Act and $3.6 million of certain general and administrative costs.
Duringcosts related to our debt refinancing. Quarter-over-quarter cash use improved throughout fiscal year 2019, cash2022. Cash used in operating activities was $17.5$12.3, $12.1, $10.0 and $4.3 million primarily as a resultin the first, second, third and fourth quarters, respectively. We expect cash use in first quarter of a decline in Company-owned operating margin, strategic investment in new retail product lines and planned strategic G&A investments to enhance the Company's franchisor capabilities and support the increase in volume and cadence of transactions and conversions into the Franchise portfolio, partially offset by the elimination of certain general and administrative costs.
During fiscal year 2018, cash provided by operating activities was $2.6 million, primarily2023 to increase due to operating margin, partially offset by the paymentapproximately $5.0 million of lease termination and other related closure costs associatedpaid in connection with the Company's January 2018 SmartStyle portfolio restructures.credit amendment and approximately $2.8 million of bonus payments.
Cash Flows from Investing Activities
During fiscal year 2020,2022, cash provided by investing activities of $61.0$7.7 million was primarily fromrelated to cash proceedsreceived of $13.0 million from sale of salon assets of $91.6 million and the sale of the Company's headquarters of $9.0 million,OSP, partially offset by capital expenditures primarily related to developing the OSP software. In the first quarter of $37.5 million.

During fiscal year 2019, cash provided by investing activities2023, we expect to receive approximately $4 million related to the release of $87.8 million was primarily from cash proceeds frompurchase price holdbacks in connection with the sale of salon assetsOSP. Additionally, due to the sale of $94.8 million and proceeds from company-owned life insurance policies of $24.6 million, partially offset byOSP, we expect capital expenditures of $31.6 million.
Duringto decrease in fiscal year 2018, cash used in investing activities of $1.1 million was primarily from capital expenditures of $30.7 million, partially offset by cash proceeds from company-owned life insurance policies of $18.1 million and cash proceeds from sale of salon assets of $11.6 million.2023.
Cash Flows from Financing Activities
During fiscal year 2020,2022, cash provided by financing activities of $56.2$29.4 million was primarily duea result of net proceeds of $37.2 million related to the issuance of common stock and a net $87.5$6.9 million drawpaydown on the Company's linerevolving credit facility. The additional purchase price of credit andapproximately $4 million expected to be received in the repurchasefirst quarter of common stock of $28.2 million.
During fiscal year 2019, cash2023 will be used in financing activitiesto repay the term loan as required by the credit agreement.
39
Table of $126.7 million was primarily for repurchase of common stock of $152.7 million and employee taxes paid for shares withheld of $2.5 million, partially offset by proceeds from the sale and leaseback of the Company's distribution centers of $28.8 million.Contents
During fiscal year 2018, cash used in financing activities of $62.2 million was primarily for repayments of long-term debt relating to the 5.5% senior term notes of $124.2 million, repurchase of common stock of $24.8 million, employee taxes paid for shares withheld of $2.4 million and settlement of equity awards of $0.8 million, partially offset by borrowings on the revolving credit facility of $90.0 million.
Financing Arrangements
Financing activities are discussed in Note 8 and Note 16 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. Derivative activities are discussed in Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk."
The Company's financing arrangements consistsconsist of the following:
  June 30,
 Maturity Dates2020201920202019
 (Fiscal year)(Interest rate %)(Dollars in thousands)
Revolving credit facility20235.50%3.65%$177,500 $90,000 
Long-term financing lease liability20343.30%3.30%16,773 17,354 
Long-term financing lease liability20343.70%3.70%11,208 11,556 
   $205,481 $118,910 
44
Table of Contents

  June 30,
 Maturity Dates2022202120222021
 (Fiscal year)(Interest rate %)(Dollars in thousands)
Revolving credit facility20235.50%5.00%$179,994 $186,911 
As of June 30, 20202022 and 2019,2021, the Company had $177.5$180.0 and $90$186.9 million, respectively, of outstanding borrowings under a $295.0 millionits revolving credit facility. The five-year revolving credit facility expires in March 2023 and includes a minimum liquidity covenant of not less than $75.0 million, provides the Company's lenders security in substantially all of the Company's assets, adds additional guarantors, and grants a first priority lien and security interest to the lenders in substantially all of the Company’sCompany's and the guarantors’guarantors' existing and future property. Total liquidity per the agreement was $119.8 million as of June 30, 2022. See Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. The revolving credit facility includes a $30.0 million sub-facility for the issuance of letters of credit and a $30.0 million sublimit for swingline loans. The Company may request an increase in revolving credit commitments under the facility of up to $115.0 million under certain circumstances. The applicable margin for loans bearing interest at LIBORthe Secured Overnight Financing Rate (SOFR) ranges from 3.75%-4.25%, the applicable margin for loans bearing interest at the base rate ranges from 2.75%-3.25%, and the facility fee ranges from 0.5%-0.75%, each depending on average utilization of the revolving line of credit.
In fiscal year 2019,August 2022, the Company soldamended its Salt Lake Citycredit agreement. Under the amendment, the revolving credit facility was converted to a $180.0 million term loan and Chattanooga Distribution Centers$55.0 million revolving credit facility. The amendment also extends the maturity date to an unrelated party.August 31, 2025 and includes, among other things, financial covenants, including minimum EBITDA, leverage and fixed charge coverage ratios and a minimum liquidity covenant which was reduced from $75.0 million to $10.0 million. The Company is leasingamendment also eliminates the properties back for 15 years with$115.0 million incremental loan facility. See additional discussion in Note 16 to the option to renew. As the Company plans to lease the property for more than 75%Consolidated Financial Statements in Part II, Item 8, 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.this Form 10-K.
Our debt to capitalization ratio, calculated as the principal amount of debt as a percentage of the principal amount of debt and shareholders' (deficit) equity at fiscal year-end, was as follows:
As of June 30,Debt to
Capitalization		Basis Point
Increase (Decrease)(1)
202062.0 %3,520 
201926.8 %1,120 
201815.6 %(400)

As of June 30,Debt to
Capitalization (1)
2022120.8 %
202191.6 %

_______________________________________________________________________________
(1)RepresentsExcludes the basis point change in debt to capitalizationlong-term lease liability as compared to prior fiscal year-end.that liability is offset by the ROU asset.
The basis point increase in the debt to capitalization ratio as of June 30, 20202022 compared to June 30, 20192021 was primarily due to the increasedecrease in shareholders' (deficit) equity as a result of the Company's borrowings.loss from operations.
The basis point increase in the debt to capitalization ratio as
40
Table of June 30, 2019 compared to June 30, 2018 was primarily due to the repurchase of $8.6 million shares of common stock for $152.7 million.Contents

Contractual Obligations and Commercial Commitments
The following table reflects a summary of obligations and commitments outstanding by payment date as of June 30, 2020:
 Payments due by period
Contractual ObligationsTotalWithin
1 year		1 - 3 years3 - 5 yearsMore than
5 years
 (Dollars in thousands)
On-balance sheet:    
Debt obligations$177,500 $— $177,500 $— $— 
Finance lease liabilities (1)29,235 1,974 4,028 4,136 19,097 
Other long-term liabilities7,014 1,114 1,707 1,329 2,864 
Operating lease obligations (1)(2)933,115 166,635 283,019 224,856 258,605 
Total$1,146,864 $169,723 $466,254 $230,321 $280,566 

(1)The total lease liability does not include interest. Payments due by period are the payments due per the lease agreement and include embedded interest. Therefore, the total payments do not equal the liability.
(2)Upon adoption of ASC 842 in fiscal year 2020, the operating leases were recorded on the balance sheet so there are no off-balance sheet liabilities.
On-Balance Sheet Obligations
Our debt obligations are primarily composed of our revolving credit facility at June 30, 2020.2022.
45
TableNon-current deferred benefits of Contents

Finance lease liabilities are related to sale and leaseback transactions for two distribution centers at June 30, 2020.
Other long-term liabilities of $7.0$6.3 million include $4.4includes $1.8 million related to a Non-qualified Deferred Salary Plan andnon-qualified deferred salary plan, a salary deferral program of $2.6$2.3 million and a bonus deferral plan of $2.2 million related to established contractual payment obligations under retirement and severance agreements for a small number of employees. See Note 4 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Operating leases primarily represent long-term obligations for the rental of salons, including leases for company-owned locations, as well as salon franchisee lease obligations, which are reimbursed to the Company by franchisees. Regarding franchisee subleases, we generally retain the right to the related salon assets, net of any outstanding obligations, in the event of a default by a franchise owner. The CompanyRecent trends in system-wide revenue over the past few years has not experienced any material losses as a result from these arrangements; however,increased the COVID-19 pandemic may result in an increase in defaultsrisk of default by franchisees, which may be material.
This table excludes short-term liabilities disclosed on our balance sheet as the amounts recorded for these items will be paid in the next year. We have no unconditional purchase obligations. Also excluded from the contractual obligations table are payment estimates associated with employee health and workers' compensation claims for which we are self-insured. The majority of our recorded liability for self-insured employee health and workers' compensation losses represents estimated reserves for incurred claims that have yet to be filed or settled.
The Company has unfunded deferred compensation contracts covering certain management and executive personnel. Because weWe cannot predict the timing or amount of future payments related to these contracts, such amounts were not included in the table above.contracts. See Note 11 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
As of June 30, 2020,2022, we have liabilities for uncertain tax positions. We are not able to reasonably estimate the amount by which the liabilities will increase or decrease over time; however, at this time, we do not expect a significant payment related to these obligations within the next fiscal year. See Note 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Off-Balance Sheet Arrangements
Interest payments on long-term debt are calculated based on the revolving credit facility's rates. TheAs of June 30, 2022, the applicable margin for loans bearing interest at LIBORSOFR ranges from 3.75%-4.25%, the applicable margin for loans bearing interest at the base rate ranges from 2.75%-3.25% and the facility fee ranges from 0.5%-0.75%, each depending on average utilization of the revolving line of credit.
Under the amended credit facility entered into in August 2022, the applicable margins for the loans bearing interest are subject to annual increases. The margin applicable to loans bearing interest at SOFR will initially be 3.875%. Effective March 27, 2023, the margin will increase to 6.25%, of which 4.25% will be paid currently in cash and 2.00% will be paid in kind (PIK) interest (added to the principal balance and thereafter accruing interest). Effective March 27, 2024, the margin will increase to 7.25%, of which 4.25% will be paid currently in cash and 3.00% will be PIK interest. The margin applicable to base rate loans will be 100 basis points (1.00%) less than the margin applicable to SOFR loans. See Note 16 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
We are a party to a variety of contractual agreements under whichthat we may be obligated to indemnify the other party for certain matters, which indemnities may be secured by operation of law or otherwise, in the ordinary course of business. These contracts primarily relate to our commercial contracts, operating leases and other real estate contracts, financial agreements, agreements to provide services and agreements to indemnify officers, directors and employees in the performance of their work. While our aggregate indemnification obligation could result in a material liability, we are not aware of any current matter that we expect will result in a material liability.
We do not have otherany unconditional purchase obligations or significant other commercial commitments such as standby repurchase obligations or other commercial commitments.
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet financial arrangements or other contractually narrow or limited purposes at June 30, 2020.2022. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
41
Table of Contents

Dividends
In December 2013, the Board of Directors elected to discontinue declaring regular quarterly dividends.
Share Issuance Program
In February 2021, the Company filed a $150.0 million shelf registration statement and $50.0 million prospectus supplement with the SEC under which it may offer and sell, from time to time, up to $50.0 million worth of its common stock in "at-the-market" offerings. As of June 30, 2022, the Company has issued 9.3 million shares for net proceeds of $37.2 million.
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 June 30, 2020 ,2022, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program. All repurchased shares become authorized but unissued shares of the Company. The timing and amounts of any repurchases depends on many factors, including the market price of the common stock and overall market conditions. During fiscal year 2020,2022, the Company repurchased 1.5 million shares for $26.4 million.did not repurchase any shares. As of June 30, 2020,2022, 30.0 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remained outstanding underauthorized for repurchase. The Company does not anticipate repurchasing shares of common stock for the approved stock repurchase program.

foreseeable future.
4642
Table of Contents

CRITICAL ACCOUNTING POLICIES
The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America.States. In preparing the Consolidated Financial Statements, we are required to make various judgments, estimates and assumptions that could have a significant impact on the results reported in the Consolidated Financial Statements. We base these estimates on historical experience and other assumptions believed to be reasonable under the circumstances. Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made, and (2) other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from period to period. Changes in these estimates could have a material effect on our Consolidated Financial Statements.
Our significant accounting policies can be found in Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. We believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations.
Goodwill
As of June 30, 20202022 and 2019,2021, the Company-ownedFranchise reporting unit had $0.0$174.4 and $117.8$229.6 million of goodwill, respectively, and the Franchise reporting unitCompany-owned segment had $227.5 and $227.9 million ofno goodwill respectively.at either period. See Note 5 to the Consolidated Financial Statements.Statements in Part II, Item 8, of this Form 10-K. The Company assesses goodwill impairment on an annual basis during the Company’sCompany'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.
Goodwill impairment assessments are performed at the reporting unit level, which is the same as the Company’sCompany's operating segments. The goodwill assessment involves a one-step comparison of the reporting unit’sunit's fair value to its carrying value, including goodwill (Step 1). If the reporting unit’sunit's fair value exceeds its carrying value, no further procedures are required. However, if the reporting unit’sunit's fair value is less than the carrying value, an impairment charge is recorded for the difference between the fair value and carrying value of the reporting unit.
In applying the goodwill impairment assessment, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting units is less than its carrying value (Step 0). Qualitative factors may include, but are not limited to, economic, market and industry conditions, cost factors, and overall financial performance of the reporting unit. If after assessing these qualitative factors, the Company determines it is “more-likely-than-not”more likely than not that the carrying value is less than the fair value, then performing Step 1 of the goodwill impairment assessment is unnecessary.
The carrying value of eachthe reporting unit is based on the assets and liabilities associated with the operations of the reporting unit, including allocation of shared or corporate balances among reporting units. Allocations are generally based on the number of salons in each reporting unit as a percent of total company-owned salons or expenses of the reporting unit as a percentage of total company expenses.
The Company calculates estimated fair values of the reporting units based on discounted cash flows utilizing estimates in annual revenue, service and product margins, fixed expense rates, allocated corporate overhead, corporate-owned and franchise salon counts, proceeds from the sale of company-owned salons to franchiseeslong-term growth rates and long-term growthdiscount rates for determining terminal value. During fiscal year 2022, our estimates of annual revenue and salon counts were decreased to reflect recent trends in the business and, in fourth quarter, the removal of OSP revenues and expenses from our forecast. In addition, discount rates have increased during this period to reflect changes in the market interest rates. Where available and as appropriate, comparative market multiples are used in conjunction with the results of the discounted cash flows. The Company engages third-party valuation consultants to assist in evaluating the Company's estimated fair value calculations. See Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K10-K.
4743
Table of Contents

Long-Lived Assets, Excluding Goodwill
The Company assesses impairment of long-lived salonfollows the guidance in ASC 360, Property, Plant, and Equipment and applies the guidance to property, plant, and equipment as well as right of use assets(ROU) assets. The Company has identified its asset groups at the individual salon level as this isrepresents the lowest level for whichthat identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities, when events or changesliabilities. Poor salon performance in circumstances indicatefiscal years 2022 and 2021, primarily due to the COVID-19 pandemic, resulted in ASC 360-10-35-21 triggering events. As a result, management assessed underperforming salon asset groups, which included the related ROU assets, for impairment in accordance with ASC 360.
The first step in the impairment test under ASC 360 is to determine whether the long-lived assets are recoverable, which is determined by comparing the net carrying value of the assets orsalon asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that 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 usegroup. Estimating cash flows for purposes of the assets. The first steprecoverability test is to assess recoverabilitysubjective and in doing that the undiscountedrequires significant judgment. Estimated future cash flows are compared toused for the carrying value. Ifpurposes of the undiscounted estimatedrecoverability test were based upon historical cash flows are less thanfor the carrying valuesalons. The period of time used to determine the estimates of the assets,future cash flows for the Company calculates an impairment chargerecoverability test was based on the difference betweenremaining useful life of the carryingprimary asset of the group, which was the ROU asset in all cases.
The second step of the long-lived asset impairment test requires that the fair value of the asset group andbe estimated when determining the amount of any impairment loss. For the salon asset groups that failed the recoverability test, an impairment loss was measured as the amount by which the carrying amount of the asset group exceeds its fair value. The Company applied the fair value guidance within ASC 820-10 to determine the fair value of the asset group from the perspective of a market-participant considering, among other things, appropriate discount rates, multiple valuation techniques, the most advantageous market, and assumptions about the highest and best use of the asset group. To determine the fair value of the salon long-lived asset group are estimated using a market participant modelgroups, the Company utilized market-participant assumptions based on the best information available, including salon level revenuesrather than the Company's own assumptions about how it intends to use the asset group. The significant judgments and expenses. Theassumptions utilized to determine the fair value of the rightsalon asset groups include the market rent of use asset is estimated by determining whatcomparable properties and a market participant would pay overdiscount rate.
For fiscal years 2022 and 2021, the life of the primary asset in the group, discounted back to June 30, 2020. The impairment is allocated toCompany recognized long-lived assets based on relative carrying value, but not impaired below fair value. Long-lived property and equipment asset impairment charges of $0.5 and $13.0 million, respectively, which included $0.5 and $9.5 million, respectively, related to continuing operations of $3.9, $4.6 and $11.1 million were recorded during fiscal years 2020, 2019 and 2018, respectively in Depreciation and Amortization inROU assets on the Consolidated Statement of Operations. AOperations in Part II, Item 8, of this Form 10-K. The impairment loss for each salon asset group that was recognized was allocated among the long-lived assets of the group on a pro-rata basis using their relative carrying amounts. Additionally, the impairment losses did not reduce the carrying amount of an individual asset below its fair value, including for the ROU assets included in the salon asset groups. Assessing the long-lived assets for impairment requires management to make assumptions and to apply judgment 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 for its long-lived asset, including right of useits ROU assets. However, actual results may not be consistent with the estimates and salon property and equipment, impairment charge of $22.6 million was recorded during fiscal year 2020 and is separately stated on Consolidated Statement of Operations. Ofassumptions used in the total $22.6 million long-lived asset impairment charge, $17.4 million was allocated to the right of use asset and $5.2 million was allocated to salon property and equipment.
Judgments made by management related to the expected useful lives of salon long-lived assets and the ability to realize undiscounted cash flows in excess of the carrying amounts of such assets are affected by factors, such as the ongoing maintenance and improvement of the assets, changes in economic conditions and changes in operating performance. Right of use asset values are impacted by market rent rates. As the ongoing expected cash flows and carrying amounts of long-lived assets are assessed, these factors could causecalculations, the Company may be exposed to realize materialfuture impairment charges.losses that could be material.
44
Table of Contents

Income Taxes
Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the Consolidated Financial Statements or income tax returns. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using currently enacted tax rates in effect for the years in which the differences are expected to reverse.
We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. The Company evaluates all evidence, including recent financial performance, the existence of cumulative year losses and our forecast of future taxable income, to assess the need for a valuation allowance against our deferred tax assets. While the determination of whether or not to record a valuation allowance is not fully governed by a specific objective test, accounting guidance places significant weight on recent financial performance.
The Company has a valuation allowance on its deferred tax assets amounting to $122.4$201.7 and $70.7$192.5 million at June 30, 20202022 and 2019,2021, respectively. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make necessary adjustments to the deferred tax asset valuation, which would reduce the provision for income taxes.
Significant components of the valuation allowance which occurred during fiscal year 20202022 are as follows:
•In connection with the Coronavirus Aid, Relief and Economic Security Act (CARES Act), Net Operating Losses (NOLs) resulting from accounting periods which straddled December 31, 2017 are now considered definite-lived NOLs. Therefore, the Company established a valuation allowance against the U.S. NOLs generated during its fiscal year 2018 and recorded a net tax expense of $14.7 million.
•The Company determined that it no longer had sufficient U.S. state indefinite-lived taxable temporary differences to support realization of its U.S. state indefinite-lived NOLs and its existing U.S. deferred tax assets that upon reversal are expected to generate state indefinite-lived NOLs. As a result, the Company recorded an additional $17.0a $4.1 million valuation allowance on its U.S. federalstate indefinite-lived deferred tax assets.
Significant components of the valuation allowance which occurred during fiscal year 2021 are as follows:
•The Company recognized a capitaltax loss on its investment in Luxembourg and established a corresponding valuation allowance of $14.9 million on investment outside basis previously impaired for financial accounting purposes.$34.4 million.

48
Table of Contents

The Company reserves for unrecognized tax benefits, interest and penalties related to anticipated tax audit positions in the U.S. and other tax jurisdictions based on an estimate of whether additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of these liabilities would result in tax benefits being recognized in the period in which it is determined that the liabilities are no longer necessary. If the estimate of unrecognized tax benefits, interest and penalties proves to be less than the ultimate assessment, additional expenses would result.
Inherent in the measurement of deferred balances are certain judgments and interpretations of tax laws and published guidance with respect to the Company's operations. Income tax expense is primarily the current tax payable for the period and the change during the period in certain deferred tax assets and liabilities.
See Note 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
45
Table of Contents

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk
The primary market risk exposure of the Company relates to changes in interest rates in connection with its debt, specifically the revolving credit facility, which bears interest at variable rates based on LIBORSOFR plus an applicable borrowing margin. Additionally, the Company is exposed to foreign currency translation risk related to changes in the Canadian dollar, and to a lesser extent, the British pound. The Company has established policies and procedures that govern the management of these exposures through the use of derivative financial instrument contracts. By policy, the Company does not enter into such contracts for the purpose of speculation. The following details the Company's policies and use of financial instruments.
Interest Rate Risk:
The Company has established an interest rate management policy that attempts to minimize its overall cost of debt, while taking into consideration earnings implications associated with volatility in short-term interest rates. In the past, the Company has used interest rate swaps to further mitigate the risk associated with changing interest rates and to maintain its desired balances of fixed and floating rate debt. In addition, access to variable rate debt is available through the Company's revolving credit facility. The Company reviews its policy and interest rate risk management quarterly and adjusts in accordance with market conditions and the Company's shortshort- and long-term borrowing needs. As of June 30, 2020,2022, the Company had outstanding variable rate debt of $177.5 million. As of June 30, 2020,$180.0 million and the Company did not have any outstanding interest rate swaps.

In August 2022, the Company amended and extended its revolving credit facility to convert it to a $180.0 million term loan and $55.0 million revolving credit facility with varying interest rates. See Note 16 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Foreign Currency Exchange Risk:
Over 92%90% of the Company's operations are transacted in United StatesU.S. dollars. However, because a portion of the Company's operations consistsconsist of activities outside of the United States,U.S., the Company has transactions in other currencies, primarily the Canadian dollar, and to a lesser extent, the British pound. In preparing the Consolidated Financial Statements, the Company is required to translate the financial statements of its foreign subsidiaries from the currency in which they keep their accounting records, generally the local currency, into United StatesU.S. dollars. Different exchange rates from period to period impact the amounts of reported income and the amount of foreign currency translation recorded in accumulated other comprehensive income (AOCI). As part of its risk management strategy, the Company frequently evaluates its foreign currency exchange risk by monitoring market data and external factors that may influence exchange rate fluctuations. As a result, the Company may engage in transactions involving various derivative instruments to hedge assets, liabilities and purchases denominated in foreign currencies. As of June 30, 2020,2022, the Company did not have any derivative instruments to manage its foreign currency risk.
During fiscal years 2020, 20192022 and 2018, the2021, a $0.6 million foreign currency (loss)loss and $0.3 million foreign currency gain is included in (loss) incomeloss from continuing operations, was $(0.1), $0.1 and $(0.1) million, respectively. During fiscal year 2018, the Company recognized within discontinued operations a $6.2 million foreign currency translation loss in connection with the Company's liquidation of substantially all foreign entities with British pound denominated currencies.
4946
Table of Contents

Item 8.    Financial Statements and Supplementary Data
Index to Consolidated Financial Statements:  
 
5148
5551
 
5652
 
5753
 
5854
 
5955
 
6056

5047
Table of Contents

Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Regis Corporation
OpinionsOpinion on the Financial Statements and Internal Control over Financial Reportingfinancial statements

We have audited the accompanying consolidated balance sheetsheets of Regis Corporation (a Minnesota corporation) and its subsidiaries (the “Company”"Company") as of June 30, 20202022 and 2019, and2021, the related consolidated statements of operations, of comprehensive (loss) income, ofloss, shareholders' (deficit) equity, and of cash flows for each of the three years in the periodthen ended, June 30, 2020, includingand the related notes (collectively referred to as the “consolidated financial statements”"financial statements"). We also have audited the Company's internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 20202022 and 2019,2021, and the results of its operations and its cash flows for each of the three years in the periodthen ended, June 30, 2020 in conformity with accounting principles generally accepted in the United States of America. Also
We also have audited, in our opinion,accordance with the standards of the Public Company maintained, in all material respects, effectiveAccounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of June 30, 2020,2022, based on criteria established in the 2013 Internal Control - Control—Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 toCommittee of Sponsoring Organizations of the consolidated financial statements, the Company changed the manner in which it accounts for leasesTreadway Commission (“COSO”), and our report dated August 22, 2022 expressed as of July 1, 2019.

an unqualified opinion.
Basis for Opinionsopinion

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

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

fraud. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill impairment analysis
As described further in Note 1 to the financial statements, the Company’s consolidated goodwill balance was $174.4 million as of June 30, 2022 and is assigned to the Franchise reporting unit. Goodwill is tested annually for impairment on April 30th or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired. At March 31, 2022, a triggering event was identified and a quantitative goodwill impairment test was performed which resulted in impairment expense of $16.0 million. We identified the Company’s March 31, 2022 goodwill impairment analysis as a critical audit matter.
The principal considerations for our determination that the goodwill impairment analysis is a critical audit matter are that the significant estimates and assumptions made by management involve subjectivity and judgment in determining the fair value of the reporting unit using the discounted future cash flows valuation technique. The reporting unit discounted future cash flows include certain management assumptions that are complex and have a higher degree of estimation uncertainty and changes in these assumptions could have a significant impact on the results of the impairment analysis. These assumptions include forward-looking projections related to salon counts, revenue, EBITDA margin and determination of discount rates. Performing audit procedures to evaluate management's assumptions required a high degree of auditor judgement and an increased extent of effort, including the need to involve valuation specialists.

48
Table of Contents

Our audit procedures related to the annual goodwill impairment analysis included the following, among others.
•We tested the design and operating effectiveness of controls relating to management's goodwill impairment test, including the controls over the determination of key inputs such as the forecasting of future cash flows and determination of the discount rate;
•We tested the reasonableness of management's forecasts of future revenues and EBITDA margin by comparing to third-party industry projections and historical operating results;
•We performed sensitivity analysis on the Company's future revenue and salon counts to evaluate the reasonableness of management's forecasts;
•We utilized a valuation specialist to assist in recalculating the Company's discounted future cash flows model and in evaluating the reasonableness of significant assumptions including the discount rate; and
•We evaluated the competency and objectivity of management's specialists who assisted with preparing the discounted cash flow analysis.
Accounting for Discontinued Operations
As discussed in Note 3 of the consolidated financial statements. statements, on June 29, 2022, the Company completed the sale of its OSP software-as-a-service business ("OSP") to Soham Inc. ("Buyer") for $20.0 million in cash plus up to an additional $19.0 million in proceeds contingent upon the number of salons that transition to the Buyer's salon technology platform. In connection with the sale, the Company recognized a pre-tax loss of $36.6 million in discontinued operations. As a result of the discontinued operations classification, the comparative period consolidated financial statements for fiscal year 2021 have been recast to reclassify balance sheet, operations and cash flow amounts related to OSP discontinued operations. We identified the Company’s accounting for the OSP discontinued operations as a critical audit matter.
The principal considerations for our determination that the discontinued operations is a critical audit matter are that auditing the Company's discontinued operations was complex due to judgments made by management in applying the relevant accounting principles including management's determination that OSP is a business, that the sale is a strategic shift, and the fair value determinations used in allocating goodwill attributable to the OSP component of the Franchise reporting unit.
Our audit procedures related to the discontinued operations included the following, among others.
•We tested the design and operating effectiveness of financial reporting controls over the Company's accounting for the discontinued operations.
•We evaluated the appropriateness of the Company's application of the criteria for reporting of discontinued operations by inspecting management's supporting documentation, reading board of directors meeting minutes and other entity information, and evaluating whether there was contrary evidence, based on our understanding of the business.
•We consulted with our national office as to the appropriateness of the conclusion reached regarding discontinued operations treatment.
•To test the allocation of goodwill to the OSP component for purposes of computing the loss, we evaluated the determination of the fair value of OSP based on the terms of the sale and the fair value of the overall Franchise reporting unit based on the most recent fair value determinations used in conjunction with goodwill impairment testing.
•We evaluated the presentation of the discontinued operations in the consolidated financial statements, including testing significant balances for appropriate allocation to discontinued operations in 2022 and 2021 and assessing the reasonableness of key judgments applied by management in allocating expenses to the discontinued operations.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2020.
Minneapolis, Minnesota
August 22, 2022
49
Table of Contents

Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Regis Corporation
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Regis Corporation (a Minnesota Corporation) and subsidiaries (the "Company") as of June 30, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated financial statements of the Company as of and for the year ended June 30, 2022, and our report dated August 22, 2022, expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting ("Management’s Report"). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also includedrisk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audits provideaudit provides a reasonable basis for our opinions.


51
Table of Contents

opinion.
Definition and Limitationslimitations of Internal Controlinternal control over Financial Reporting

financial reporting
A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (i)(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii)(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii)(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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

Critical Audit Matters

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

Goodwill Impairment Assessment as of March 31, 2020 – Franchise Reporting Unit

As described in Notes 1 and 5 to the consolidated financial statements, the Company’s consolidated goodwill balance was $227.5 million as of June 30, 2020, which is fully attributed to the Franchise reporting unit. Management assesses goodwill impairment on an annual basis as of April 30, 2020, 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. During the third quarter of fiscal year 2020, the Company determined a triggering event occurred, resulting in quantitative impairment tests performed over the goodwill. This determination was made considering the reduced sales and profitability projections for the reporting unit, driven by the COVID-19 pandemic and related economic disruption. As a result of the triggering event impairment testing, the Franchise reporting unit was determined to have a fair value that exceeded carrying value by approximately 50 percent. The fair value of the Franchise reporting unit was determined based on a combination of a discounted cash flow model and a market model. The significant assumptions used in determining fair value for the March 31, 2020 assessment were the, number of salons to be sold to franchisees and the discount rate.Management subsequently updated the triggering event impairment assessment with its annual impairment test of the Franchise reporting unit as of April 30, 2020.

The principal considerations for our determination that performing procedures relating to the goodwill triggering event impairment assessment of the Franchise reporting unit is a critical audit matter are the significant judgment by management when determining the fair value measurement of the reporting unit, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to (i) management’s discounted cash flow model (ii) significant assumptions related to the number of salons to be sold to franchisees and the discount rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

52
Table of Contents

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

Right of Use Asset Impairment Assessment for the Salon Asset Groups

As described in Notes 1 and 6 to the consolidated financial statements, the Company’s consolidated Right of Use Asset (ROUA) balance was $786.2 million as of June 30, 2020. As a result of COVID-19 and the related store closures that occurred during the fourth fiscal quarter of 2020, management determined that a triggering event had occurred and was required to perform a quantitative impairment assessment in the fourth fiscal quarter fiscal 2020. The Company first assessed all of its salon asset groups, which included the ROU assets, to determine if the carrying value was recoverable, which is determined by comparing the net carrying value of the salon asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset group. For the salon asset groups that failed the recoverability test, an impairment loss was measured as the amount by which the asset group exceeds its fair value. As described by management, the results of this assessment indicated that the estimated fair value of a portion of the Company’s salon asset groups did not exceed the carrying value and an impairment charge was recorded in the amount of $17.4 million to the ROUA balance. The fair value of the salon asset groups were determined from the perspective of a market participant considering various factors. The significant judgments and assumptions used in determining the fair value of the salon asset groups were the market rent of comparable properties based on recently negotiated leases as applicable, asset group’s projected sales for fiscal years 2021 through 2023 for properties with no recently negotiated leases, and a discount rate. The Company engaged a third-party valuation specialist to assist with significant inputs and assumptions utilized in the measurement of the impairment loss.

The principal considerations for our determination that performing procedures relating to the ROUA impairment assessment of the salon asset groups that failed the long-lived asset recoverability test is a critical audit matter are the significant judgement by management when developing the fair value measurement of the asset groups, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to (i) management’s methods and calculations and, (ii) significant judgments and assumptions related to the market rent of comparable properties based on recently negotiated leases as applicable, asset group’s projected sales for fiscal years 2021 through 2023 for properties with no recently negotiated leases, and the discount rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s ROUA impairment assessment, including controls over the valuation of the salon asset groups. These procedures also included, among others, (i) testing management’s process for developing the fair value of the salon asset groups; (ii) evaluating the appropriateness of the market participant approach methods; (iii) testing the completeness, accuracy, and relevance of underlying data used in the estimates; and (iv) evaluating the significant judgments and assumptions used by management, which are the market rent of comparable properties based on recently negotiated leases, as applicable, asset group’s projected sales for fiscal years 2021 through 2023 for properties with no recently negotiated leases, and the discount rate.Evaluating management’s judgments and assumptions relating to market rent of comparable properties of recently negotiated leases involved obtaining recently negotiated leases to evaluate whether the fair market monthly rent used in the method was consistent with the executed agreements. Evaluating management’s assumptions relating to the market comparable properties based on asset group’s projected sales for fiscal years 2021 through 2023 sales involved evaluating whether the assumptions used by management were reasonable considering current and past performance of the asset group, industry data and whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s market participant approach methods and the discount rate assumption.


53
Table of Contents

/s/ PricewaterhouseCoopersGRANT THORNTON LLP
Minneapolis, Minnesota
August 31, 202022, 2022

We have served as the Company’s auditor since at least 1990. We have not been able to determine the specific year we began serving as auditor of the Company.
5450
Table of Contents

REGIS CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share data)
 June 30,
 20202019
ASSETS  
Current assets:  
Cash and cash equivalents$113,667 $70,141 
Receivables, net31,030 30,143 
Inventories62,597 77,322 
Other current assets19,138 33,216 
Total current assets226,432 210,822 
Property and equipment, net57,176 78,090 
Goodwill227,457 345,718 
Other intangibles, net4,579 8,761 
Right of use asset (Note 6)786,216 — 
Other assets40,934 34,170 
Non-current assets held for sale (Note 1)0 5,276 
Total assets$1,342,794 $682,837 
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current liabilities:  
Accounts payable$50,918 $47,532 
Accrued expenses48,825 80,751 
Short-term lease liability (Note 6)137,271 — 
Total current liabilities237,014 128,283 
Long-term debt, net177,500 90,000 
Long-term lease liability (Note 6)680,454 — 
Long-term financing liabilities27,981 28,910 
Other non-current liabilities94,142 111,399 
Total liabilities1,217,091 358,592 
Commitments and contingencies (Note 9)
Shareholders' equity:  
Common stock, $0.05 par value; issued and outstanding, 35,625,716 and 36,869,249 common shares at June 30, 2020 and 2019, respectively1,781 1,843 
Additional paid-in capital22,011 47,152 
Accumulated other comprehensive income7,449 9,342 
Retained earnings94,462 265,908 
Total shareholders' equity125,703 324,245 
Total liabilities and shareholders' equity$1,342,794 $682,837 
 June 30,
 20222021
ASSETS  
Current assets:  
Cash and cash equivalents$17,041 $19,191 
Receivables, net14,531 26,270 
Inventories3,109 20,639 
Other current assets13,984 17,017 
Current assets related to discontinued operations (Note 3)— 3,542 
Total current assets48,665 86,659 
Property and equipment, net12,835 16,906 
Goodwill (Note 5)174,360 188,257 
Other intangibles, net3,226 3,761 
Right of use asset (Note 6)493,749 610,599 
Other assets36,465 41,388 
Non-current assets related to discontinued operations (Note 3)— 48,813 
Total assets$769,300 $996,383 
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY  
Current liabilities:  
Accounts payable$15,860 $27,157 
Accrued expenses33,784 51,242 
Short-term lease liability (Note 6)103,196 116,348 
Current liabilities related to discontinued operations (Note 3)— 3,738 
Total current liabilities152,840 198,485 
Long-term debt, net (Note 8)179,994 186,911 
Long-term lease liability (Note 6)408,445 517,626 
Other non-current liabilities58,974 75,075 
Non-current liabilities related to discontinued operations (Note 3)— 1,240 
Total liabilities800,253 979,337 
Commitments and contingencies (Note 9)00
Shareholders' (deficit) equity:  
Common stock, $0.05 par value; issued and outstanding, 45,510,245 and 35,795,844 common shares at June 30, 2022 and 2021, respectively2,276 1,790 
Additional paid-in capital62,562 25,102 
Accumulated other comprehensive income9,455 9,543 
Accumulated deficit(105,246)(19,389)
Total shareholders' (deficit) equity(30,953)17,046 
Total liabilities and shareholders' (deficit) equity$769,300 $996,383 

The accompanying notes are an integral part of the Consolidated Financial Statements.
5551
Table of Contents

REGIS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars and shares in thousands, except per share data)
 Fiscal Years
 202020192018
Revenues:   
Service$331,538 $749,660 $899,345 
Product137,586 225,618 258,740 
Royalties and fees73,402 93,761 77,394 
Franchise rental income (Note 6)127,203 — — 
Total revenue669,729 1,069,039 1,235,479 
Operating expenses:   
Cost of service222,279 452,827 530,582 
Cost of product84,698 128,816 140,623 
Site operating expenses71,543 141,031 154,067 
General and administrative130,953 177,004 174,045 
Rent (Note 6)76,382 131,816 183,096 
Franchise rent expense (Note 6)127,203 — — 
Depreciation and amortization36,952 37,848 58,205 
Long-lived asset impairment (Note 1)22,560 0 0 
TBG mall restructuring (Note 3)2,333 21,816 0 
Goodwill impairment (Note 1)40,164 0 0 
Total operating expenses815,067 1,091,158 1,240,618 
Operating loss(145,338)(22,119)(5,139)
Other (expense) income:   
Interest expense(7,522)(4,795)(10,492)
(Loss) gain from sale of salon assets to franchisees, net(27,306)2,918 241 
Interest income and other, net3,353 1,729 5,199 
Loss from continuing operations before income taxes(176,813)(22,267)(10,191)
Income tax benefit4,619 2,145 69,812 
(Loss) income from continuing operations(172,194)(20,122)59,621 
Income (loss) from discontinued operations, net of taxes (Note 3)832 5,896 (53,185)
Net (loss) income$(171,362)$(14,226)$6,436 
Net (loss) income per share:   
Basic:   
(Loss) income from continuing operations$(4.79)$(0.48)$1.28 
Income (loss) from discontinued operations0.02 0.14 (1.14)
Net (loss) income per share, basic (1)$(4.77)$(0.34)$0.14 
Diluted:
(Loss) income from continuing operations$(4.79)$(0.48)$1.27 
Income (loss) from discontinued operations0.02 0.14 (1.13)
Net (loss) income per share, diluted (1)$(4.77)$(0.34)$0.14 
Weighted average common and common equivalent shares outstanding:   
Basic35,936 41,829 46,517 
Diluted35,936 41,829 47,035 
 Fiscal Years
 20222021
Revenues:  
Royalties$65,753 $52,357 
Fees11,587 10,215 
Product sales to franchisees15,072 56,699 
Advertising fund contributions32,573 22,023 
Franchise rental income (Note 6)130,777 127,392 
Company-owned salon revenue20,205 142,965 
Total revenue275,967 411,651 
Operating expenses:  
Cost of product sales to franchisees17,391 43,756 
Inventory reserve (1)7,655 — 
General and administrative65,274 96,427 
Rent (Note 6)9,357 40,754 
Advertising fund expense32,573 22,023 
Franchise rent expense130,777 127,392 
Company-owned salon expense (2)21,952 141,204 
Depreciation and amortization6,224 21,749 
Long-lived asset impairment (Note 1)542 13,023 
Goodwill impairment (Note 5)13,120 — 
Total operating expenses304,865 506,328 
Operating loss(28,898)(94,677)
Other (expense) income:  
Interest expense(12,914)(13,163)
Loss from sale of salon assets to franchisees, net(2,334)(16,696)
Interest income and other, net(296)15,902 
Loss from operations before income taxes(44,442)(108,634)
Income tax (expense) benefit(2,017)5,428 
Loss from continuing operations(46,459)(103,206)
Loss from discontinued operations, net of income taxes (Note 3)(39,398)(10,125)
Net loss$(85,857)$(113,331)
Net loss per share:  
Basic and diluted:  
Loss from continuing operations$(1.07)$(2.87)
Loss from discontinued operations(0.90)(0.28)
Net loss per share, basic and diluted (3)$(1.97)$(3.15)
Weighted average common and common equivalent shares outstanding:  
Basic and diluted43,582 35,956 

(1)Includes charges in the third and fourth quarter associated with liquidation of distribution center inventory. Excludes reserves for inventory at salons.
(2)Includes cost of service and product sold to guests in our Company-owned salons. Excludes general and administrative expense, rent and depreciation and amortization related to Company-owned salons.
(3)Total is a recalculation; line items calculated individually may not sum to total due to rounding.
The accompanying notes are an integral part of the Consolidated Financial Statements.
5652
Table of Contents

REGIS CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOMELOSS
(Dollars in thousands)
 Fiscal Years
 202020192018
Net (loss) income$(171,362)$(14,226)$6,436 
Other comprehensive (loss) income, net of tax:   
Foreign currency translation adjustments during the period:
Foreign currency translation adjustments(1,462)185 (168)
Reclassification adjustments for losses included in net income (Note 3)0 0 6,152 
Net current period foreign currency translation adjustments(1,462)185 5,984 
Recognition of deferred compensation(431)(499)336 
Other comprehensive (loss) income(1,893)(314)6,320 
Comprehensive (loss) income$(173,255)$(14,540)$12,756 
 Fiscal Years
 20222021
Net loss$(85,857)$(113,331)
Other comprehensive (loss) income, net of tax:  
Net current period foreign currency translation adjustments(547)1,888 
Recognition of deferred compensation459 206 
Other comprehensive (loss) income(88)2,094 
Comprehensive loss$(85,945)$(111,237)

The accompanying notes are an integral part of the Consolidated Financial Statements.
5753
Table of Contents

REGIS CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIT) EQUITY
(Dollars in thousands, except share data)
 Common StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
Income		Retained
Earnings		Total
 SharesAmount
Balance, June 30, 201746,400,367 $2,320 $214,109 $3,336 $273,580 $493,345 
Net income— — — — 6,436 6,436 
Foreign currency translation— — — 5,984 — 5,984 
Stock repurchase program(1,469,057)(74)(24,724)— — (24,798)
Exercise of SARs33,342 2 (332)— — (330)
Stock-based compensation— — 7,475 — — 7,475 
Shares issued through franchise stock incentive program522 — 7 — — 7 
Recognition of deferred compensation (Note 11)— — — 336 — 336 
Net restricted stock activity293,397 15 (2,099)— — (2,084)
Minority interest (Note 1)— — — — 67 67 
Balance, June 30, 201845,258,571 2,263 194,436 9,656 280,083 486,438 
Net loss— — — — (14,226)(14,226)
Foreign currency translation— — — 185 — 185 
Stock repurchase program(8,605,430)(431)(154,114)— — (154,545)
Exercise of SARs22,263 1 (222)— — (221)
Stock-based compensation— — 9,003 — — 9,003 
Recognition of deferred compensation (Note 11)— — — (499)— (499)
Net restricted stock activity193,845 10 (1,951)— — (1,941)
Minority interest (Note 1)— — — — 51 51 
Balance, June 30, 201936,869,249 1,843 47,152 9,342 265,908 324,245 
Net loss— — — — (171,362)(171,362)
Foreign currency translation (Note 1)— — — (1,462)— (1,462)
Stock repurchase program(1,504,000)(75)(26,281)— — (26,356)
Exercise of SARs1,776 — 28 — — 28 
Stock-based compensation— — 3,275 — — 3,275 
Recognition of deferred compensation (Note 11)— — — (431)— (431)
Net restricted stock activity258,691 13 (2,163)— — (2,150)
Minority interest (Note 1)— — — — (84)(84)
Balance, June 30, 202035,625,716 $1,781 $22,011 $7,449 $94,462 $125,703 
 Common StockAdditional
Paid-In
Capital		Accumulated
Other
Comprehensive
Income		Retained Earnings (Deficit)Total
 SharesAmount
Balance, June 30, 202035,625,716 $1,781 $22,011 $7,449 $94,462 $125,703 
Net loss— — — — (113,331)(113,331)
Foreign currency translation (Note 1)— — — 1,888 — 1,888 
Exercise of SARs3,775 — (24)— — (24)
Stock-based compensation— — 3,254 — — 3,254 
Recognition of deferred compensation (Note 11)— — — 206 — 206 
Net restricted stock activity166,353 9 (139)— — (130)
Minority interest— — — — (520)(520)
Balance, June 30, 202135,795,844 1,790 25,102 9,543 (19,389)17,046 
Net loss— — — — (85,857)(85,857)
Foreign currency translation (Note 1)— — — (547)— (547)
Issuance of common stock, net of offering costs9,295,618 465 36,720 — — 37,185 
Stock-based compensation— — 1,285 — — 1,285 
Recognition of deferred compensation (Note 11)— — — 459 — 459 
Net restricted stock activity418,783 21 (545)— — (524)
Balance, June 30, 202245,510,245 $2,276 $62,562 $9,455 $(105,246)$(30,953)

The accompanying notes are an integral part of the Consolidated Financial Statements.
5854
Table of Contents

REGIS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
 Fiscal Years
 20222021
Cash flows from operating activities:  
Net loss$(85,857)$(113,331)
Adjustments to reconcile net loss to net cash used in operating activities:  
Loss from sale of OSP (Note 3)36,143 — 
Depreciation and amortization (Note 1)6,504 17,871 
Long-lived asset impairment542 13,023 
Deferred income taxes391 (3,388)
Inventory reserve10,478 12,068 
Gain from disposal of distribution center assets— (14,997)
Loss from sale of salon assets to franchisees, net2,334 16,696 
Goodwill impairment16,000 — 
Stock-based compensation1,334 3,254 
Amortization of debt discount and financing costs1,839 1,839 
Other non-cash items affecting earnings709 (351)
Changes in operating assets and liabilities (1):  
Receivables11,896 (279)
Inventories7,886 17,879 
Income tax receivable1,118 1,295 
Other current assets2,118 1,658 
Other assets2,703 (2,896)
Accounts payable(10,966)(21,669)
Accrued expenses(21,983)5,296 
Net lease liabilities(5,960)(19,248)
Other non-current liabilities(15,867)(14,603)
Net cash used in operating activities:(38,638)(99,883)
Cash flows from investing activities:  
Capital expenditures(5,316)(11,475)
Proceeds from sale of OSP13,000 — 
Proceeds from sale of assets to franchisees— 8,437 
Costs associated with sale of assets to franchisees— (261)
Proceeds from company-owned life insurance policies— 1,200 
Net cash provided by (used in) investing activities:7,684 (2,099)
Cash flows from financing activities:  
Borrowings on revolving credit facility10,000 10,000 
Repayments of revolving credit facility(16,916)(589)
Proceeds from issuance of common stock, net of offering costs37,185 — 
Taxes paid for shares withheld(845)(348)
Minority interest buyout— (562)
Distribution center lease payments— (724)
Net cash provided by financing activities:29,424 7,777 
Effect of exchange rate changes on cash and cash equivalents(158)477 
Decrease in cash, cash equivalents and restricted cash(1,688)(93,728)
Cash, cash equivalents and restricted cash:  
Beginning of year29,152 122,880 
End of year$27,464 $29,152 
 Fiscal Years
 202020192018
Cash flows from operating activities:   
Net (loss) income$(171,362)$(14,226)$6,436 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:   
Non-cash adjustments related to discontinued operations(1,098)306 38,826 
Depreciation and amortization33,101 33,261 39,433 
Depreciation related to discontinued operations0 0 3,738 
Salon asset impairments3,851 4,587 11,092 
Long-lived asset impairment22,560 0 0 
Deferred income taxes(3,934)(9,812)(80,241)
Gain on life insurance proceeds0 0 (7,986)
Gain from sale of company headquarters, net(2,513)0 0 
Loss (gain) from sale of salon assets to franchisees, net27,306 (2,918)(241)
Non-cash TBG mall location restructuring charge (Note 3)0 21,008 0 
Goodwill impairment40,164 0 0 
Accumulated other comprehensive income reclassification adjustments (Note 3)0 0 6,152 
Stock-based compensation3,275 9,003 8,269 
Amortization of debt discount and financing costs398 275 4,080 
Other non-cash items affecting earnings(539)(903)(294)
Changes in operating assets and liabilities (1):   
Receivables(3,902)(17,304)(12,081)
Inventories(2,255)(8,492)13,940 
Income tax receivable(1,804)(703)527 
Other current assets2,827 (783)239 
Other assets(10,094)(5,546)(11,229)
Accounts payable4,588 (5,836)(1,103)
Accrued expenses(27,622)(20,158)(10,940)
Net lease liabilities276 0 0 
Other non-current liabilities368 717 (6,027)
Net cash (used in) provided by operating activities:(86,409)(17,524)2,590 
Cash flows from investing activities:   
Capital expenditures(37,494)(31,616)(29,571)
Capital expenditures related to discontinued operations0 0 (1,171)
Proceeds from sale of company headquarters8,996 0 0 
Proceeds from sale of assets to franchisees91,616 94,787 11,582 
Costs associated with sale of assets to franchisees(2,089)0 0 
Proceeds from company-owned life insurance policies0 24,617 18,108 
Net cash provided by (used in) investing activities:61,029 87,788 (1,052)
Cash flows from financing activities:   
Borrowings on revolving credit facility213,000 0 90,000 
Repayments of revolving credit facility(125,500)0 (124,230)
Repurchase of common stock(28,246)(152,661)(24,798)
Proceeds from sale and leaseback transactions0 28,821 0 
Sale and leaseback payments(769)(378)0 
Taxes paid for shares withheld(2,320)(2,477)(2,413)
Settlement of equity awards0 0 (794)
Net cash provided by (used in) financing activities:56,165 (126,695)(62,235)
Effect of exchange rate changes on cash and cash equivalents(284)35 (514)
Increase (decrease) in cash, cash equivalents and restricted cash30,501 (56,396)(61,211)
Cash, cash equivalents and restricted cash:   
Beginning of year92,379 148,775 208,634 
Cash and cash equivalents included in current assets held for sale0 0 1,352 
Beginning of year92,379 148,775 209,986 
End of year$122,880 $92,379 $148,775 

(1)Changes in operating assets and liabilities exclude assets and liabilities sold or acquired.
The accompanying notes are an integral part of the Consolidated Financial Statements.
5955
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description:
Regis Corporation (the "Company")Company) franchises owns and operates technology-enabled hairstyling and hair care salons throughout the United States (U.S.), Canada, Puerto Rico and the United Kingdom (U.K.), Canada and Puerto Rico.. The business is evaluated in 2 segments, Franchise salons and Company-owned salons. Franchise salons in operation decreased from 5,563 to 5,395 at June 30, 2021 compared to June 30, 2022, primarily due to the closure of 299 salons, which was partially offset by the conversion of 110 salons from company-owned. Company-owned salons in operation decreased from 276 to 105 at June 30, 2021 compared to June 30, 2022, primarily due to the conversion of 110 salons to franchise. See Note 15 to the Consolidated Financial Statements. Franchised salons throughout the U.S. and Canada are primarily located in strip shopping centers or Walmart Supercenters. Salons in the U.K. are franchised locations and operate in leading department stores, mass merchants and high-street locations. Substantially all of the hairstyling and hair care salons owned and operated by the Company in the U.S., Canada and Puerto Rico are located in leased space in strip shopping centers,center locations, malls or Walmart Supercenters.Walmart.
COVID-19 Impact:
During fiscal year 2020,years 2022 and 2021, the global coronavirus pandemic (COVID-19) had an adverse impact on operations, including the closure of all company-owned salonsoperations. The COVID-19 pandemic continues to impact salon guest visits and almost all franchise locations from March 2020 duefranchisee staffing, resulting in a significant reduction in revenue and profitability. In response to government mandates. Salons continued to be closed until April 23, 2020 when franchise salons began re-opening slowly, as government, state and local restrictions eased. As of June 30, 2020 approximately 87% of franchise salons were open. Company-owned salons were closed through May 21, 2020 and are gradually re-opening. As of June 30, 2020, approximately 54% of company-owned salons were open. As salons re-open,COVID-19, the Company is taking additional measures across its portfolioreceived Canadian rent relief, Canadian wage relief and U.S. employee retention payroll tax credits. In fiscal years 2022 and 2021, the Company received the following amounts in rent and wage assistance:
 Fiscal Years
 Financial Statement Caption20222021
 (Dollars in thousands)
Canadian rent reliefRent$1,235 $— 
Canadian wage reliefCompany-owned salon expense1,966  1,629 
U.S. employee retention payroll tax creditCompany-owned salon expense— 1,547 
Additionally, in December 2021 the Company paid $2.5 million of franchise and company-owned salons to facilitate customer and employee safety. As a result,social security contributions that had been deferred under the CARES Act. Overall, COVID-19 has, and willmay continue to negatively affecthave, a negative effect on revenue and profitability. To offset the loss of revenue, in April 2020, the Company implemented a furlough program for a substantial majority of the workforce across the corporate office, field support, and distribution centers; and reductions in the pay for executives and other working employees. The furlough program was in effect for the majority of the fiscal fourth quarter with a substantial majority returning to work in June 2020. Despite actions taken to resume business operations, COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, as well as reactions to future pandemics or resurgences of COVID-19, could potentially prolong and intensify theultimate impact of the global crisis on our business.
The economic disruptionCOVID-19 pandemic in both the short- and long-term is not currently estimable due to the uncertainty surrounding the duration of the pandemic, the emergence and impact of new COVID-19 was determinedvariants and changing government restrictions. Additional impacts to be a triggering event and as a result, management assessed its long-term assets, including long-lived salon assets, rightthe business may arise that we are not aware of use assets, goodwill and other intangibles for impairment. Impairments were recorded related to long-lived salon assets (Note 7), right of use assets (Note 6), intangible assets (Note 4) and goodwill (Notes 1 and 5). As the COVID-19 pandemic continues, management will reassess all long-term assets and further impairment may result.currently.
Consolidation:
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries after the elimination of intercompany accounts and transactions. All material subsidiaries are wholly owned. The Company consolidates variable interest entities where it has determined it is the primary beneficiary of those entities' operations.
Variable Interest Entities:
The Company has interests in certain privately-held entities through arrangements that do not involve voting interests. Such entities, known as a variable interest entityentities (VIE), are required to be consolidated by its primary beneficiary. The Company evaluates whether or not it is the primary beneficiary for each VIE using a qualitative assessment that considers the VIE's purpose and design, the involvement of each of the interest holders and the risk and benefits of the VIE.
As of June 30, 2020,2022, the Company has 1 VIE, Roosters MGC International LLC (Roosters),no VIEs where the Company is the primary beneficiary.
The Company ownshas an 84.0% ownership investment in Empire Education Group, Inc. (EEG). During fiscal year 2020, the Company signed an agreement to sell its interest in Roosters. As of June 30, 2020, total assets, total liabilities and total shareholders' equity of Roosters were $13.2, $4.8 and $8.4 million, respectively. As of June 30, 2019, total assets, total liabilities and total shareholders' equity of Roosters were $9.6, $1.7, and $7.9 million, respectively. Net income attributableEEG to the non-controllingother shareholder. Until the transaction closes, the Company continues to account for EEG as an equity investment under the voting interest model. The Company has granted the other shareholder of EEG an irrevocable proxy to vote a certain number of the Company's shares such that the other shareholder of EEG has voting control of EEG's common stock, as well as the right to appoint 4 of the 5 members of EEG's Board of Directors. The Company wrote off its investment balance in Roosters was immaterial forEEG in fiscal years 2020, 2019 and 2018. Shareholders' equity attributable to the non-controlling interest in Roosters was $1.0 million as of June 30, 2020 and 2019, respectively, and recorded within retained earnings on the Consolidated Balance Sheet.

year 2016.
6056
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The Company accounts for its investment in Empire Education Group, Inc. (EEG) as an equity investment under the voting interest model, as the Company has granted the other shareholder of EEG an irrevocable proxy to vote a certain number of the Company’s shares such that the other shareholder of EEG has voting control of EEG’s common stock, as well as the right to appoint 4 of the 5 members of EEG’s Board of Directors. The Company wrote off its investment balance in EEG in fiscal year 2016. During fiscal year 2020, the Company signed an agreement to sell its interest in EEG to the other shareholder. The transaction is expected to close in fiscal year 2021, at which time the Company expects to record an immaterial non-operating gain.
Use of Estimates:
The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. ForDue to the three months ended June 30, 2020, the impact of the decline in business activity brought abouteconomic disruption caused by the COVID-19 pandemic, continuesthe Company faces a greater degree of uncertainty than normal in making judgments and estimates needed to evolve. As a result, many of ourapply the Company's significant accounting policies. Actual results and outcomes may differ from management's estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods.assumptions.
Cash, Cash Equivalents and Restricted Cash:
Cash equivalents consist of investments in short-term, highly liquid securities having original maturities of three months or less, which are made as a part of the Company's cash management activity. The carrying values of these assets approximate their fair market values. The Company primarily utilizes a cash management system with a series of separate accounts consisting of lockbox accounts for receiving cash, concentration accounts that funds are moved to, and several "zero balance" disbursement accounts for funding of payroll and accounts payable. As a result of the Company's cash management system, checks issued, but not presented to the banks for payment, may create negative book cash balances. There were no checks outstanding in excess of related book cash balances at June 30, 20202022 and 2019.2021.
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. The self-insurance restricted cash arrangement can be canceled by the Company at any time if substituted with letters of credit. The table below reconciles the cash and cash equivalents balances and restricted cash balances, recorded within other current assets on the Consolidated Balance Sheet to the amount of cash, cash equivalents and restricted cash reported on the Consolidated Statement of Cash Flows:
June 30,
20202019
(Dollars in thousands)
Cash and cash equivalents$113,667 $70,141 
Restricted cash, included in other current assets9,213 22,238 
Total cash, cash equivalents and restricted cash$122,880 $92,379 

June 30,
20222021
(Dollars in thousands)
Cash and cash equivalents$17,041 $19,191 
Restricted cash, included in other current assets10,423 9,961 
Total cash, cash equivalents and restricted cash$27,464 $29,152 
6157
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




Receivables and Allowance for Doubtful Accounts:
The receivable balance on the Company's Consolidated Balance Sheet primarily includes credit card receivables, accounts and notes receivable from franchisees, credit card receivables and receivables related to salons sold to franchisees. The balance is presented net of an allowance for expected losses (i.e., doubtful accounts), related to receivables from the Company's franchisees. The Company monitors the financial condition of its franchisees and records provisions for estimated losses on receivables when it believes franchisees are unable to make their required payments based on factors such as delinquencies and aging trends. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses related to existing accounts and notes receivables. As of June 30, 2020, 20192022 and 2018,2021, the allowance for doubtful accounts was $6.9, $2.0$6.6 and $1.2$7.8 million, respectively. The allowance for doubtful accounts increaseddecreased in fiscal year 20202022 due to an increased risk in collecting franchise receivables due to decreased franchisee cash flows as a result of the government-mandated salon closures due to the COVID-19 pandemic. Material movement was also recorded within the allowance for doubtful accounts in fiscal year 2019 due to the TBG restructuring activity.higher write-offs. See NotesNote 2 and 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
At June 30, 2018, the receivable balance also included $24.6 million related to the cash surrender value of company-owned life insurance policies surrendered prior to June 30, 2018. The Company received these proceeds in July 2018.Statements.
Inventories:
Inventories of finished goods consist principally of hair care products for retail product sales. A portion of inventories are also used for salon services consisting of hair color, hair care products including shampoo and conditioner and hair care treatments including permanents, neutralizers and relaxers. Inventories are stated at the lower of cost or market, with cost determined on a weighted average cost basis.
Physical inventory counts are performed primarily in the fourth quarter of the fiscal year foris held at salons and throughout the yeara third-party distribution center as of June 30, 2022. A physical inventory count is conducted annually at the third-party distribution centers.center. Product and service inventories are adjusted based on the physical inventory counts. During the fiscal year, cost of retail product sold to salon guests is determined based on the weighted average cost of product sold, adjusted for an estimated shrinkage factor. The cost of product used in salon services is determined by applying an estimated percentage of total cost of service to service revenues. These estimates are updated quarterly based on cycle count results for the distribution centers, service sales mix, discounting, special promotions and other factors.
The Company has inventory valuation reserves for excess and obsolete inventories, or other factors that may render inventories unmarketable at their historical costs. EstimatesIn fiscal year 2021, the Company announced it would transition away from its wholesale product distribution model in favor of a third-party distribution model. As a result, the Company exited its 2 distribution centers in fiscal year 2022 and now stores inventory at a third-party facility. To facilitate the exit of the future demand fordistribution centers, the Company sold and continues to sell inventory at discounts and dispose of hard-to-sell products. Additionally, the reduction in company-owned salons decreases the Company's ability to redistribute inventory from closed locations to other salons to be sold or used. The inventory valuation reserve as of June 30, 2022 and anticipated changes2021 was $1.9 and $11.8 million, respectively. During fiscal year 2022, the Company recorded total inventory reserve charges of $10.5 million, of which $7.7 and $2.8 million were recorded in formulasInventory reserve and packaging are some of the other factors used by management in assessing the net realizable value of inventories. ActivityCompany-owned salon expense, respectively, in the Consolidated Statement of Operations. Included in Company-owned salon expense in the Consolidated Statement of Operations is an inventory valuation reservesreserve charge of $12.1 million during fiscal years 2020, 2019 and 2018 was not significant.year 2021.
Property and Equipment:
Property and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation of property and equipment is computed using the straight-line method over their estimated useful asset lives (30(i.e., 30 to 39 years for buildings, 10 years or lease life for improvements and three to ten10 years or lease life for equipment, furniture and software). Depreciation expense was $31.8, $31.9$5.8 and $38.1$20.9 million in fiscal years 2020, 20192022 and 2018,2021, respectively. Depreciation expense for fiscal years 2022 and 2021 include $1.0 and $4.7 million of asset retirement obligations, which are cash expenses.
The Company capitalizes both internal and external costs of developing or obtaining computer software for internal use. Costs incurred to develop internal-use software during the application development stage are capitalized, while data conversion, training and maintenance costs associated with internal-use software are expensed as incurred. Estimated useful lives range from three to seven years.
Expenditures for maintenance and repairs and minor renewals and betterments, which do not improve or extend the life of the respective assets, are expensed. All other expenditures for renewals and betterments are capitalized. The assets and related depreciation and amortization accounts are adjusted for property retirements and disposals with the resulting gain or loss included in operating income. Fully depreciated or amortized assets remain in the accounts until retired from service.
Non-Current Assets Held for Sale:
In March 2019, the Company announced that it had entered into a ten year lease for a new corporate headquarters and would be selling the land and buildings currently used for its headquarters. The non-current assets held for sale represent the net book value of the land of $1.7 million and buildings of $3.6 million as of June 30, 2019. The sale was completed in December 2019 for proceeds of $9.0 million, resulting in a net gain on sale of $2.5 million, which was recorded in Interest income and other, net on the Condensed Consolidated Statement of Operations.
6258
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




Right of Use Asset, Lease Liabilities and Rent Expense:
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 an additional 5 to 10 year termsterm at the option of the Company. The rightIn addition to the obligation to make fixed rental payments for the use of use asset and lease liability includes one renewal options as leases for leases expected to be renewed. Thethe salons, 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 expense.expenses.
The Company also leases thesalon 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 5 years, are expected to be renewed on expiration. All additional leaselease-related costs are passed through to the franchisees. Upon adopting Topic 842, theThe Company now records the rental payments due from franchisees as franchiseFranchise rental income and the corresponding amounts owed to landlords as franchiseFranchise rent expense on the Consolidated Statement of Operations.
For franchise and company-owned 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.date, including one lease term option when the lease is expected to be renewed. 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. The Company’s consolidated Right of Use Asset (ROUA) balance was $786.2 millionFor leases classified as of June 30, 2020. As noted above, the ROU asset is a long-lived asset that is subject to impairment testing annually or as triggering events occur. Leaseoperating leases, expense for lease payments is recognized on a straight-line basis over the lease term.term, including the lease renewal option when the lease is expected to be renewed. Generally, the non-lease components, such as real estate taxes and other occupancy expenses, are separate from rent expense within the lease and are not allocated toincluded in the measurement of the lease liability.liability because these charges are variable.
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 uses the portfolio approach in applying the discount rate based on the original lease term.
For purposes of recognizing incentives and minimum rental expenses on a straight-line basis, the Company uses the date it obtains the legal right to use and control the leased space to begin amortization, which is generally when the Company enters the space and begins to make improvements in preparation of its intended use.
Certain leases provide for contingent rents whichthat are determined as a percentage of revenues in excess of specified levels. The Company records a contingent rent liability in accrued expenses on the Consolidated Balance Sheet, along with the corresponding rent expense in the Consolidated Statement of Operations, when specified levels have been achieved or when management determines that achieving the specified levels during the fiscal year is probable.

59
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




Salon Long-Lived Asset and Right of Use Asset Impairment Assessments:
A lessee's ROU asset is subject to the same asset impairment guidance in ASC 360, Property, Plant, and Equipment, applied to other elements of property, plant, and equipment. The Company has identified its asset groups at the individual salon level as this represents the lowest level that identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Poor salon performance in fiscal years 2022 and 2021, primarily due to the COVID-19 pandemic, resulted in ASC 360-10-35-21 triggering events. As a result, management assessed underperforming salon asset groups, which included the related ROU assets, for impairment in accordance with ASC 360.
The Company assesses impairment of long-lived salon assets and right of use assets at the individual salon level, as this is the lowest level for which identifiable cash flows are largely independent of other groups of assets and liabilities, when events or changes in circumstances indicate the carrying value of the assets or the asset grouping may not be recoverable. Factors considered in deciding when to perform an impairment review include significant under-performance of an individual salon in relation to expectations, significant economic or geographic trends, and significant changes or planned changes in our use of the assets. The first step is to assess recoverability, and in doing that, the undiscounted cash flows are compared to the carrying value. If the undiscounted estimated cash flows are less than the carrying value of the assets, the Company calculates an impairment charge based on the difference between the carrying value of the asset group and its fair value. The fair value of the salon long-lived asset group is estimated using market participant methods based on the best information available. The fair value of the right of use asset is estimated by determining what a market participant would pay over the life of the primary asset in the group, discounted back to June 30, 2020.2022. See Note 6 to the Consolidated Financial Statements for further discussion related to right of use asset impairment.
Judgments madeThe first step in the impairment test under ASC 360 is to determine whether the long-lived assets are recoverable, which is determined by managementcomparing the net carrying value of the salon asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset group. Estimating cash flows for purposes of the recoverability test is subjective and requires significant judgment. Estimated future cash flows used for the purposes of the recoverability test were based upon historical cash flows for the salons, adjusted for expected changes in future market conditions related to the expectedCOVID-19 pandemic, and other factors. The period of time used to determine the estimates of the future cash flows for the recoverability test was based on the remaining useful liveslife of the primary asset of the group, which was the ROU asset in all cases.
The second step of the long-lived asset impairment test requires that the fair value of the asset group be estimated when determining the amount of any impairment loss. For the salon asset groups that failed the recoverability test, an impairment loss was measured as the amount by which the carrying amount of the asset group exceeds its fair value. The Company applied the fair value guidance within ASC 820-10 to determine the fair value of the asset group from the perspective of a market-participant considering, among other things, appropriate discount rates, multiple valuation techniques, the most advantageous market, and assumptions about the highest and best use of the asset group. To determine the fair value of the salon asset groups, the Company utilized market-participant assumptions rather than the Company's own assumptions about how it intends to use the asset group. The significant judgments and assumptions utilized to determine the fair value of the salon asset groups include the market rent of comparable properties and a discount rate. The fair value of the salon long-lived asset group is estimated using market participant methods based on the best information available.
For fiscal years 2022 and 2021, the Company recognized long-lived asset impairment charges of $0.5 and $13.0 million, respectively, which included $0.5 and $9.5 million, respectively, related to ROU assets on the Consolidated Statement of Operations. The impairment loss for each salon asset group that was recognized was allocated among the long-lived assets and the ability to realize undiscounted cash flows in excess of the group on a pro-rata basis using their relative carrying amountsamounts. Additionally, the impairment losses did not reduce the carrying amount of suchan individual asset below its fair value, including for the ROU assets areincluded in the salon asset groups. Assessing the long-lived assets for impairment requires management to make assumptions and to apply judgment which can be affected by factors such as the ongoing maintenance and improvement of the assets, changes in economic conditions and changesother 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 operating performance. As the ongoing expected cash flowsestimates or assumptions it uses to calculate impairment losses for its long-lived asset, including its ROU assets. If actual results are not consistent with the estimates and carrying amounts of long-lived assets are assessed, these factors could causeassumptions used in the calculations, the Company may be exposed to realize materialfuture impairment charges.losses that could be material. See Note 6 to the Consolidated Financial Statements.
6360
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Long-lived property and equipment asset impairment charges related to continuing operations of $3.9, $4.6 and $11.1 million were recorded during fiscal years 2020, 2019 and 2018, respectively, are recorded in Depreciation and Amortization in the Consolidated Statement of Operations. A long-lived asset, including right of use and salon property and equipment, impairment charge of $22.6 million was recorded during fiscal year 2020, and is separately stated on Consolidated Statement of Operations. Of the total $22.6 million long-lived asset impairment charge, $17.4 million was allocated to the right of use asset and $5.2 million was allocated to salon property and equipment.
Goodwill:
As of June 30, 20202022 and 2019,2021, the Franchise salons reporting unit had $227.5$174.4 and $227.9$229.6 million, respectively, of goodwill and the Company-owned reporting unit had $0 and $117.8 million ofno goodwill respectively.for both periods. See Note 5 to the Consolidated Financial Statements.Statements for changes to the goodwill balance. The Company assesses goodwill impairment on an annual basis as of April 30, 2020, 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.
Goodwill impairment assessments are performed at the reporting unit level, which is the same as the Company’sCompany's operating segments. In fiscal year 2020, the Company adopted ASU 2017-04, which simplified the test for goodwill impairment. Under this accounting standard, theThe Company performed its interim impairment testtests and annual impairment tests by comparing the fair value of a reporting unit to its carrying amount. The Company then records an impairment charge for the amount that the carrying amount exceeds the fair value. This eliminates Step 2 from the goodwill impairment test to simplify the subsequent measure of goodwill. Prior to the adoption, the goodwill assessment involved a one-step comparison of the reporting unit’s fair value to its carrying value, including goodwill (Step 1). If the reporting unit’s fair value exceeded its carrying value, no further procedures were required. However, if the reporting unit’s fair value was less than the carrying value, an impairment charge was recorded for the difference between the fair value and carrying value of the reporting unit.
In applying the goodwill impairment assessment, the Company could assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting units was less than its carrying value (Step 0). Qualitative factors could include, but were not limited to, economic, market and industry conditions, cost factors and overall financial performance of the reporting unit. If after assessing these qualitative factors, the Company determined it is “more-likely-than-not”more likely than not that the carrying value was less than the fair value, then performing Step 1 of the goodwill impairment assessment was unnecessary.
The carrying value of each reporting unit is based on the assets and liabilities associated with the operations of the reporting unit, including allocation of shared or corporate balances among reporting units. Allocations are generally based on the number of salons in each reporting unit as a percent of total company-owned salons or expenses of the reporting unit as a percent of total company expenses.
The Company calculates estimated fair values of the reporting units based on discounted cash flows utilizing estimates in annual revenue, service and product margins, fixed expense rates, allocated corporate overhead, franchise and company-owned salon counts, proceeds from the sale of company-owned salons to franchisees and long-term growth rates for determining terminal value. Where available and as appropriate, comparative market multiples are used in conjunction with the results of the discounted cash flows. The Company engages third-party valuation consultants to assist in evaluating the Company's estimated fair value calculations.
Following is a description of the goodwill impairment assessments for each of the fiscal years:
Fiscal 20202022
During the third quarter of fiscal year 2020,2022, the Company determinedperformed a quantitative impairment test over goodwill during the second quarter due to a triggering event occurred, resultingexperienced in quantitative impairment tests performed over the goodwill.quarter. This determination was made considering the reduced salessustained decrease in share price and profitability projections fora change in the Company's chief operating decision maker. In the second quarter, the Franchise reporting units, driven by the COVID-19 pandemicunit was determined to have a fair value in excess of its carrying value and related economic disruption.
The triggering event experiencedno impairment was recorded. A quantitative goodwill impairment was performed in the third quarter impacted both reporting units ofdue to a triggering event experienced during the business, Franchise and Company-owned. The Company engagedquarter. This determination was made considering a third-party valuation specialistdecrease in forecasted revenue due to perform an impairment analysis onslower than expected recovery from COVID-19. In the third quarter, the Franchise reporting unit was determined to have a carrying value in excess of the business. its fair value, resulting in a goodwill impairment charge of $16.0 million.
The Company-owned reporting unit is comprisedCompany performed its annual impairment assessment as of a portfolio of salons that the Company intends to sell to franchisees or close in the short-term as part of the transition to a fully-franchised model. As a result, the Company-owned reporting unit has a limited life which allows the Company to perform its own impairment analysis on the Company-owned reporting unit.

64
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


April 30. For the goodwill impairment analysis, management utilized a combination of both a discounted cash flows approach and market approach to evaluate the Franchise reporting unit, and the discounted cash flows approach to evaluate the Company-owned reporting unit. The discounted cash flow models reflectflows model reflects management's assumptions regarding revenue growth rates, economic and market trends, including deterioration from the current COVID-19 pandemic, cost structure, and other expectations about the anticipated short-term and long-term operating resultsresults. Management's assumptions related to revenue growth rates were reduced and management increased expected salon closures compared to valuations in prior years. These changes, along with a decline in value from the market approach, reduced the fair value of the reporting units. For the Franchise reporting unit, the number of salons to be sold to franchisees and theunit. The discount rate of 13 percent were significant assumptions20.0% was also a key assumption utilized in the discounted cash flow. For the Company-owned reporting unit, proceedsflows, which was an increase of 0.5% from the sale of salonsthird quarter valuation due to franchisees and number of salon venditions were the significant assumptions utilizedan increase in its discounted cash flow.
market interest rates. As a result of the impairment testing, the Franchise reporting unit which has goodwill of $227.5 million, was determined to have a fair value that exceeded carrying value by approximately 50 percent. The Company-owned reporting unit was determined to have a carrying value in excess of its fair value, resultingcarrying value.
The Company derecognized $38.4 million of goodwill in a goodwill impairment charge of $40.2 million. Priorfiscal year 2022 in connection to the COVID-19 pandemic, the Company had been derecognizing Company-owned goodwill as part of the calculation of gain or loss on the sale of salons to franchisees.OSP. The Company-owned reporting unit has 0 remaining$38.4 million represents the portion of goodwill so there will be no further derecognition of Company-owned goodwill. The Company performed its annual impairment assessment as of April 30, 2020 and noted no significant changesrelated to the carrying value orOSP business based on relative fair value. See Notes 3 and 5 to the fair valueConsolidated Financial Statements.

61
Table of the Franchise reporting unit which would indicate that the headroom dropped below the 50 percent determined as of March 31, 2020.Contents
If a future triggering event analysis or the Company's annual impairment assessment indicates the fair value of the Franchise reporting unit has potentially fallen below more than the 50 percent 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.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Assessing goodwill for impairment requires management to make assumptions and to apply judgment, including forecasting future sales, future salon sales to franchisees 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 management is unable to expand its franchise base, the Company may be exposed to future impairment losses that could be material.



Fiscal 20192021
During the fiscal year 2019,2021, the Company did not experience any triggering events that required an interim goodwill analysis. The Company performed its annual impairment assessment as of April 30. For the fiscal year 20192021 annual impairment assessment, due to the transformational efforts completed during the year, the Company elected to forgo the optionalperformed a Step 0 assessment and performed the quantitative1 impairment analysis ontest for the Franchise and Company-owned reporting units.unit. The Company compared the carrying value of the Franchise reporting units,unit, including goodwill, to theirthe estimated fair value. The results of these assessmentsthis assessment 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%. 
Fiscal Year 2018
During the first quarter of fiscal year 2018, the Company experienced a triggering event due to the redefining of its operating segments as the Company's mall-based business and International segment met the criteria to be classified as held for sale and as a discontinued operation as of September 30, 2017. The Company's reporting changed to 2 reporting units: Franchise and Company-owned. Prior to this change the Company had 4 reporting units: North American Value, North American Premium, North American Franchise and International.
Pursuant to the change in operating segments, the Company performed a goodwill impairment assessment on its North American Value reporting unit. The Company assessed qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit was less than their carrying values (Step 0). The Company determined it is “more-likely-than-not” thatsignificantly exceeded the carrying value of the reporting unit was less than the fair value. Accordingly, the Company did not perform a quantitative analysis. Based on the changes to the operating segment structure, there was no goodwill reallocated from the North American Value reporting unit related to the mall-based business that was subsequently sold as the mall-based business previously included in the North American Value reporting unit was projected to incur future losses. The Company did not perform a goodwill impairment assessment for the North American Franchise reporting unit during the first quarter of fiscal year 2018, as this reporting unit was not impacted by the triggering event. The North American Premium and International units did 0t have any goodwill.

65
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The Company performed its annual impairment assessment as of April 30. For the fiscal year 2018 annual impairment assessment, due to the transformational efforts completed during the year, the Company elected to forgo the optional Step 0 assessment and performed the quantitative impairment analysis on the 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 our reporting units exceeded their carrying value. The Franchise reporting unit had substantial headroom and the Company-owned reporting unit had headroom of approximately 24%. The fair value of the Company-owned reporting unit was determined based on a discounted cash flow analysis and comparable market multiples. The assumptions used in determining fair value were similar to than those used in fiscal year 2019.
Investments In Affiliates:
The Company has equity investments in securities of certain privately held entities. The Company accounts for these investments under the equity or cost method of accounting. The Company's investments have no value as of June 30, 2020 and 2019.
Self-Insurance Accruals:
The Company uses a combination of third partythird-party insurance and self-insurance for a number of risks including workers' compensation, health insurance, employment practice liability and general liability claims. The liability represents the Company's estimate of the undiscounted ultimate cost of uninsured claims incurred as of the Consolidated Balance Sheet date.
The Company estimates self-insurance liabilities using a number of factors, primarily based on independent third-party actuarially-determined amounts, historical claims experience, estimates of incurred but not reported claims, demographic factors and severity factors.
Although the Company does not expect the amounts ultimately paid to differ significantly from the estimates, self-insurance accruals could be affected if future claims experience differs significantly from historical trends and actuarial assumptions. For fiscal years 2020, 20192022 and 2018,2021, the Company recorded decreases (increases) in expense for changes in estimates related to prior year open policy periods of $3.1, $(1.3)$0.5 and $1.2$3.6 million, respectively. The Company updates loss projections quarterlybi-annually and adjusts its liability to reflect updated projections. The updated loss projections consider new claims and developments associated with existing claims for each open policy period. As certain claims can take years to settle, the Company has multiple policy periods open at any point in time.
As of June 30, 2020,2022, the Company had $8.5$4.7 and $20.3$9.7 million recorded in current liabilities and non-current liabilities, respectively, related to the Company's workers' compensation and general liability self-insurance accruals. As of June 30, 2019,2021, the Company had $10.1$6.8 and $23.6$12.7 million recorded in current liabilities and non-current liabilities, respectively, related to the Company's workers' compensation and general liability self-insurance accruals.
Revenue Recognition and Deferred Revenue:
Franchise revenues primarily include royalties, fees, product sales to franchisees and advertising fund fees and initial franchise fees. Royalties and advertising fund revenues represent sales-based royalties that are recognized as revenue in the period in which the sales occur. The Company defers franchise fees until the salon is open and then recognizes the revenue over the term of the franchise agreement. See Note 2 to the Consolidated Financial Statements.
Product sales by the Company to its franchisees are included within product revenues on the Consolidated Statement of Operations and recorded at the time product is delivered to franchise locations.
Company-owned salon revenues are recognized at the time when the services are provided. Product revenues are recognized whenprovided or the guest receives and pays for the merchandise.
Classification of Expenses:
The following discussion provides the primary costs classified in each major expense category:
Cost of service— labor costs related to salon employees and the cost of product used in providing service.
Cost of product— cost of product sold to guests, labor costs related to selling retail product and the cost of product sold to franchisees.
Site operating— direct costs incurred by the Company's salons, such as advertising, workers' compensation, insurance, utilities and janitorial costs.
General and administrative— costs associated with field supervision, costs associated with salon training, distribution centers and corporate offices (such as salaries and professional fees), including cost incurred to support franchise operations.
6662
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




Classification of Revenue and Expenses:
Beginning in the first quarter of fiscal year 2022, the Company adjusted its Statement of Operations for all periods presented to align the presentation of results to its franchise-focused business. Below is a summary of the changes to the financial statement captions. The change does not have a financial impact on the Company's reported revenue, operating loss, reported net loss or cash flows from operations.
Royalties - sales-based royalty received from franchisees. In prior years, these fees were included in Royalties and Fees and disclosed in the footnotes.
Fees - fees received from franchisees and third parties, including franchise fees, software and hardware fees related to Opensalon Pro and fees received from the third-party distributors.
Product sales to franchisees - wholesale product sales to franchisees. This caption equates to Product sales in the Franchise segment in prior years. The Company changed its franchise product sales business in fiscal year 2022 from a wholesale distribution model to a third-party distribution model. This revenue was expected to decrease significantly during fiscal year 2022 and into fiscal year 2023.
Advertising fund contributions - sales-based advertising fund contributions received from franchisees. In prior years, these fees were included in Royalties and Fees and disclosed in the footnotes.
Company-owned salon revenue - service revenue and revenue derived from sales of product in Company-owned salons. This caption equates to revenue reported in the Company-owned segment in prior periods.
Cost of product sales to franchisees - direct cost of inventory and freight and other costs of sales. In prior years, these sales were included in the Franchise segment cost of product and site operating expenses.
Company-owned salon expense - cost of service and product sold to guests in our Company-owned salons and other salon-related costs. In prior years, these costs were classified as Company-owned segment cost of service, cost of product and site operating expenses. Excluded from this caption are general and administrative expense, rent and depreciation and amortization related to company-owned salons.
Consideration Received from Vendors:
The Company receives consideration for a variety of vendor-sponsored programs. These programs primarily include volume rebates and promotion and advertising reimbursements.
With respect to volume rebates, the Company estimates the amount of rebate it will receive and accrues it as a reduction to the cost of inventory over the period in which the rebate is earned based upon historical purchasing patterns and the terms of the volume rebate program. A quarterly analysis is performed in order to ensure the estimated rebate accrued is reasonable and any necessary adjustments are recorded.
Shipping and Handling
63
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




Distribution Costs:
Shipping and handlingDistribution costs are incurred to store, move and ship product from the Company's distribution centers to franchisesalons and company-owned locations and include an allocation of internalincludes distribution center overhead. Such shipping and handlingdistribution costs related to product shipped to company-owned locations are included in site operatingCompany-owned salon expenses in the Consolidated Statement of Operations. Shipping and handlingDistribution costs, including distribution center overhead, related to shipping product to franchise locations totaled $8.6, $7.7$2.3 and $6.1$12.1 million during fiscal years 2020, 20192022 and 2018,2021, respectively, and are included within general and administrative expenses on the Consolidated Statement of Operations. Any amounts billed to franchisees for shippingIn fiscal year 2022, the Company exited its 2 distribution centers and handling are includedchanged the wholesale product distribution model in product revenues withinfavor of a third-party distribution model, reducing the Consolidated Statement of Operations.cost in fiscal year 2022. The Company now stores inventory at a third-party facility.
Advertising and Advertising Funds:
Advertising costs consist of the Company’sCompany's corporate funded advertising costs, the Company’sCompany's advertising fund contributions and Franchisee’sfranchisee's advertising fund contributions. Corporate funded advertising costs are expensed as incurred. The Company has various franchising programs supporting certain of itsspecific franchise salon concepts. Most maintain advertising funds that provide comprehensive advertising and sales promotion support. Salons, both franchise and company-owned,All salons are required to participate in the advertising funds for the same salon concept. The Company assists inadministers the administration of the advertising funds, however, a group of individuals consisting of franchisee representatives has control over all of the expenditures and operates the funds in accordance with franchise operating and other agreements. Advertising fund contributions are expensed when the contribution is made.

The Company's advertising costs are included in site operating expenses in the Consolidated Statement of Operations and consist of the following:
Fiscal Years
20222021
(Dollars in thousands)
Advertising fund contributions from franchisees$32,573 $22,023 
Advertising fund contributions from company-owned salons (1)154 897 
Corporate funded advertising costs (1)671 7,015 
Total advertising costs$33,398 $29,935 
_____________________________________________________________________________
Fiscal Years
202020192018
(Dollars in thousands)
Corporate funded advertising costs$13,210 $21,581 $19,803 
Advertising fund contributions from company-owned salons3,715 12,929 16,834 
Advertising fund contributions from franchisees (1)13,341 34,073 26,818 
Total advertising costs$30,266 $68,583 $63,455 

(1)IncludesIncluded in General and administrative expense in the refundingConsolidated Statement of $14.9 million of previously collected cooperative fees to franchisees as a direct result of the COVID-19 pandemic.Operations.
The Company records all advertising funds as assets and liabilities within the Company's Consolidated Balance Sheet. As of June 30, 20202022 and 2019,2021, approximately $4.3$10.5 and $23.6$9.9 million, respectively, representing the advertising funds' assets and liabilities were recorded within total assets and total liabilities in the Company's Consolidated Balance Sheet.
Stock-Based Employee Compensation Plans:
The Company recognizes stock-based compensation expense based on the fair value of the awards at the grant date. Compensation expense is recognized on a straight-line basis over the requisite service period of the award (or to the date a participant becomes eligible for retirement, if earlier). The Company uses fair value methods that require the input of subjective assumptions, including the expected term, expected volatility, dividend yield and risk-free interest rate.

67
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The Company estimates the likelihood and the rate of achievement for performance sensitive stock-based awards at the end of each reporting period. Changes in the estimated rate of achievement can have a significant effect on the recorded stock-based compensation expense as the effect of a change in the estimated achievement level is recognized in the period the change occurs.
Interest Income and Other, Net:
In March 2021, the Company recorded a gain of $15.0 million related to the Company's distribution centers. The gain on distribution centers was recorded to Interest income and other, net in the Consolidated Statement of Operations in fiscal year 2021.
64
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




Sales Taxes:
Sales taxes are recorded on a net basis (rather than as both revenue and an expense) within the Company's Consolidated Statement of Operations.
Income Taxes:
Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the Consolidated Financial Statements or income tax returns. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using currently enacted tax rates in effect for the years in which the differences are expected to reverse.
We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. The Company evaluates all evidence, including recent financial performance, the existence of cumulative year losses and our forecast of future taxable income, to assess the need for a valuation allowance against our deferred tax assets. While the determination of whether or not to record a valuation allowance is not fully governed by a specific objective test, accounting guidance places significant weight on recent financial performance.
The Company has a valuation allowance on its deferred tax assets of $122.4$201.7 and $70.7$192.5 million at June 30, 20202022 and 2019,2021, respectively. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make necessary adjustments to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
Significant components of the valuation allowance which occurred during fiscal year 20202022 are as follows:
•In connection with the Coronavirus Aid, Relief and Economic Security Act (CARES Act), NOLs resulting from accounting periods which straddled December 31, 2017 are now considered definite-lived NOLs. Therefore, the Company established a valuation allowance against the U.S. NOLs generated during its fiscal year 2018 and recorded a net tax expense of $14.7 million.
•The Company determined that it no longer had sufficient U.S. state indefinite-lived taxable temporary differences to support realization of its U.S. state indefinite-lived NOLs and its existing U.S. deferred tax assets that upon reversal are expected to generate state indefinite-lived NOLs. As a result, the Company recorded an additional $17.0a $4.1 million valuation allowance on its U.S. federalstate indefinite-lived deferred tax assets.
Significant components of the valuation allowance which occurred during fiscal year 2021 are as follows:
•The Company recognized a capitaltax loss on its investment in Luxembourg and established a corresponding valuation allowance of $14.9 million on investment outside basis previously impaired for financial accounting purposes.$34.4 million.
The Company reserves for unrecognized tax benefits, interest and penalties related to anticipated tax audit positions in the U.S. and other tax jurisdictions based on an estimate of whether additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of these liabilities would result in tax benefits being recognized in the period in which it is determined that the liabilities are no longer necessary. If the estimate of unrecognized tax benefits, interest and penalties proves to be less than the ultimate assessment, additional expenses would result.
Inherent in the measurement of deferred balances are certain judgments and interpretations of tax laws and published guidance with respect to the Company's operations. Income tax expense is primarily the current tax payable for the period and the change during the period in certain deferred tax assets and liabilities.
See Note 10 to the Consolidated Financial Statements in Part II, Item 8,Statements.

65
Table of this Form 10-K.Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




Net (Loss) IncomeLoss Per Share:
The Company's basic earnings per share is calculated as net (loss) incomeloss divided by weighted average common shares outstanding, excluding unvested outstanding restricted stock awards and restricted stock units. The Company's dilutive earnings per share is calculated as net (loss) income divided by weighted average common shares and common share equivalents outstanding, which includes shares issuable under the Company's stock option plan and long-term incentive plan and dilutive securities. Stock-based awards with exercise prices greater than the average market value of the Company's common stock are excluded from the computation of diluted earnings per share.
68
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Due to the Company's net loss in all periods presented, basic and dilutive earnings per share are equal.
Comprehensive (Loss) Income:Loss:
Components of comprehensive (loss) incomeloss include net (loss) income,loss, foreign currency translation adjustments and recognition of deferred compensation, net of tax within shareholders' (deficit) equity.
Foreign Currency Translation:
The Consolidated Balance Sheet, Consolidated Statement of Operations and Consolidated Statement of Cash Flows of the Company's international operations are measured using local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rates in effect at each Balance Sheet date. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive income within shareholders' (deficit) equity. Statement of Operations accounts are translated at the average rates of exchange prevailing during the year. During fiscal years 2020, 20192022 and 2018, the2021, a $0.6 million foreign currency (loss)loss and $0.3 million foreign currency gain is included in (loss) incomeloss from continuing operations, was $(0.1), $0.1 and $(0.1) million, respectively. During fiscal year 2018, the Company recognized within discontinued operations a $6.2 million foreign currency translation loss in connection with the Company's liquidation of substantially all foreign entities with British pound denominated currencies.
Accounting Standards Recently Adopted by the Company:
Simplifying the Test for Goodwill Impairment
In fiscal year 2020, the Company adopted ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350)" for the interim impairment test performed due to the triggering event noted above, for the quarter ended March 31, 2020. Under this accounting standard, the Company performed its interim impairment test and annual impairment tests by comparing the fair value of a reporting unit to its carrying amount. The Company then records an impairment charge for the amount that the carrying amount exceeds the fair value. This eliminates Step 2 from the goodwill impairment test to simplify the subsequent measure of goodwill.
Leases
In February 2016, the FASB issued updated guidance requiring organizations that lease assets to recognize the rights and obligations created by those leases on the Consolidated Balance Sheet. The 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 of the Consolidated Balance Sheet.
Under adoption of Topic 842, the Company recorded a right of use asset and lease liability of $980.8 and $993.7 million, respectively. 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 decrease in the right of use asset and lease liability from July 1, 2019 to June 30, 2020 was due to lease modifications and salon closures. Additionally, the right of use asset was impaired in the fourth fiscal quarter.
The Lease Liability reflects a present value of the Company's current minimum lease payments for existing operating leases primarily relating to real estate leases, over a lease term which includes 1 option, as options are reasonably assured of being exercised, discounted using a collateralized incremental borrowing rate. The Company will use the portfolio approach in applying the discount rate.
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). These costs are generally paid by the Company and reimbursed by the franchisee. Historically, these costs have been recorded on a net basis within rent expense in the Consolidated Statements of Operations, but 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 franchise rent expense of $127.2 million during fiscal year 2020. See Note 6 for further information about our transition to Topic 842 and the newly required disclosures.

6966
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




Accounting Standards Recently Issued But Not Yet Adopted by the Company:
In June 2016,December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740)," which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Depending on the amendment, adoption may have been applied on the retrospective, modified retrospective or prospective basis. The adoption of this new guidance during fiscal year 2022 using the prospective method did not have a material impact on our Consolidated Financial Statements.
Recently Issued Accounting Standards Update (ASU) No. 2016-13 "Measurement of Credit Losses on Financial Instruments", which modifies the measurement of expected credit losses of certain financial instruments. The Company will adopt the standard in the first quarter of 2021, as required, and does not expect the standard to materially affect consolidated net earnings, financial position, or cash flows.Not Yet Adopted:
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and it does not expect thatbelieve any other recently issued accountingof these pronouncements will have a material effect on ourimpact to the Company's financial statements.
67
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.     REVENUE RECOGNITION:

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

Revenue recognized at point of sale
Product sales to franchisees are recorded at the time product is delivered to the franchisee. Payment for franchisee product revenue is generally collected 30 to 90 days of delivery. Company-owned salon revenues are recognized at the time when the services are provided. Product revenues for company-owned salons are recognized whenprovided or 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.guest. 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 Consolidated Statement of Operations and recorded at the time product is delivered to the franchisee. Payment for franchisee product revenue is generally collected within 30 to 90 days of delivery.
Revenue recognized over time
Franchise revenues primarily include royalties, advertising fund cooperatives 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 isrevenues are 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 Consolidated Statement of Operations. ThisThe treatment 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, which is typically ten10 years. Franchise rental income is a result of the Company signing leases on behalf of franchisees as the primary obligor and entering into a sublease arrangementarrangements with the franchise.franchisees. The Company recognizes franchise rental income and expense when it is due to the landlord.

70
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table disaggregates revenue by timing of revenue recognition and is reconciled to reportable segment revenues as follows:
For the Year Ended June 30, 2020For the Year Ended June 30, 2019
 FranchiseCompany-ownedFranchiseCompany-owned
(Dollars in thousands)
Revenue recognized at a point in time:
Service$0 $331,538 $0 $749,660 
Product52,421 85,165 59,905 165,713 
Total revenue recognized at a point in time$52,421 $416,703 $59,905 $915,373 
Revenue recognized over time:
Royalty and other franchise fees$60,061 $0 $59,688 $0 
Advertising fund fees13,341 0 34,073 0 
Franchise rental income127,203 0 — — 
Total revenue recognized over time200,605 0 93,761 0 
Total revenue$253,026 $416,703 $153,666 $915,373 


Information about receivables, broker fees and deferred revenue subject to the revenue recognition guidance is as follows:
June 30,
2020		June 30,
2019		Balance Sheet ClassificationJune 30,
2022		June 30,
2021		Balance Sheet Classification
(Dollars in thousands)(Dollars in thousands)
Receivables from contracts with customers, netReceivables from contracts with customers, net$22,991 $23,210 Accounts receivable, netReceivables from contracts with customers, net$10,263 $18,011 Receivable, net
Broker feesBroker fees$20,516 $17,819 Other assetsBroker fees15,592 19,254 Other assets
Deferred revenue:Deferred revenue:Deferred revenue:
Current Current Current
Gift card liabilityGift card liability$2,543 $3,050 Accrued expensesGift card liability$2,037 $2,240 Accrued expenses
Deferred franchise fees unopened salonsDeferred franchise fees unopened salons77 193 Accrued expensesDeferred franchise fees unopened salons16 40 Accrued expenses
Deferred franchise fees open salonsDeferred franchise fees open salons5,537 4,164 Accrued expensesDeferred franchise fees open salons5,770 5,884 Accrued expenses
Total current deferred revenueTotal current deferred revenue$8,157 $7,407 Total current deferred revenue$7,823 $8,164 
Non-current Non-current Non-current
Deferred franchise fees unopened salonsDeferred franchise fees unopened salons$11,855 $15,173 Other non-current liabilitiesDeferred franchise fees unopened salons$3,211 $6,571 Other non-current liabilities
Deferred franchise fees open salonsDeferred franchise fees open salons33,623 24,194 Other non-current liabilitiesDeferred franchise fees open salons26,827 32,365 Other non-current liabilities
Total non-current deferred revenueTotal non-current deferred revenue$45,478 $39,367 Total non-current deferred revenue$30,038 $38,936 
68
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Receivables relate primarily to payments due for royalties, franchise fees, advertising fees, rent, 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), related to receivables from franchisees. As of June 30, 2020 and 2019, the balance in the allowance for doubtful accounts was $6.9 and $2.0 million, respectively. The increase is due to an increased risk in collecting franchise receivables due to decreased franchisee cash flows as a result of the government-mandated salon closures due to the COVID-19 pandemic. The following table is a rollforward of the allowance for doubtful accounts for the periods indicated (in thousands):indicated:
Balance as of June 30, 2019$2,025
Provision for doubtful accounts5,958
Write-offs(1,084)
Balance as of June 30, 2020$6,899
71
Fiscal Years
20222021
(Dollars in thousands)
Balance at beginning of period$7,774 $6,899 
Provision for doubtful accounts (1)967 509 
Provision for franchisee rent (2)1,421 1,920 
Reclass of accrued rent (3)149 — 
Write-offs(3,752)(1,554)
Balance at end of period$6,559 $7,774 
Table of Contents_____________________________________________________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(1)The provision for doubtful accounts is recognized as general and administrative expense in the Consolidated Statement of Operations.

(2)
The provision for franchisee rent is recognized as rent in the Consolidated Statement of Operations.

(3)The reclass of accrued rent represents franchisee rent obligations guaranteed by the Company that were unbilled and deemed unrecoverable as of June 30, 2021. The amounts billed in fiscal year 2022 and the related accrual was reclassified to allowance for doubtful accounts.
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 Generalgeneral and Administrativeadministrative expense over the term of the agreement.

franchise agreement in the Consolidated Statement of Operations. The following table is a rollforward of the broker fee balance for the periods indicated (in thousands):indicated:
Balance as of June 30, 2019$17,819
Additions5,606
Amortization(2,852)
Write-offs(57)
Balance as of June 30, 2020$20,516
Fiscal Years
20222021
(Dollars in thousands)
Balance at beginning of period$19,254 $20,516 
Additions25 2,112 
Amortization(3,189)(3,180)
Write-offs(498)(194)
Balance at end of period$15,592 $19,254 

The decrease in non-current deferred franchise fees for unopened salons in fiscal year 2022 is primarily due to $2.4 million of deferred fees related to terminated development agreements being recognized as fees in the Consolidated Statement of Operations in the year ended June 30, 2022. Deferred revenue includes the gift card liability and deferred franchise fees for unopened salons and open salons. Gift card revenue for the years ended June 30, 2020 and 2019 was $2.4 and $5.3 million, respectively. Deferred franchise fees related to open salons are generally recognized on a straight-line basis over the term of the franchise agreement. Franchise fee revenue for the twelve months ended June 30, 2020fiscal years 2022 and 20192021 was $5.2$6.5 and $3.6$6.6 million, respectively. Estimated revenue expected to thebe recognized in the future related to deferred franchise fees for open salons as of June 30, 20202022 is as follows (in thousands):
2023$5,770 
20245,468 
20255,092 
20264,618 
20274,157 
Thereafter7,492 
Total$32,597 
69

Table of Contents
2021$5,471 
20225,351 
20235,174 
20244,939 
20254,577 
Thereafter13,648 
Total$39,160 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


3.     TBG DISCONTINUED OPERATIONS AND RESTRUCTURING
The Beautiful Group (TBG)Opensalon Pro (OSP):

In October 2017,On June 30, 2022, the Company sold substantially allits OSP software-as-a-service solution to Soham Inc. for a purchase price of its mall-based $20.0 million in cash plus up to an additional $19.0 million in cash contingent upon the number of salons that migrate to Soham's Zenoti product as their salon businesstechnology platform. The Company received $13.0 million in North America, representing 858 salons,proceeds in June 2022. The remaining $7.0 million of the purchase price is subject to The Beautiful Group (TBG), an affiliateholdbacks including $4.0 million of Regent, a private equity firm basedthe proceeds retained in Los Angeles, California, who operated these locations as franchise locations until June 2019. In addition,escrow to be paid upon completion of the Company's refinancing, $1.0 million once the Company entered intoends its arrangement with ProPoint in December 2022 and $2.0 million of proceeds held back until general indemnity provisions are satisfied within 18 months from closing. As a share purchase agreement for substantially allresult of its International segment, representing approximately 250 salons in the UK, with TBG operating these locations as franchise locations until they were transferred to another franchisee in fiscal year 2020. Thesale, the Company classified the results of its mall-basedOSP business and its International segment as a discontinued operationoperations in the financial statements for all periods presentedyears presented. Discontinued operations is included in the Consolidated Statement of Operations.

In fiscal years 2018 and 2019, TBG salons were operating at a loss and TBG struggled to pay the Company for the receivables related to the original purchase agreements as well as royalty and product receivables. The Company reserved for $11.7 million of receivables in fiscal 2018 and an additional $20.7 million of receivables in fiscal 2019.
In the second quarter of fiscal year 2020, TBG transferred 207 of its North American mall-based salons to the Company. The 207 North American mall-based salons transferred were the salons that the Company was the guarantor of the lease obligation. The transfer of the 207 mall-based salons occurred on December 31, 2019, so the operational results of these mall-based salons are includedFranchise segment in the Consolidated Statement of Operations beginningfor all periods presented.
The following summarizes the components of the loss from sale of OSP for fiscal year 2022 included in discontinued operations (in thousands):
Cash proceeds$13,000 
Goodwill derecognition(38,358)
Software write-off (1)(8,408)
Hardware write-down (2)(1,825)
Other, net, including professional fees(552)
Loss from sale of OSP$(36,143)
_______________________________________________________________________________
(1)Internally developed capitalized software is included in non-current assets related to discontinued operations as of June 30, 2021 and written off in June 2022 upon completion of the sale.
(2)Prior to the sale, hardware used to run OSP was sold to franchisees. As a result of the sale, the Company wrote-down the value of the hardware to its net realizable value and the charge is included in the third quarter.loss on the sale of OSP. The hardware is included in inventory as of June 30, 2022 and current assets acquired and liabilities assumed were not materialrelated to discontinued operations as of June 30, 2021 in the Consolidated Balance Sheet.
As of June 30, 2020, prior to any mitigation efforts which may be available, the Company remains liable for up to approximately $23 million related to its mall-based salon lease commitments on the 166 salons that remain open, a $18 million reduction from June 30, 2019. The commitments are included in our lease liabilities.
7270
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following summarizes the results of TBG related charges and TBG discontinued operations for the periods presented:
Fiscal Years
20222021
(Dollars in thousands)
Discontinued operations:
Fees$3,811 $3,461 
Cost of product sales to franchisees(1,037)(2,790)
General and administrative(3,517)(9,006)
Rent(194)(176)
Depreciation and amortization(1,322)(964)
Goodwill impairment (1)(2,880)— 
Interest expense(715)(650)
Loss from sale of OSP(36,143)— 
Loss from discontinued operations, before taxes(41,997)(10,125)
Income tax benefit from discontinued operations (2)2,599 — 
Loss from discontinued operations, net of tax$(39,398)$(10,125)
_______________________________________________________________________________
Fiscal Years
202020192018
(Dollars in thousands)
Revenue$0 $0 $101,140 
TBG Mall Restructuring:
Accounts and notes receivable reserves0 20,711 0 
Other charges (1)2,333 1,105 0 
Total TBG mall restructuring$2,333 $21,816 $0 
TBG Discontinued Operations:
Working capital and prepaid rent receivable reserve0 0 11,697 
Other charges (2) (3)(1,063)1,221 47,848 
(Income) loss from TBG discontinued operations, before taxes(1,063)1,221 59,545 
Income tax expense (benefit) on TBG discontinued operations (4)231 (7,117)(6,360)
(Income) loss from TBG discontinued operations, net of tax$(832)$(5,896)$53,185 

(1)In fiscal year 2020,Goodwill impairment included in discontinued operations represents the Company recorded professional fees associated with the transferportion of the mall salons backimpairment allocated to the Company as TBG mall restructuring charges.OSP business based on relative fair value.
(2)In fiscal years 2020 and 2019, the Company recorded professional fees related to the transaction, as well as insurance adjustments associated with the discontinued operations.
(3)In fiscal year 2018, the Company recorded $43.0 million of asset impairment charges, $6.2 million of cumulative foreign currency translation adjustment, $3.6 million of loss from operations and $6.8 million of professional fees.
(4)Income taxes have been allocated to continuing and discontinued operations based on the methodology required by accounting for income taxes guidance.

SmartStyle restructuring:
In January 2018, theThe Company closed 597 non-performing company-owned SmartStyle salons.leases office space in Fremont, California. 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 forlease related liabilities are included in long-term growth. A summary of costs associated with the SmartStyle salon restructuring for fiscal year 2018 is as follows:
Financial Line ItemFiscal Year 2018
(Dollars in thousands)
Inventory reservesCost of Service$656
Inventory reservesCost of Product586
SeveranceGeneral and administrative897
Long-lived fixed asset impairmentDepreciation and amortization5,460
Asset retirement obligationDepreciation and amortization7,680
Lease termination and other related closure costsRent27,290
Deferred rentRent(3,291)
Total$39,278
In addition, the Company recorded approximately $1.9 million of other related costs to the SmartStyle restructuring, primarily warehouse related costs. Substantially all related costs associated with the SmartStyle salon restructuring requiring cash outflow were completelease liability as of June 30, 2018.2022, and the lease related assets and liabilities are included in non-current assets, current liabilities and non-current liabilities related to discontinued operations as of June 30, 2021 in the Consolidated Balance Sheet.
73
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Foreign currency translation adjustment:
In fiscal year 2018, the Company incurred $6.2 million of cumulative foreign currency translation adjustment associated with the Company's liquidation of substantially all foreign entities with British pound denominated currencies.




7471
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4.     OTHER FINANCIAL STATEMENT DATA
The following provides additional information concerning selected balance sheet accounts:
 June 30,
 20202019
 (Dollars in thousands)
Other current assets:  
Prepaids$5,165 $9,527 
Restricted cash9,213 22,238 
Other4,760 1,451 
$19,138 $33,216 
Property and equipment:  
Buildings and improvements36,379 29,165 
Equipment, furniture and leasehold improvements198,983 309,561 
Internal use software71,212 67,465 
306,574 406,191 
Less accumulated depreciation and amortization(249,398)(328,101)
$57,176 $78,090 
Accrued expenses:  
Payroll and payroll related costs$18,204 $34,909 
Insurance10,278 12,935 
Rent and related real estate costs4,179 6,332 
Other16,164 26,575 
$48,825 $80,751 
Other non-current liabilities:  
Deferred income taxes$13,916 $17,924 
Deferred rent (1)— 14,006 
Insurance20,301 23,565 
Deferred benefits11,106 12,457 
Deferred franchise fees45,478 39,367 
Other3,341 4,080 
$94,142 $111,399 

(1)Upon adoption of ASC 842 in fiscal year 2020, the Company no longer reports deferred rent.

 June 30,
 20222021
 (Dollars in thousands)
Other current assets:  
Prepaid assets$1,816 $4,121 
Restricted cash10,423 9,961 
Other1,745 2,935 
Total other current assets$13,984 $17,017 
Property and equipment:  
Buildings and improvements$8,228 $8,251 
Equipment, furniture and leasehold improvements14,260 28,782 
Internal use software34,824 34,644 
Total property and equipment57,312 71,677 
Less accumulated depreciation and amortization(44,477)(54,771)
Total property and equipment, net$12,835 $16,906 
Accrued expenses:  
Payroll and payroll related costs$7,767 $16,175 
Insurance5,012 7,525 
Rent and related real estate costs4,585 11,197 
Deferred revenue7,823 8,164 
Other8,597 8,181 
Total accrued expenses$33,784 $51,242 
Other non-current liabilities:  
Deferred income taxes$10,979 $10,650 
Insurance9,744 12,722 
Deferred benefits6,308 10,028 
Deferred franchise fees30,038 38,936 
Other1,905 2,739 
Total other non-current liabilities$58,974 $75,075 
7572
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following provides additional information concerning other intangibles, net:
June 30, June 30,
20202019 20222021
Weighted Average Amortization Periods (1)Cost (2)Accumulated
Amortization (2)		NetWeighted Average Amortization Periods (1)Cost (2)Accumulated
Amortization (2)		Net Weighted Average Amortization Periods (1)Cost (2)Accumulated
Amortization (2)		NetWeighted Average Amortization Periods (1)Cost (2)Accumulated
Amortization (2)		Net
(In years)(Dollars in thousands)(In years)(Dollars in thousands) (In years)(Dollars in thousands)(In years)(Dollars in thousands)
Brand assets and trade namesBrand assets and trade names33$6,494 $(3,609)$2,885 33$6,909 $(3,659)$3,250 Brand assets and trade names36$5,421 $(3,234)$2,187 35$6,040 $(3,568)$2,472 
Franchise agreementsFranchise agreements199,558 (8,194)1,364 199,783 (8,057)1,726 Franchise agreements207,719 (6,756)963 1910,099 (8,901)1,198 
Lease intangibles (3)00 0 0 2013,490 (10,065)3,425 
OtherOther20874 (544)330 20883 (523)360 Other20354 (278)76 20366 (275)91 
TotalTotal24$16,926 $(12,347)$4,579 22$31,065 $(22,304)$8,761 Total26$13,494 $(10,268)$3,226 24$16,505 $(12,744)$3,761 
_______________________________________________________________________________

(1)All intangible assets have been assigned an estimated finite useful life and are amortized on a straight-line basis over the number of years that approximate their expected period of benefit (ranging from three to 40 years).
(2)The change in the gross carrying value and accumulated amortization of other intangible assets is impacted by foreign currency.
(3)A $2.5 million lease intangible impairment was recorded in the fourth fiscal quarter as a result of the COVID-19 triggering event.
Total amortization expense related to intangible assets during fiscal years 2020, 20192022 and 20182021 was approximately $1.3$0.4 and $0.8 million, in each year.respectively. As of June 30, 2020,2022, future estimated amortization expense related to intangible assets is estimated as follows (in thousands):
2021$467 
2022438 
20232023425 2023$365 
20242024363 2024302 
20252025366 2025302 
20262026302 
20272027302 
ThereafterThereafter2,520 Thereafter1,653 
TotalTotal$4,579 Total$3,226 

The following provides supplemental disclosures of cash flow activity:
 Fiscal Years
 2020 20192018
 (Dollars in thousands)
Cash paid for:    
Interest$7,390 $4,408 $7,022 
Taxes and penalties, net2,150  2,096 2,397 
Non-cash investing activities:
     Unpaid capital expenditures2,569 3,873 9,209 

 Fiscal Years
 2022 2021
 (Dollars in thousands)
Cash paid (received) for:   
Interest$11,786 $11,940 
Taxes and penalties, net(1,400) (2,636)
Non-cash investing activities:
     Unpaid capital expenditures35 312 
7673
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5.     GOODWILL
The table below contains details related to the Company's goodwill:
 June 30,
 20202019
 Gross
Carrying
Value (1)		Accumulated
Impairment (3)		NetGross
Carrying
Value (1)		Accumulated
Impairment (2)		Net
 (Dollars in thousands)
Goodwill$341,721 $(114,264)$227,457 $419,818 $(74,100)$345,718 

 June 30,
 20222021
 Gross
Carrying
Value (1)		Accumulated
Impairment		NetGross
Carrying
Value (1)		Accumulated
Impairment		Net
 (Dollars in thousands)
Goodwill$304,624 $(130,264)$174,360 $343,846 $(114,264)$229,582 

_______________________________________________________________________________
(1)The change in the gross carrying value of goodwill relates to goodwill derecognized for salons sold to franchisees and foreign currency translation adjustments.
(2)In fiscal year 2011, the Company realized a $74.1 million goodwill impairment loss associated with the Company-owned reporting unit (the previous North American Value reporting unit).
(3)In fiscal year 2020, the Company realized a $40.2 million goodwill impairment associated with the Company-owned reporting unit. Prior to the COVID-19 pandemic, the Company had been derecognizing Company-owned goodwill as part of the calculation of gain or loss on the sale of salons to franchisees. Following the goodwill impairment in fiscal year 2020, the Company-owned reporting unit has no remaining goodwill, so there will be no further derecognition of Company-owned goodwill.
The table below contains details related to the Company's goodwill:goodwill related to the Franchise reporting unit:
Fiscal Years
20222021
(Dollars in thousands)
Balance at beginning of period (1)$229,582 $227,457 
Derecognition of OSP goodwill(38,358)— 
Goodwill impairment related to continuing operations(13,120)— 
Goodwill impairment related to discontinued operations(2,880)— 
Translation rate adjustments(864)2,125 
Balance at end of period (1)$174,360 $229,582 
_______________________________________________________________________________
FranchiseCompany-ownedConsolidated
(Dollars in thousands)
Goodwill, net at June 30, 2019$227,928 $117,790 $345,718 
Translation rate adjustments(471)(660)(1,131)
Derecognition related to sale of salon assets to franchisees (1)0 (76,966)(76,966)
Goodwill impairment0 (40,164)(40,164)
Goodwill, net at June 30, 2020$227,457 $0 $227,457 

(1)Prior to the impairment charge, goodwill was derecognized for salons sold to franchisees with positive cash flows. The amount of goodwill derecognized was 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 goodwill balance as of the Company-owned reporting unit at the time of sale. This methodology utilizing the trailing-twelve months of EBITDA as the unit of account is most representative of fair value for the derecognition calculation dueJune 30, 2021 includes $41.3 million related to vendition strategies that may cause proceeds to not be representative of a market participant value.


discontinued operations.
7774
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6.     LEASES
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 1one to 20 years with many leases renewable for an additional 5five to 10 year terms10-year term at the option of the Company. In addition to the obligation to make fixed rental payments for the use of the salons, 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:
Fiscal Years
20222021
(Dollars in thousands)
Office and warehouse rent$4,575 $5,234 
Lease termination expense (1)1,835 13,544 
Lease liability benefit (2)(3,620)(20,022)
Franchise salon rent1,695 3,376 
Company-owned salon rent4,872 38,622 
Total$9,357 $40,754 
_______________________________________________________________________________

June 30,
202020192018
(Dollars in thousands)
Minimum rent (1)$60,703 $108,892 $157,828 
Percentage rent based on sales2,043 4,754 4,324 
Real estate taxes and other expenses13,636 18,170 20,944 
Total$76,382 $131,816 $183,096 

(1)Pursuant to ASC 420,During fiscal year 2018 includes2022, lease termination expense includes $0.9 million to exit the Company's distribution centers before the lease end dates and other related closure costs$0.9 million to exit salons before the lease end dates in order to relieve the Company of $27.3future lease obligations. During fiscal year 2021, lease termination fees include $8.3 million of early termination payments to close salons before the lease end date to relieve the Company of future lease obligations and $5.3 million to accrue future lease payments for salons that are no longer operating.
(2)Upon termination of previously impaired leases, the Company derecognizes the corresponding ROU assets and lease liabilities which results in a deferred rentnet gain. In addition, the Company recognizes a benefit from lease liabilities decreasing in excess of $3.3 million related to restructuring of the company-owned SmartStyle portfoliopreviously impaired ROU assets for ongoing leases that occurred in January 2018.were previously impaired.
The Company also leases thesalon premises in which the majority of its franchisees operate where the Company retains the head lease primary obligation, and has entered into corresponding sublease arrangements with franchisees. These leases, generally with terms of approximately 5 years, are expected to be renewed on expiration. All lease relatedlease-related costs are passed through to the franchisees. The Company retains the primary obligation for the head lease and upon adopting Topic 842, the Company records the rental payments due from franchisees as franchise rental income and the corresponding amounts owed to landlords as franchise rent expense on the Consolidated Statement of Operations. In fiscal year 2020, franchiseyears 2022 and 2021, Franchise rental income and franchiseFranchise rent expense were $127.2 million.
In April 2020, the FASB issued a question$130.8 and answer document focused on the application$127.4 million, respectively. These leases generally have lease terms of lease accounting guidance to lease concessions provided as a result of COVID-19 (the “Lease Modification Q&A”). The Lease Modification Q&A provides entities with the option to elect to account for lease concessions as though the enforceable rights and obligations existed in the original lease when the total cash flows resulting from the modified lease are substantially similar to the cash flows in the original lease.approximately five years. The Company elected this FASB relief for COVID-19-related rent concessions forexpects to renew SmartStyle and some franchise leases upon expiration. Some other leases are expected to be renewed by the Walmart rent abatement received in April and May 2020 and has elected not to remeasure the related lease liability and right of use asset for Walmart leases. The Walmart rent abatement was recognized as a reduction of variable rent expense of $2.7 million in the fourth fiscal quarter of 2020. Additionally, included in accounts payable as of June 30, 2020 is approximately $20 million of rental payments that were due but the Company had not paid. The Company has elected to account for these rent deferrals as if no changes to the lease contract were made and, as noted above, has increased its accounts payable as the lease payments accrue.franchisee upon expiration.
For franchise and company-owned 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.date, including 1 lease term option when the lease is expected to be renewed. The Right of Use (ROU)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. The Company’s consolidated Right of Use Asset (ROUA) balance was $786.2 millionas of June 30, 2020. For leases classified as operating leases, expense for lease payments is recognized on a straight-line basis over the lease term.term, including the lease renewal option when the lease is expected to be renewed. Generally, the non-lease components, such as real estate taxes and other occupancy expenses, are separate from rent expense within the lease and are not included in the measurement of the lease liability because these charges are variable.
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 uses the portfolio approach in applying the discount rate based on the original lease term. The weighted average remaining lease term was 6.876.02 and 6.44 years and the weighted-averageweighted average discount rate was 3.95%4.25% and 4.11% for all salon operating leases as of June 30, 2020.2022 and 2021, respectively.
7875
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A lessee’s right of uselessee's ROU asset is subject to the same asset impairment guidance in ASC 360, Property, Plant, and Equipment, applied to other elements of property, plant, and equipment. The Company has identified its asset groups at the individual salon level as this represents the lowest level for whichthat identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. As a result of COVID-19Poor salon performance in fiscal years 2022 and the related store closures that occurred during the fourth fiscal quarter of 2020, the Company determined that a triggering event had occurred pursuant to2021 resulted in ASC 360-10-35-21 given that there had been a significant adverse change in the business climate that could affect the value of its salon long-lived asset groups combined with a significant adverse change in the extent or manner in which the salon long-lived groups were being used.triggering events. As a result, management assessed all of itsunderperforming salon asset groups, which included the related ROU assets, for impairment in accordance with ASC 360.
The first step in the impairment test under ASC 360 is to determine whether the long-lived assets are recoverable, which is determined by comparing the net carrying value of the salon asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset group. Estimating cash flows for purposes of the recoverability test is subjective and requires significant judgment. Estimated future cash flows used for the purposes of the recoverability test were based upon historical cash flows for the salons, adjusted for expected changes in future market conditions related to the COVID-19 pandemic, and other factors. The period of time used to determine the estimates of the future cash flows for the recoverability test was based on the remaining useful life of the primary asset of the group, which was the ROU asset in all cases.
Step twoThe second step of the long-lived asset impairment test requires that the fair value of the asset group be determinedestimated when calculatingdetermining the amount of any impairment loss. For the salon asset groups that failed the recoverability test, an impairment loss was measured as the amount by which the carrying amount of the asset group exceeds its fair value. The Company applied the fair value guidance within ASC 820-10 to determine the fair value of the asset group from the perspective of a market-participant considering, among other things, appropriate discount rates, multiple valuation techniques, the most advantageous market, and assumptions about the highest and best use of the asset group. To determine the fair value of the salon asset groups, the Company utilized market-participant assumptions rather than the Company’sCompany's own assumptions about how it intends to use the asset group. The significant judgments and assumptions utilized to determine the fair value of the salon asset groups include the market rent of comparable properties and a discount rate.
The fair value of the salon long-lived asset group is estimated using market participant methods based on the best information available. The significant judgments and assumptions utilized to determine the fair value of the salon asset groups include; the market rent of comparable properties based on recently negotiated leases as applicable, the asset group’s projected sales for fiscal years 2021 through 2023 for properties with no recently negotiated leases, and a discount rate. The Company engaged a third-party valuation specialist to assist with the research related to inputs used in their determination of the fair value of the ROU asset which included providing information related to significant inputs and assumptions utilized in the measurement of the impairment loss.
OfFor fiscal years 2022 and 2021, the total $22.6Company recognized long-lived impairment charges of $0.5 and $13.0 million, long-lived asset impairment charge inrespectively, which included $0.5 and $9.5 million, respectively, related to ROU assets on the Consolidated Statement of Operations, $17.4 million related to the right of use asset included in the salon asset groups.Operations. The impairment loss for each salon asset group that was recognized was allocated among the long-lived assets of the group on a pro ratapro-rata basis using their relative carrying amounts. Additionally, the impairment losses did not reduce the carrying amount of an individual asset below its fair value, including for the ROU assets included in the salon asset groups. Assessing the long-lived assets for impairment requires management to make assumptions and to apply judgment, 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 for its long-lived asset, including its ROU assets. However, the ultimate severity and longevity of the COVID-19 pandemic is unknown therefore, ifIf actual results are not consistent with the estimates and assumptions used in the calculations, the Company may be exposed to future impairment losses that could be material.

7976
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of June 30, 2020,2022, future operating lease commitments, including one renewal option for leases expected to be renewed, to be paid and received by the Company were as follows:follows (in thousands):
Fiscal YearLeases For Franchise SalonsLeases For Company-Owned SalonsCorporate LeasesTotal Operating Lease PaymentsSublease Income To Be Received From FranchiseesNet Rent Commitments
2023$116,644 $3,590 $2,229 $122,463 $(116,644)$5,819 
2024102,360 2,049 1,301 105,710 (102,360)3,350 
202585,788 710 1,334 87,832 (85,788)2,044 
202672,155 385 1,367 73,907 (72,155)1,752 
202761,698 143 1,401 63,242 (61,698)1,544 
Thereafter122,570 256 4,417 127,243 (122,570)4,673 
Total future obligations$561,215 $7,133 $12,049 $580,397 $(561,215)$19,182 
Less amounts representing interest66,693 361 1,702 68,756 
Present value of lease liabilities$494,522 $6,772 $10,347 $511,641 
Less current lease liabilities97,954 3,399 1,843 103,196 
Long-term lease liabilities$396,568 $3,373 $8,504 $408,445 
Fiscal YearLeases For Franchise SalonsLeases For Company-Owned SalonsCorporate LeasesTotal Operating Lease PaymentsSublease Income To Be Received From FranchiseesNet Rent Commitments
2021$121,149 $43,705 $1,781 $166,635 $(121,149)$45,486 
2022110,951 36,628 1,410 148,989 (110,951)38,038 
2023100,640 31,943 1,447 134,030 (100,640)33,390 
202490,649 28,057 1,484 120,190 (90,649)29,541 
202579,398 23,746 1,522 104,666 (79,398)25,268 
Thereafter190,793 59,994 7,818 258,605 (190,793)67,812 
Total future obligations$693,580 $224,073 $15,462 $933,115 $(693,580)$239,535 
Less amounts representing interest85,432 27,193 2,765 115,390 
Present value of lease liabilities$608,148 $196,880 $12,697 $817,725 
Less current lease liabilities99,217 36,767 1,287 137,271 
Long-term lease liabilities$508,931 $160,113 $11,410 $680,454 
Supplemental operating cash flow information and non-cash activity related to our operating leases are as follows (in thousands):
Fiscal Years
20222021
(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities (1)$74,507 $130,039 
Right of use assets obtained in exchange for new lease liabilities2,011 4,242 
_______________________________________________________________________________

(1)Cash paid for amounts included in the measurement of lease liabilities includes rent, termination fees, settlements and legal fees, and commission payments.
8077
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.     FAIR VALUE MEASUREMENTS
Fair value measurements are categorized into one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs available at the measurement date, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of June 30, 20202022 and 2019, the estimated fair value of the Company’s cash, cash equivalents, restricted cash, receivables and accounts payable approximated their carrying values. As of June 30, 2020,2021, the estimated fair value of the Company's debt was $177.5 million, which approximated its carrying value. As of June 30, 2020, the estimated fair value of the long-term financial liability was $28.0 million, which approximated its carrying value. The estimated fair value of the Company'scash, cash equivalents, restricted cash, receivables, inventory, deferred compensation assets, debt and long-term financial liability are based on Level 2 inputs.accounts payable approximated their carrying values.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
We measure certain assets, including the Company’sCompany's equity method investments, tangible fixed and other assets and goodwill, at fair value on a nonrecurring basis when they are deemed to be other than temporarily impaired. The fair values of 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 impairment charges were based on fair values using Level 3 inputs:inputs (1):
Fiscal Years
20222021
(Dollars in thousands)
Goodwill impairment$16,000 $— 
Long-lived asset impairment542 13,023 
_______________________________________________________________________________
Fiscal Year
202020192018
(Dollars in thousands)
Goodwill$40,164 $0 $0 
Salon asset impairments (1)3,851 4,587 11,092 
Long-lived assets impairment (1)22,560 0 0 

(1)See NoteNotes 1 and 5 to the Consolidated Financial Statements.

8178
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8.     FINANCING ARRANGEMENTS
The Company's long-term debt consists of the following:
Revolving Credit Facility
  June 30,
 Maturity Date2020201920202019
 (Fiscal year)(Interest rate %)(Dollars in thousands)
Revolving credit facility20235.50%3.65%$177,500 $90,000 
 June 30,
 Maturity Date (1)2022202120222021
 (Fiscal year)(Interest rate %)(Dollars in thousands)
Revolving credit facility20235.50%5.00%$179,994 $186,911 
_______________________________________________________________________________

(1)As of June 30, 2022 the Company's borrowings matured in March 2023. On August 12, 2022, the Company amended its credit agreement. In connection with the amendment, the maturity of the credit agreement was extended to August 31, 2025. Accordingly, the debt is classified as non-current on the Consolidated Balance Sheet. See Note 16 to the Consolidated Financial Statements.
At June 30, 2020,2022, cash and cash equivalents and marketable securities totaled $113.7$17.0 million. As of June 30, 2020,2022, the Company had $177.5$180.0 million of outstanding borrowings under athe original $295.0 million revolving credit facility.facility, of which $277.5 million was available as of June 30, 2022. The credit facility decreased $16.9 million from $294.4 million as of June 30, 2021, in accordance with the bulk sale provisions in the revolving credit facility agreement, due to the sale of OSP and secured inventory related to our transition to a third-party distribution partner. At June 30, 2020,2022, the Company had outstanding standby letters of credit under the revolving credit facility of $21.0$15.7 million, primarily related to the Company's self-insurance program. The unused available credit under the facility was $96.5$81.9 million at June 30, 2020. The Company increased its outstanding borrowings from2022. Total liquidity per the agreement was $119.8 million as of June 30, 2019 to June 30, 2020 by making a draw on the credit facility of $183.0 million in March of 2020. The $183.0 million draw was done to increase the Company's cash position and preserve financial flexibility as the Company experienced significant business interruption due to the COVID-19 pandemic. In the fourth quarter of fiscal year 2020, the Company repaid $125.5 million.2022. As of June 30, 2020,2022, the Company had cash, cash equivalents and restricted cash of $122.9$27.5 million and current liabilities of $237.0$152.8 million.
In MayUnder the terms of 2020, the Company amended its $295.0 million revolving credit facility that expires in March 2023. The amendment to the revolving credit facility provides relief for the maximum consolidated net leverage ratio covenant and the minimum fixed charge coverage ratio covenant. Without such amendment, the Company would have been in violation of the covenants as of March 31, 2020, which could have resulted in default. Under the new terms of the amendment,June 30, 2022, the Company is required to maintain a minimum liquidity of not less than $75.0 million and provides the Company's lenders securityare secured in the Company's assets, adds additional guarantors and grants a first priority lien and security interest to the lenders in substantially all of the Company’s and the guarantors’ existing and future property. The amendment also increases the applicable interest rate margins and facility fees applicable to the loans and inserts a 1.25% LIBOR floor.assets. The applicable margin for loans bearing interest at LIBORSOFR ranges from 3.75%-4.25%, the applicable margin for loans bearing interest at the base rate ranges from 2.75%-3.25% and the facility fee ranges from 0.5%0.50%-0.75%, each depending on average utilization of the revolving line of credit. This amendment gives the Company flexibility throughout the uncertainty generated by the business disruption caused by the COVID-19 pandemic, as well as the Company's navigation through its strategic transformation. The Company was in compliance with all covenants and other requirements of the financing arrangements as of June 30, 2020 and believes it will continue to be in compliance for at least one year from our filing date.
Senior Term Notes
In fiscal year 2018,2022. On August 12, 2022, the Company redeemed all ofamended and extended its 5.5% senior term notes that were due December 2019 (Senior Term Notes) for $124.2 million,credit facility which, included a $1.2 million premium. The Company utilized $90.0 million underamong other things, converted the revolving credit facility to a $180.0 million term loan and cash on hand of $34.2$55.0 million revolving credit facility. The amendment also extends the maturity date to repay the Senior Term Notes. As a result of redeeming the Senior Term Notes, the Company recorded $1.7 million of additional interest expense relatedAugust 31, 2025. See Note 16 to the unamortized debt discount and debt issuance costs during the fiscal year 2018.
Sale and Leaseback Transactions
The Company’s long-term lease liability consists of the following:
 Maturity DateInterest RateJune 30,
2020		June 30,
2019
 (Fiscal year) (Dollars in thousands)
Financial liability - Salt Lake City Distribution Center20343.30%$16,773 $17,354 
Financial liability - Chattanooga Distribution Center20343.70%11,208 11,556 
Long-term financing liabilities$27,981 $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.Consolidated Financial Statements.
8279
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
This financial liability is reduced based on the rental payments made under the lease that are allocated between principal and interest. As of June 30, 2020, the current portion of the Company’s lease liabilities was $0.9 million, which was recorded in accrued expenses on the Consolidated Balance Sheet. The weighted average remaining lease term was 13.6 years and the weighted-average discount rate was 3.46% for financing leases as of June 30, 2020.
As of June 30, 2020, future lease payments due are as follows:
Fiscal yearSalt Lake City Distribution CenterChattanooga Distribution Center
(Dollars in thousands)
2021$1,157 $817 
20221,171 829 
20231,186 842 
20241,200 854 
20251,215 867 
Thereafter10,683 8,414 
Total$16,612 $12,623 

These lease payments were not impacted by the adoption of ASC 842. The financing lease liability does not include interest. Future lease payments above are due per the lease agreement and include embedded interest. Therefore, the total payments do not equal the liability. Total interest expense for the financing leases was $0.7 million for the year ended June 30, 2020, including a one-time $0.4 million credit to interest related to 75% of the April and May rent being waived due to the COVID-19 pandemic.

9.     COMMITMENTS AND CONTINGENCIES
Contingencies:
The Company is self-insured for most workers' compensation, employment practice liability and general liability. Workers' compensation and general liability losses are subject to per occurrence and aggregate annual liability limitations. The Company is insured for losses in excess of these limitations. The Company is also self-insured for health care claims for eligible participating employees subject to certain deductibles and limitations. The Company determines its liability for claims incurred but not reported on an actuarial basis.
Litigation and Settlements:
The Company is a plaintiff or defendant in various lawsuits and claims arising out of the normal course of business. Like certain other franchisors, the Company has faced allegations of franchise regulation and agreement violations. Additionally, because the Company may be the tenant under a master lease for a location subleased to a franchisee, the Company has faced allegations of nonpayment of rent and associated charges. Further, similar to other large retail employers, the Company has been faced with allegations of purported class-wide consumer and wage and hour violations.

During fiscal year 2022, the Company recorded $2.2 million of expense related to litigation, of which $1.7 million was paid during the year. The Company's accrual related to potential settlement liability was $0.5 million as of June 30, 2022. Included in the expense is litigation brought in the 11th Judicial Circuit, St. Charles County, Missouri, in which the Company challenged a landlord regarding a lease the Company secured but the landlord leased to another tenant. The landlord in the case prevailed and the court ordered the Company to pay the landlord $0.5 million in attorney's fees. The Company requested leave to appeal and plans to vigorously pursue overturning this judgment.

The Company's previous point-of-sale system supplier had challenged the development of certain parts of the Company's technology systems in litigation brought in the Northern District of California. The Company and the supplier entered into an agreement, effective June 25, 2021, that provided for the dismissal of the lawsuit and set forth a Transition Services Agreement pursuant to which the supplier will assist in the transfer of franchise salons from its point-of-sale system to the Company's salon management system, OSP. The Company and the supplier entered into an amendment to the Settlement Agreement, effective June 15, 2022, in which the Company agreed to pay $2.0 million to the supplier in installments commencing on June 15, 2022, and ending on December 10, 2022, in consideration of a release of claims arising out of or related to the Transition Services Agreement and for the supplier to continue to provide the services set forth in that agreement.

Litigation is inherently unpredictable, and the outcome of these matters cannot presently be determined. Although the actions are being vigorously defended, the Company could incur judgments in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations in any particular period. The Company is a defendant in 2 wage and hour lawsuits in California. The first, a class action in U.S. District Court, alleges various violations of the California Labor Code, including but not limited to failure to pay wages, failure to permit rest breaks, failure to pay all wages due on termination of employment, waiting time penalties, failure to provide accurate wage statements and violation of the business and professions code. This case has preliminarily settled, pending approval of the court and class, for $2.1 million. The second, a class action filed in California Superior Court, alleges various violations of the California Labor Code as well as PAGA penalties. Barring successful objection from plaintiffs’ attorneys to the first class action, the second case will be subsumed into the first case’s settlement.As of June 30, 2019 and 2020, $1.5 and $2.1 million, respectively, was included within accrued expenses on the Condensed Consolidated Balance Sheet related to these class action lawsuits.


8380
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10.     INCOME TAXES
The components of loss from continuing operations before income taxes are as follows:
 Fiscal Years
 20222021
 (Dollars in thousands)
Loss before income taxes
U.S. $(41,231)$(143,104)
International(3,211)34,470 
$(44,442)$(108,634)
 Fiscal Years
 202020192018
 (Dollars in thousands)
Loss before income taxes
U.S. $(165,260)$(17,513)$(16,604)
International(11,553)(4,754)6,413 
$(176,813)$(22,267)$(10,191)
The benefitprovision (benefit) for income taxes consists of:
 Fiscal Years
 202020192018
 (Dollars in thousands)
Current:   
U.S. $(925)$(519)$2,151 
International238 1,069 1,894 
Deferred:   
U.S. (3,353)(2,303)(73,728)
International(579)(392)(129)
$(4,619)$(2,145)$(69,812)
 Fiscal Years
 20222021
 (Dollars in thousands)
Current:  
U.S. $(535)$(620)
International(425)(1,421)
Deferred:  
U.S. 3,130 (3,701)
International(153)314 
$2,017 $(5,428)

The benefitprovision (benefit) for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory rate to earnings (loss)loss from continuing operations before income taxes, as a result of the following:
 Fiscal Years
 20222021
U.S. statutory rate21.0 %21.0 %
State income taxes, net of federal income tax benefit1.4 7.9 
Valuation allowance (1)(6.6)(61.5)
Foreign income taxes at other than U.S. rates3.0 9.4 
Uncertain tax positions(17.9)0.2 
Stock-based compensation(2.8)(0.7)
Loss on investment in Luxembourg— 29.3 
Other, net (2)(2.6)(0.6)
Effective tax rate(4.5)%5.0 %
_______________________________________________________________________________
 Fiscal Years
 202020192018
U.S. statutory rate21.0 %21.0 %28.0 %
State income taxes, net of federal income tax benefit4.0 0.5 14.8 
Valuation allowance (1)(29.4)(14.5)560.8 
Foreign income taxes at other than U.S. rates(0.6)0.9 (0.5)
Work opportunity tax credits0.4 7.2 15.2 
Deferred tax rate remeasurement0 0 99.0 
Uncertain tax positions(6.2)1.0 (15.9)
Stock-based compensation0.1 2.2 (15.8)
Capital loss15.0 0 0 
Other, net (2)(1.7)(8.7)(0.6)
2.6 %9.6 %685.0 %

(1)See Note 1 to the Consolidated Financial Statements.
(2)The (1.7)(2.6)% of Other, net in fiscal year 20202022 includes the rate impact of goodwill derecognition and impairmentthe federal provision to return true-up and miscellaneous items of (1.2)(2.0)% and (0.6)%, respectively. Miscellaneous items do not include the rate impact of any items in excess of 5% of computed tax. The (8.7)% of Other, net in fiscal year 2019 includes the rate impact of goodwill derecognition and miscellaneous items of (5.9)% and (2.8)%, respectively. Miscellaneous items do not include any items in excess of 5% of computed tax. The (0.6)% of Other, net in fiscal year 20182021 does not include the rate impact of any items in excess of 5% of computed tax.

8481
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of the net deferred tax assets and liabilities are as follows:
 June 30,
 20202019
 (Dollars in thousands)
Deferred tax assets:  
Deferred rent$0 $3,816 
Payroll and payroll related costs9,903 11,696 
Net operating loss carryforwards64,402 48,208 
Tax credit carryforwards37,072 36,966 
Capital loss carryforwards14,978 0 
Deferred franchise fees9,342 7,508 
Operating lease liabilities202,940 — 
Financing lease liabilities7,157 7,387 
Other8,214 8,709 
Subtotal$354,008 $124,290 
Valuation allowance(122,447)(70,707)
Total deferred tax assets$231,561 $53,583 
Deferred tax liabilities:  
Goodwill and intangibles$(40,904)$(62,378)
Operating lease assets(197,304)— 
Other(7,269)(9,129)
Total deferred tax liabilities$(245,477)$(71,507)
Net deferred tax liability$(13,916)$(17,924)
 June 30,
 20222021
 (Dollars in thousands)
Deferred tax assets:  
Payroll and payroll related costs$5,267 $8,523 
Net operating loss carryforwards153,190 145,823 
Tax credit carryforwards37,664 37,433 
Capital loss carryforwards5,338 14,179 
Deferred franchise fees8,694 10,153 
Operating lease liabilities124,905 154,255 
Other (1)17,542 12,608 
Subtotal352,600 382,974 
Valuation allowance (1)(201,731)(192,522)
Total deferred tax assets$150,869 $190,452 
Deferred tax liabilities:  
Goodwill and intangibles$(33,466)$(43,375)
Operating lease assets(123,333)(150,573)
Other(5,049)(7,154)
Total deferred tax liabilities(161,848)(201,102)
Net deferred tax liability$(10,979)$(10,650)
_______________________________________________________________________________

(1)The $17.5 million of Other in fiscal year 2022 includes $5.3 million of deferred tax assets with a corresponding valuation allowance of the same amount related to discontinued operations.
Significant components of the valuation allowance which occurred during fiscal year 20202022 are as follows:
•On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act) in response to the COVID-19 pandemic. The CARES Act included several significant business tax provisions that, among other items, eliminated the taxable income limit and granted business a five-year carryback for certain net operating losses (NOLs), accelerated refunds of previously generated corporate alternative minimum tax (AMT) credits, temporarily loosened the business interest limitation under section 163(j) and corrected certain provisions under the Tax Cuts and Jobs Act (TCJA).
In connection with the CARES Act, NOLs resulting from accounting periods which straddled December 31, 2017 are    now considered definite-lived NOLs. Therefore, the Company established a U.S. valuation allowance against the NOLs generated during its fiscal year 2018 and recorded a net tax expense of $14.7 million in continuing operations.
•The Company determined that it no longer had sufficient U.S. state indefinite-lived taxable temporary differences to support realization of its U.S. state indefinite-lived NOLs and its existing U.S. deferred tax assets that upon reversal are expected to generate state indefinite-lived NOLs. As a result, the Company recorded an additional $17.0a $4.1 million valuation allowance on its U.S. federalstate indefinite-lived deferred tax assets.
Significant components of the valuation allowance which occurred during fiscal year 2021 are as follows:
•The Company further recognized a capitaltax loss on its investment in Luxembourg and established a corresponding valuation allowance of $14.9 million on investment outside basis previously impaired for financial accounting purposes.$34.4 million.
The Company also expects to receive a refund
82
Table of approximately $1.4 million due to accelerated refunds of AMT credits as a result of the CARES Act.Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At June 30, 2020,2022, the Company has tax effectedtax-effected federal, state, Canada, and U.K. net operating loss carryforwards of approximately $43.6, $16.7, $3.8$116.8, $28.1, $7.8 and $0.3$0.5 million, respectively. The Company's federal loss carryforward consists of $27.3 million that will expire from fiscal years 2034 to 2038 and $16.3$89.5 million that has no expiration. The state loss carryforwards consist of $15.7$24.4 million that will expire from fiscal years 20212023 to 20402042 and $1.0$3.7 million that has no expiration. The Canada loss carryforward will expire from fiscal years 2036 to 2040.2042. The U.K. loss carryforward has no expiration.
85
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company's tax credit carryforward of $37.1$37.7 million primarily consistconsists of Work Opportunity Tax Credits that will expire from fiscal years 2031 to 2040.2042.
The Company's capital loss carryforward of $14.9$5.3 million will expire in fiscal year 2025.
We consider the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United States.U.S. Accordingly, we have not recorded deferred taxes related to the U.S. federal and state income taxes and foreign withholding taxes on approximately $30.3$7.8 million of undistributed earnings of foreign subsidiaries, which have been reinvested outside the United States.U.S. As a result of the Tax Cuts and Jobs Act of 2017, taxes payable on the remittance of such earnings is expected to be minimal.
The Company files tax returns and pays tax primarily in the U.S., Canada, the U.K. and Luxembourg, as well as states, cities, and provinces within these jurisdictions. The Company is no longer subject to IRSInternal Revenue Service examinations for years before 2014. With limited exceptions, the Company is no longer subject to state and international income tax examination by tax authorities for years before 2012.
A rollforward of the unrecognized tax benefits is as follows:
 Fiscal Years
 202020192018
 (Dollars in thousands)
Balance at beginning of period$2,763 $3,027 $1,388 
Additions based on tax positions related to the current year, primarily salon vendition activity and tax positions related to a capital loss11,985 287 553 
(Reductions)/additions based on tax positions of prior years(223)(154)1,608 
Reductions on tax positions related to the expiration of the statute of limitations(480)(397)(177)
Settlements0 0 (345)
Balance at end of period$14,045 $2,763 $3,027 

 Fiscal Years
 20222021
 (Dollars in thousands)
Balance at beginning of period$13,858 $14,045 
Additions based on tax positions related to the current year, primarily salon vendition activity and tax positions related to a capital loss8,636 292 
Additions based on tax positions of prior years81 50 
Reductions on tax positions related to the expiration of the statute of limitations(402)(529)
Balance at end of period$22,173 $13,858 
If the Company were to prevail on all unrecognized tax benefits recorded, a net benefit of approximately $1.3$1.0 million would be recorded in the effective tax rate. Interest and penalties associated with unrecognized tax benefits are recorded within income tax expense. During each of the fiscal years 2020, 20192022 and 2018,2021, the Company recorded interest and penalties of approximately $0.1$0.2 million as additionsreductions to the accrual, net of the respective reversal of previously accrued interest and penalties. As of June 30, 2020,2022, the Company had accrued interest and penalties related to unrecognized tax benefits of $1.1$0.7 million. This amount is not included in the gross unrecognized tax benefits noted above.
It is reasonably possible the amount of the unrecognized tax benefit with respect to certain of our unrecognized tax positions will increase or decrease during the next fiscal year. However, an estimate of the amount or range of the change cannot be made at this time.
8683
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11.     BENEFIT PLANS
Regis Retirement Savings Plan:
The Company maintains a defined contribution 401(k) plan, the Regis Retirement Savings Plan (RRSP). The RRSP is a defined contribution profit sharing plan with a 401(k) feature that is intended to qualify under Section 401(a) of the Internal Revenue Code (the Code) and is subject to the Employee Retirement Income Security Act of 1974 (ERISA).
The 401(k) portion of the RRSP is a cash or deferred arrangement intended to qualify under section 401(k) of the Code and under which eligible employees may elect to contribute a percentage of their eligible compensation. Employees who are 18 years of age or older and who were not highly compensated employees as defined by the Code during the preceding RRSP year are eligible to participate in the RRSP commencing with the first day of the month following their completion of one month of service.
The discretionary employer contribution profit sharing portion of the RRSP is a noncontributory defined contribution component covering full-time and part-time employees of the Company who have at least one year of eligible service, defined as 1,000 hours of service during the RRSP year, are employed by the Company on the last day of the RRSP year and are employed at Salon Support employees, distribution centers, ascenter employees, field leaders, artistic directors or consultants, and that are not highly compensated employees as defined by the Code. Participants' interest in the noncontributory defined contribution component become 20.0% vested after completing two years of service with vesting increasing 20.0% for each additional year of service and with participants becoming fully vested after six full years of service.
Nonqualified Deferred Salary Plan:
The Company maintains a Nonqualified Deferred Salary Plan (Executive Plan), which covers Company officers and all other employees who are highly compensated as defined by the Code. The discretionary employer contribution portion of the Executive Plan is a profit sharing component in which a participant's interest becomes 20.0% vested after completing two years of service with vesting increasing 20.0% for each additional year of service and with participants becoming fully vested after six full years of service. Certain participants within the Executive Plan also receive a matching contribution from the Company.
Regis Individual Secured Retirement Plan (RiSRP):
The Company maintains a Regis Individual Secured Retirement Plan (RiSRP), pursuant to which eligible employees may use post-tax dollars to purchase life insurance benefits. Salon Support employees at the director level and above as well as regional vice presidents, are eligible to participate.qualify. The Company may make discretionary contributions on behalf of participants within the RiSRP, which may be calculated as a matching contribution. The participant is the owner of the life insurance policy under the RiSRP.
Stock Purchase Plan:
The Company has an employee stock purchase plan (ESPP) available to qualifying employees. Under the terms of the ESPP, eligible employees may purchase the Company's common stock through payroll deductions. The Company contributes an amount equal to 15.0% of the purchase price of the stock to be purchased on the open market and pays all expenses of the ESPP and its administration, not to exceed an aggregate contribution of $11.8 million.$14.0 million or when 4.6 million shares registered under the SEC for issuance under the plan have been purchased. As of June 30, 2020,2022, the Company's cumulative contributions to the ESPP totaled $11.1$11.2 million.
84
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred Compensation Contracts:
The Company has unfunded deferred compensation contracts covering certain current and former key executives. Effective June 30, 2012, these contracts were amended and the benefits were frozen.
Expense associated with the deferred compensation contracts included in general and administrative expenses on the Consolidated Statement of Operations totaled 0 for fiscal years 2020 and 2019, and $0.2 million for fiscal year 2018.

87
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The table below presents the projected benefit obligation of these deferred compensation contracts in the Consolidated Balance Sheet:
June 30,
20202019
(Dollars in thousands)
Current portion (included in accrued liabilities)$302 $1,183 
Long-term portion (included in other non-current liabilities)4,637 4,416 
$4,939 $5,599 
June 30,
20222021
(Dollars in thousands)
Current portion (included in accrued expenses)$303 $1,660 
Long-term portion (included in other non-current liabilities)2,320 3,115 
Total$2,623 $4,775 
The accumulated other comprehensive (loss) incomeloss for the deferred compensation contracts, consisting of primarily unrecognized actuarial income, was $0.1$0.7 and $0.5$0.3 million at June 30, 20202022 and 2019,2021, respectively.
TheAdditionally, the Company had previously agreed to pay the former Vice Chairman and his spouse an annual benefit for life. Costs associated with this benefit included in general and administrative expensesexpense on the Consolidated Statement of Operations totaled $0.4, $0.4$0.5 and $0.3$0.4 million for fiscal years 2020, 20192022 and 2018,2021, respectively. RelatedThe fair value of the related obligations totaled $2.4$2.3 and $2.3 million at June 30, 20202022 and 2019,2021, respectively, with $0.5 million within accrued expenses at June 30, 20202022 and 2019,2021, and the remainder included in other non-current liabilities in the Consolidated Balance Sheet.
In connection with the passing
85
Table of former employees, the Company received 0 life insurance proceeds in fiscal year 2020, and the Company received $24.6 and $18.1 million in fiscal years 2019 and 2018, respectively, in life insurance proceeds. The Company recorded gains of 0 in fiscal years 2020 and 2019 and $8.0 million in fiscal year 2018 in general and administrative in the Consolidated Statement of Operations associated with the proceeds.

Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12.     EARNINGS PER SHARE
The Company’sCompany's basic earnings per share is calculated as net (loss) incomeloss divided by weighted average common shares outstanding, excluding unvested outstanding restricted stock awards (RSAs)options (SOs), outstanding stock appreciation rights (SARs), restricted stock units (RSUs) and stock-settled performance units (PSUs). The Company’sCompany's diluted earnings per share is calculated as net (loss) income divided by weighted average common shares and common share equivalents outstanding, which includes shares issued under the Company’sCompany's stock-based compensation plans. Stock-based awards with exercise prices greater than the average market price of the Company’sCompany's common stock are excluded from the computation of diluted earnings per share. As the Company is in a net loss position, basic earnings per share is equivalent to dilutive earnings per share.
For fiscal years 20202022 and 2019, 963,4562021, 608,503 and 1,341,421636,310 of common stock equivalents of dilutive common stock, respectively, were excluded from the diluted earnings per share calculation due to net loss from continuing operations. For fiscal year 2018, 518,236 common stock equivalents of dilutive common stock were included in the diluted earnings per share calculation due to net income from continuing operations.
The computation of weighted average shares outstanding, assuming dilution, excluded the following stock-based awards as they were not dilutive under the treasury stock method:
Fiscal Years
20222021
Equity-based compensation awards2,269,335 2,322,006 
Fiscal Year
202020192018
Equity-based compensation awards315,312 118,246 634,292 
86

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13.     STOCK-BASED COMPENSATION
The Company grants long-term equity-based awards under the 2018 Long Term Incentive Plan (the 2018 Plan). The 2018 Plan, which was approved by the Company's shareholders at its 2018 Annual Meeting, provides for the granting of nonqualified stock options (SOs), equity-based stock appreciation rights and cash-settled stock appreciation rights (SARs), RSAs, RSUsrestricted stock units (RSUs) and PSUs, as well as cash-basedstock-settled performance grants,units (PSUs), to employees and non-employee directors of the Company. Under the 2018 Plan, a maximum of 3,818,895 shares are approved for issuance. The 2018 Plan incorporates a fungible share design, under which full value awards (such as RSUs and PSUs) count against the shares reserved for issuance at a rate 2.0 times higher than appreciation awards (such as SARs and stock options)SOs). As of June 30, 2020,2022, a maximum of 3,774,2662,793,494 shares were available for grant under the 2018 Plan. All unvested awards are subject to forfeiture in the event of termination of employment, unless accelerated. SAR and RSU awards granted under the 2018
88
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Plan generally include various acceleration terms, including upon retirement for participants aged sixty-two62 years or older or who are aged fifty-five55 years or older and have 15 years of continuous service.
The Company also has outstanding awards under the 2016 Long Term Incentive Plan (the 2016 Plan), although the 2016 Plan terminated in October 2018 and no additional awards have since been or will be made under the 2016 Plan. The 2016 Plan provided for the granting of SARs, RSAs,restricted stock awards (RSAs), RSUs and PSUs, as well as cash-based performance grants, to employees and non-employee directors of the Company.
The Company also has outstanding awards under the Amended and Restated 2004 Long Term Incentive Plan (the 2004 Plan), although the 2004 Plan terminated in October 2016 and no additional awards have since been or will be made under the 2004 Plan. The 2004 Plan provided for the granting of nonqualified stock options,SOs, SARs, RSAs, RSUs and PSUs, as well as cash-based performance grants, to employees and non-employee directors of the Company.
Under the 2018 Plan, 2016 Plan and the 2004 Plan, stock-based awards are granted at an exercise price or initial value equal to the fair market value on the date of grant. There were noThe fair value of cash-settled SARs granted in fiscal year 2020.2022 are re-valued on a quarterly basis.
Using the fair value of each grant on the date of grant, the weighted average fair values per stock-based compensation award granted during fiscal years 2020, 20192022 and 20182021 were as follows:follows (1):
Fiscal Years
20222021
SARs$2.56 $— 
SOs1.82 2.89 
RSUs2.69 7.15 
PSUs— 5.83 
_______________________________________________________________________________
Fiscal Years
202020192018
RSUs (1)$16.48 $21.12 $13.43 
PSUs (1)12.09 14.05 15.74 

(1)The fair value of cash-settled SARs granted are estimated on the date of grant using a Black-Scholes valuation model, with the fair value recalculated on a quarterly basis. The fair value of market-based SOs granted are estimated on the date of grant using either a Monte Carlo valuation model or a Black-Scholes valuation model. The fair value of market-based RSUs and PSUs granted are estimated on the date of grant using a Monte Carlo valuation model. The significant assumptions used in determining the estimated fair value of the market-based awards granted during fiscal years 2020, 20192022 and 20182021 were as follows:
Fiscal Years
Fiscal Years20222021
202020192018
Risk-free interest rateRisk-free interest rate1.43 %2.31 - 2.68%1.66 - 2.59%Risk-free interest rate1.25 - 3.04%0.16 - 0.78%
Expected volatilityExpected volatility33.9 %34.2 - 34.6%33.4 - 37.1%Expected volatility58.3 - 64.5%44.9 - 66.8%
Expected dividend yieldExpected dividend yield0 %0 %0 %Expected dividend yield— %— %
Expected term of share optionsExpected term of share options6.1 - 7.7 years7.0 years
The risk freerisk-free interest rate is determined based on the U.S. Treasury rates approximating the expected life of the market-based SARs, SOs, RSUs and PSUs granted. Expected volatility is established based on historical volatility of the Company's stock price. The Company uses historical data to estimate pre-vesting forfeiture rates. The expected term is based on a review of historical exercise experience.
87
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock-based compensation expense was as follows:
Fiscal Years
20222021
(Dollars in thousands)
SARs & SOs (1)$(241)$456 
RSUs & PSUs1,575 2,798 
Total stock-based compensation expense (recorded in general and administrative)1,334 3,254 
Less: Income tax benefit (2)— — 
Total stock-based compensation expense, net of tax$1,334 $3,254 
_______________________________________________________________________________
Fiscal Years
202020192018
(Dollars in thousands)
SARs$0 $1,497 $2,252 
RSAs, RSUs, & PSUs3,275 7,506 6,017 
Total stock-based compensation expense (recorded in G&A)3,275 9,003 8,269 
Less: Income tax benefit (1)(688)(1,891)(1,736)
Total stock-based compensation expense, net of tax$2,587 $7,112 $6,533 

(1)A benefit was recognized in fiscal year 2022 due to forfeiture of SARs and SOs.
(2)Federal statutory income tax rate utilized of 21% utilized0% due to a valuation allowance in fiscal years 2020, 20192022 and 2018.2021.
The Company recordedStock Appreciation Rights:
SARs granted under the 2018 Plan, 2016 Plan and the 2004 Plan generally vest 20%, 20%, and 60% over a stock compensation benefitthree-year period subsequent to the grant date or vest ratably over a three to five year period on each of $1.6 millionthe annual grant date anniversaries and expire 10 years from the grant date. SARs granted in fiscal year 20202022 were awarded to the Company's executives and are liability-classified awards that vest 20%, 20%, and 60% over a three-year period and are revalued on a quarterly basis. SARs granted before fiscal year 2022 vest ratably over a three year period with the exception of the April 2017 grant to the former Chief Executive Officer, which vested in full after two years.
Activity for all the Company's outstanding SARs is as follows:
 Shares/Units
(in thousands)		Weighted
Average
Exercise Price		Weighted
Average
Remaining
Contractual Life		Aggregate
Intrinsic Value
(in thousands)
 SARs
Outstanding balance at June 30, 20211,041 $11.32 
Granted600 2.56   
Forfeited/Expired(30)16.95   
Exercised— —   
Outstanding balance at June 30, 20221,611 $7.95 6.50$(11,068)
Exercisable at June 30, 20221,011 $11.15 4.78$(10,181)
Unvested awards, net of estimated forfeitures466 $2.56 9.40$(690)
As of June 30, 2022, there was $0.2 million of unrecognized expense related to performance awardsSARs that did not meet the vesting requirements.

is to be recognized over a weighted average period of 2.5 years.
8988
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock Appreciation Rights & Stock Options:
SARs and stock optionsSOs granted under the 2018 Plan, 2016 Plan and the 2004 Plan generally vest 20%, 20%, and 60% over a three-year period subsequent to the grant date or vest ratably over a three to five year period on each of the annual grant date anniversaries and expire ten10 years from the grant date. SARsThe SOs granted subsequent toduring fiscal year 20122022 were awarded to the Company's executives and vest ratably20%, 20%, and 60% over a three year period with the exception of the April 2017 grant to the Chief Executive Officer, which vested in full after two years.three-year period.
Activity for all the Company's outstanding SARs and stock optionsSOs is as follows:
 Shares/Units
(in thousands)		Weighted
Average
Exercise Price		Weighted
Average
Remaining
Contractual Life		Aggregate
Intrinsic Value
(in thousands)
 SOs
Outstanding balance at June 30, 20211,459 $6.53 
Granted1,505 1.82   
Forfeited/Expired(1,469)6.50   
Exercised— —   
Outstanding balance at June 30, 20221,495 $1.81 9.66$(1,091)
Exercisable at June 30, 2022— $— — $— 
Unvested awards, net of estimated forfeitures1,079 $1.84 9.66$(820)
 Shares
(in thousands)		Weighted
Average
Exercise Price		Weighted-
Average
Remaining
Contractual Life		Aggregate
Intrinsic Value
(in thousands)
 SARsStock
Options
Outstanding balance at June 30, 20191,321 10 $11.97 
Granted0 0 0   
Forfeited/Expired(36)(9)16.69   
Exercised0 (1)18.61   
Outstanding balance at June 30, 20201,285 0 $11.79 6.08$(4,639)
Exercisable at June 30, 20201,285 0 $11.79 6.08$(4,639)
Unvested awards, net of estimated forfeitures0 0 $0 — $0 


As of June 30, 2022, there was $1.0 million of unrecognized expense related to SOs that is to be recognized over a weighted average period of 2.7 years.
Restricted Stock Units:
RSUs granted to employees under the 2018 Plan, 2016 Plan and 2004 Plan generally vest 20%, 20%, and 60% over a three-year period subsequent to the grant date, vest ratably over a three to five year period on each of the annual grant date anniversaries or vest entirely after a one, three or five year period.period subsequent to the grant date. RSUs granted to non-employee directors under the 2018 Plan, 2016 Plan and 2004 Plan generally vest in equal monthly amounts over a one year period from the Company's previous annual shareholder meeting date and distributions are deferred until the director's board service ends. RSUs granted in fiscal year 2022 were issued under the Company's matching program, as well as to the Company's Board members.
Activity for all the Company's RSUs is as follows:
 Shares/Units
(in thousands)		Weighted
Average
Grant Date
Fair Value		Aggregate Intrinsic
Value
(in thousands)
 RSUs
Outstanding balance at June 30, 2019850 $16.42 
Granted257 16.48  
Forfeited(166)17.29  
Vested(235)11.88  
Outstanding balance at June 30, 2020706 $17.72 $5,775 
Vested at June 30, 2020263 $15.94 $2,151 
Unvested awards, net of estimated forfeitures381 $18.68 $3,117 
 Shares/Units
(in thousands)		Weighted
Average
Grant Date
Fair Value		Aggregate Intrinsic
Value
(in thousands)
 RSUs
Outstanding balance at June 30, 20211,175 $10.30 
Granted828 2.69  
Forfeited(437)6.44  
Vested(659)8.84  
Outstanding balance at June 30, 2022907 $6.27 $980 
Vested at June 30, 2022413 $8.73 $446 
Unvested awards, net of estimated forfeitures310 $4.59 $335 
As of June 30, 2020,2022, there was $3.8$1.0 million of unrecognized expense related to RSUs that is expected to be recognized over a weighted-averageweighted average period of 1.751.9 years.

9089
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Performance Share Units:
PSUs are grants of restricted stock units which are earned based on the achievement of performance goals established by the Compensation Committee over a performance period.period, typically three years. There were no PSUs granted in fiscal year 2022.
Activity for all of the Company's PSUs is as follows:
 Shares/Units
(in thousands)		Weighted
Average
Grant Date
Fair Value		Aggregate Intrinsic
Value
(in thousands)
 PSUs
Outstanding balance at June 30, 2021164 $12.56 
Granted— —  
Forfeited(90)13.68  
Vested— —  
Outstanding balance at June 30, 202274 $9.82 $80 
Vested at June 30, 2022— $— $— 
Unvested awards, net of estimated forfeitures62 $9.20 $67 
 Shares/Units
(in thousands)		Weighted
Average
Grant Date
Fair Value		Aggregate Intrinsic
Value
(in thousands) (1)
 PSUs
Outstanding balance at June 30, 2019980 $14.10 
Granted74 12.09  
Forfeited(165)14.57  
Vested(179)12.93  
Outstanding balance at June 30, 2020710 $13.90 $5,808 
Vested at June 30, 20200 $0 $0 
Unvested awards, net of estimated forfeitures396 $13.34 $3,239 

(1)Includes actual or expected payout rates as set forth in the performance criteria.
In connection with the termination of former executive officers, the Company settled certain PSUs for cash of $0.8 million during fiscal year 2018.
PSUs granted in fiscal year 2020 have a performance period of three years, after which they will vest to the extent earned. There was $0.3 million of total unrecognized compensation expense related to the unvested awards to be recognized over 2.21.8 years.
PSUs granted in fiscal year 2019 have a performance period
90
Table of three years, after which they will vest to the extent earned. There was $3.3 million of total unrecognized compensation expense related to the unvested awards to be recognized over 1.2 years.Contents
PSUs granted in fiscal year 2018 have a performance period of three years, ending June 30, 2020. As of June 30, 2020, these awards have not been earned and will not vest to the extent earned. As a result, the Company recorded a benefit of $1.6 million in fiscal year 2020.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14.    SHAREHOLDERS' (DEFICIT) EQUITY
Authorized Shares and Designation of Preferred Class:
The Company has 100.0 million shares of capital stock authorized, par value $0.05, of which all outstanding shares, and shares available under the Stock Option Plans, have been designated as common.
Shareholders' Rights Plan:Share Issuance Program:
TheIn February 2021, the Company previously hadfiled a shareholders' rights plan,$150.0 million shelf registration statement and $50.0 million prospectus supplement with the Securities and Exchange Commission (SEC) under which expired byit may offer and sell, from time to time, up to $50.0 million worth of its termscommon stock in December 2016."at-the-market" offerings. During fiscal year 2022, the Company received gross proceeds of $38.4 million related to the "at-the-market" offering and paid fees to sales agents and other fees of $1.2 million. Net proceeds from sales of shares under the "at-the-market" program, if any, may be used to, among other things, fund working capital requirements, repay debt and support growth strategies.
Share Repurchase Program:
In May 2000, the Company's Board approved a stock repurchase program with no stated expiration date. Originally, the program authorized up to $50.0 million to be expended for the repurchase of the Company's stock. The Board elected to increase this maximum to $100.0 million in August 2003, to $200.0 million in May 2005, to $300.0 million in April 2007, to $350.0 million in April 2015, to $400.0 million in September 2015, to $450.0 million in January 2016, and to $650.0 million in August 2018. All repurchased shares become authorized but unissued shares of the Company. The timing and amounts of any repurchases depends on many factors, including the market price of the common stock and overall market conditions. As of June 30, 2020,2022, 30.0 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remained outstanding underauthorized for repurchase. The Company does not anticipate repurchasing shares of common stock for the approved stock repurchase program.foreseeable future.
Accumulated Other Comprehensive Income:
The components of accumulated other comprehensive income are as follows:
 June 30,
 20222021
 (Dollars in thousands)
Foreign currency translation$8,732 $9,279 
Unrealized gain on deferred compensation contracts723 264 
Accumulated other comprehensive income$9,455 $9,543 
91
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accumulated Other Comprehensive Income:
The components of accumulated other comprehensive income are as follows:
 June 30,
 202020192018
 (Dollars in thousands)
Foreign currency translation$7,391 $8,853 $8,668 
Unrealized gain on deferred compensation contracts58 489 988 
Accumulated other comprehensive income$7,449 $9,342 $9,656 


92
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15.     SEGMENT INFORMATION
Segment information is prepared on the same basis the chief operating decision maker (CODM) reviews financial information for operational decision-making purposes. During the first quarter of fiscal year 2018, the Company redefined its operating segments to reflect how the chief operating decision maker evaluates the business as a result of the sale of the mall-based business and International segment sale. See Note 1 to the Consolidated Financial Statements. The Company now reports its operations in 2 operating segments: Franchise salons and Company-owned salons. The Company's operating segments are its reportable operating segments. Prior to this change, the Company had 4 operating segments: North American Value, North American Premium, North American Franchise, and International. The Company did not operate under the realigned operating segment structure prior to the first quarter of fiscal year 2018.
The Franchise salons reportable operating segment is comprised of 5,2095,395 franchised salons located mainly in strip center locations and Walmart Supercenters.Walmart. Franchise salons offer high quality, convenient and value priced hair care and beauty services and retail products. This segment operates primarily in the United StatesU.S., Puerto Rico and Canada and primarily includes the Supercuts, SmartStyle, Cost Cutters, First Choice Haircutters, Roosters and Magicuts concepts.
The Company-owned salons reportable operating segment is comprised of 1,632105 company-owned salons located mainly in strip center locations and Walmart Supercenters.Walmart. Company-owned salons offer high quality, convenient and value priced hair care and beauty services and retail products. SmartStyle, Supercuts, Cost Cutters and other regional trade names operating in the United States Canada and Puerto RicoCanada are generally within the Company-owned salons segment.
Financial information concerning the Company's reportable operating segments is shown in the following table:
 For the Year Ended June 30, 2020
FranchiseCompany - owned
Corporate(1)
Consolidated
 (Dollars in thousands)
Revenues:
Service$0 $331,538 $0 $331,538 
Product52,421 85,165 0 137,586 
Royalties and fees73,402 0 0 73,402 
Franchise rental income127,203 0 0 127,203 
253,026 416,703 0 669,729 
Operating expenses: 
Cost of service0 222,279 0 222,279 
Cost of product40,032 44,666 0 84,698 
Site operating expenses13,341 58,202 0 71,543 
General and administrative33,725 24,638 72,590 130,953 
Rent872 72,921 2,589 76,382 
Franchise rent expense127,203 0 0 127,203 
Depreciation and amortization922 29,113 6,917 36,952 
Long-lived asset impairment1,712 20,848 0 22,560 
TBG restructuring2,333 0 0 2,333 
Goodwill impairment0 40,164 0 40,164 
Total operating expenses220,140 512,831 82,096 815,067 
Operating income (loss)32,886 (96,128)(82,096)(145,338)
Other (expense) income: 
Interest expense0 0 (7,522)(7,522)
Gain from sale of salon assets to franchisees, net0 0 (27,306)(27,306)
Interest income and other, net0 0 3,353 3,353 
Income (loss) from continuing operations before income taxes$32,886 $(96,128)$(113,571)$(176,813)
 For the Year Ended June 30, 2022
FranchiseCompany - ownedConsolidated (1)
 (Dollars in thousands)
Revenues:
Royalties$65,753 $— $65,753 
Fees11,587 — 11,587 
Product sales to franchisees15,072 — 15,072 
Advertising fund contributions32,573 — 32,573 
Franchise rental income130,777 — 130,777 
Company-owned salon revenue— 20,205 20,205 
Total revenue255,762 20,205 275,967 
Operating expenses: 
Cost of product sales to franchisees17,391 — 17,391 
Inventory reserve (1)— — 7,655 
General and administrative62,816 2,458 65,274 
Rent5,498 3,859 9,357 
Advertising fund expense32,573 — 32,573 
Franchise rent expense130,777 — 130,777 
Company-owned salon expense— 21,952 21,952 
Depreciation and amortization4,913 1,311 6,224 
Long-lived asset impairment450 92 542 
Goodwill impairment13,120 — 13,120 
Total operating expenses267,538 29,672 304,865 
Operating loss$(11,776)$(9,467)$(28,898)
_______________________________________________________________________________

(1)This charge, primarily related to reserving for personal protective equipment acquired as a result of the COVID-19 pandemic, relates to the wind down of our distribution centers and is reviewed separately from the segment results by the CODM. Consolidated results will not cross foot as the inventory reserve is not part of the Company's segments.
9392
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 For the Year Ended June 30, 2019
FranchiseCompany-owned
Corporate(1)
Consolidated
 (Dollars in thousands)
Revenues:
Service$0 $749,660 $0 $749,660 
Product59,905 165,713 0 225,618 
Royalties and fees93,761 0 0 93,761 
153,666 915,373 0 1,069,039 
Operating expenses: 
Cost of service0 452,827 0 452,827 
Cost of product47,219 81,597 0 128,816 
Site operating expenses34,099 106,932 0 141,031 
General and administrative32,888 57,219 86,897 177,004 
Rent740 130,214 862 131,816 
Depreciation and amortization762 28,263 8,823 37,848 
TBG restructuring21,816 0 0 21,816 
Total operating expenses137,524 857,052 96,582 1,091,158 
Operating income (loss)16,142 58,321 (96,582)(22,119)
Other (expense) income: 
Interest expense0 0 (4,795)(4,795)
Gain from sale of salon assets to franchisees, net0 0 2,918 2,918 
Interest income and other, net0 0 1,729 1,729 
Income (loss) from continuing operations before income taxes$16,142 $58,321 $(96,730)$(22,267)

94
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 For the Year Ended June 30, 2018
FranchiseCompany - owned
Corporate(1)
Consolidated
 (Dollars in thousands)
Revenues:
Service$0 $899,345 $0 $899,345 
Product53,703 205,037 0 258,740 
Royalties and fees77,394 0 0 77,394 
131,097 1,104,382 0 1,235,479 
Operating expenses: 
Cost of service0 530,582 0 530,582 
Cost of product42,128 98,495 0 140,623 
Site operating expenses26,818 127,249 0 154,067 
General and administrative25,880 67,163 81,002 174,045 
Rent269 181,869 958 183,096 
Depreciation and amortization365 48,508 9,332 58,205 
Total operating expenses95,460 1,053,866 91,292 1,240,618 
Operating income (loss)35,637 50,516 (91,292)(5,139)
Other (expense) income: 
Interest expense0 0 (10,492)(10,492)
Gain from sale of salon assets to franchisees, net0 0 241 241 
Interest income and other, net0 0 5,199 5,199 
Income (loss) from continuing operations before income taxes$35,637 $50,516 $(96,344)$(10,191)

(1)Corporate consists primarily of unallocated general and administrative expenses, including expenses associated with salon support, depreciation and amortization related to our corporate headquarters and unallocated insurance, benefit and compensation programs, including stock-based compensation.
 For the Year Ended June 30, 2021
FranchiseCompany - ownedConsolidated
 (Dollars in thousands)
Revenues:
Royalties$52,357 $— $52,357 
Fees10,215 — 10,215 
Product sales to franchisees56,699 — 56,699 
Advertising fund contributions22,023 — 22,023 
Franchise rental income127,392 — 127,392 
Company-owned salon revenue— 142,965 142,965 
Total revenue268,686 142,965 411,651 
Operating expenses: 
Cost of product sales to franchisees43,756 — 43,756 
General and administrative87,493 8,934 96,427 
Rent4,922 35,832 40,754 
Advertising fund expense22,023 — 22,023 
Franchise rent expense127,392 — 127,392 
Company-owned salon expense— 141,204 141,204 
Depreciation and amortization7,019 14,730 21,749 
Long-lived asset impairment726 12,297 13,023 
Total operating expenses293,331 212,997 506,328 
Operating loss$(24,645)$(70,032)$(94,677)
The Company's chief operating decision makerCODM does not evaluate reportable segments using assets and capital expenditure information.
Total revenues and property and equipment, net associated with business operations in the U.S. and all other countries in aggregate were as follows:
 June 30,
 202020192018
 Total
Revenues		Property and
Equipment, Net		Total
Revenues		Property and
Equipment, Net		Total
Revenues		Property and
Equipment, Net
 (Dollars in thousands)
U.S. $613,652 $56,532 $972,994 $75,789 $1,132,041 $95,956 
Other countries56,077 644 96,045 2,301 103,438 3,332 
Total$669,729 $57,176 $1,069,039 $78,090 $1,235,479 $99,288 

 June 30,
 20222021
 Total
Revenues		Property and
Equipment, Net		Total
Revenues		Property and
Equipment, Net
 (Dollars in thousands)
U.S. $249,285 $12,808 $380,506 $16,807 
Other countries26,682 27 31,145 99 
Total$275,967 $12,835 $411,651 $16,906 
9593
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.     QUARTERLY FINANCIAL DATA (UNAUDITED)SUBSEQUENT EVENT:
Summarized quarterly dataOn August 12, 2022, the Company amended its credit agreement. The amendment, among other things, converts $180.0 million of the existing $295.0 million revolving credit facility to a new term loan, reduces commitments under the revolving credit facility to $55.0 million, and extends the term of the credit facility from March 26, 2023 to August 31, 2025, with no scheduled amortization prior to maturity.
The Company's obligations will continue to be guaranteed by certain of its subsidiaries and secured by substantially all real and personal property of the Company and such subsidiaries.
The amendment replaces the current utilization-based interest rate margins applicable to borrowings with a margin that is subject to annual increases. The margin applicable to term SOFR loans will initially be 3.875%. Effective March 27, 2023, the margin will increase to 6.25%, of which 4.25% will be paid currently in cash and 2.00% will be PIK interest (added to the principal balance and thereafter accruing interest). Effective March 27, 2024, the margin will increase to 7.25%, of which 4.25% will be paid currently in cash and 3.00% will be PIK interest. The margin applicable to base rate loans will be 100 basis points (1.00%) less than the margin applicable to term SOFR loans.
The amendment also eliminates the $115.0 million incremental loan facility; requires the Company to prepay the credit facilities each quarter in an amount equal to 75% to 100% of its excess cash flow (as defined in the agreement, if any); reduces the threshold for fiscal years 2020prepayment due to excess cash on hand from $100.0 million to $15.0 million; reduces the existing minimum liquidity covenant from $75.0 million to $10.0 million; and 2019 follows:includes new financial covenants regarding minimum EBITDA, maximum leverage and minimum fixed charge coverage.
 Quarter Ended 
 September 30December 31March 31 (1)June 30 (2)Year Ended
 (Dollars in thousands, except per share amounts)
2020     
Revenues$247,038 $208,765 $153,783 $60,143 $669,729 
Cost of service and product revenues, excluding depreciation and amortization116,809 94,616 76,496 19,056 306,977 
Operating loss(9,906)(7,466)(59,399)(68,567)(145,338)
Loss from continuing operations(14,178)(16,520)(67,842)(73,654)(172,194)
Income from discontinued operations373 79 301 79 832 
Net loss(13,805)(16,441)(67,541)(73,575)(171,362)
Loss from continuing operations per share, basic (4)(0.39)(0.46)(1.89)(2.05)(4.79)
Income from discontinued operations per share, basic (4)0.01 0 0.01 0 0.02 
Net loss per share, basic (4)(0.38)(0.46)(1.88)(2.05)(4.77)
Loss from continuing operations per share, diluted (4)(0.39)(0.46)(1.89)(2.05)(4.79)
Income from discontinued operations per share, diluted (4)0.01 0 0.01 0 0.02 
Net loss per share, diluted (4)(0.38)(0.46)(1.88)(2.05)(4.77)
 Quarter Ended 
 September 30December 31March 31 (3)June 30Year Ended
 (Dollars in thousands, except per share amounts)
2019     
Revenues$287,835 $274,671 $258,343 $248,190 $1,069,039 
Cost of service and product revenues, excluding depreciation and amortization153,678 151,281 142,799 133,885 581,643 
Operating income (loss)3,429 (1,551)(22,162)(1,835)(22,119)
(Loss) income from continuing operations(463)417 (14,811)(5,265)(20,122)
(Loss) income from discontinued operations(264)6,113 178 (131)5,896 
Net (loss) income(727)6,530 (14,633)(5,396)(14,226)
(Loss) income from continuing operations per share, basic (4)(0.01)0.01 (0.37)(0.14)(0.48)
(Loss) income from discontinued operations per share, basic (4)(0.01)0.14 0 0 0.14 
Net (loss) income per share, basic (4)(0.02)0.15 (0.36)(0.14)(0.34)
(Loss) income from continuing operations per share, diluted (4)(0.01)0.01 (0.37)(0.14)(0.48)
(Loss) income from discontinued operations per share, diluted (4)(0.01)0.14 0 0 0.14 
Net (loss) income per share, diluted (4)(0.02)0.15 (0.36)(0.14)(0.34)

Upon closing the agreement, the Company paid $4.9 million of fees and other costs.
96
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(1)During the third quarter of fiscal year 2020, the Company recorded a $40.2 million goodwill impairment charge related to the Company-owned reporting unit (see revision explanation below).
(2)During the fourth quarter of fiscal year 2020, government-mandated salon closures in response to the COVID-19 pandemic significantly reduced operating income. Additionally, the economic disruption caused by COVID-19 triggered a $22.6 million long-lived asset impairment charge.
(3)During the third quarter of fiscal year 2019, the Company recorded a $20.7 million restructuring charge related to TBG mall locations. The reserve was a non-cash charge to reserve for notes and receivables due from TBG.
(4)Total is an annual recalculation; line items calculated quarterly may not sum to total. Line items may not sum due to rounding.

Revision of Second and Third Quarter 2020 Unaudited Results:

During the fourth quarter of 2020, the Company identified an error in the calculation of the goodwill derecognition associated with the sale of salons to franchisees in the second quarter and third quarter. In the second quarter, goodwill derecognition was understated by $6.7 million, resulting in the loss from the sale of salons to franchisees and net loss being understated and goodwill being overstated by $6.7 million. During the third quarter, goodwill derecognition was overstated by $2.35 million. As of March 31, 2020, the Company fully impaired its remaining Company-owned goodwill with the amount of goodwill impairment being overstated by $4.4 million in the third quarter.The Company assessed the applicable guidance issued by the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) and concluded these misstatements were not material, individually or in the aggregate, to the Company’s Unaudited Condensed Consolidated Financial Statements for the aforementioned interim periods. However, to facilitate comparisons among periods, the company has decided to revise its previously issued second and third quarter unaudited condensed consolidated financial information.

Three months ended December 31, 2019
As Previously ReportedAdjustments (1)As Revised
(Dollars in thousands, except per share amounts)
Loss from sale of salon assets to franchisees, net (a)$(5,692)$(6,715)$(12,407)
Interest income and other, net (b)4,346 (1,477)2,869 
Loss from continuing operations before income taxes(10,276)(8,192)(18,468)
Income tax benefit795 1,153 1,948 
Net loss(9,402)(7,039)(16,441)
Net loss per share(0.26)(0.20)(0.46)
Comprehensive loss(8,861)(7,039)(15,900)
Goodwill as of December 31, 2019293,019 (6,715)286,304 
Other assets as of December 31, 201938,144 1,477 36,667 
Other non-current liabilities as of December 31, 201995,979 (1,153)94,826 

97
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 31, 2020
As Previously ReportedAdjustments (2)As Revised
(Dollars in thousands, except per share amounts)
Rent expense (d)$19,243 $(578)$18,665 
Goodwill impairment (c)44,529 (4,365)40,164 
Operating loss(64,342)4,943 (59,399)
Loss from sale of salon assets to franchisees, net(10,208)2,350 (7,858)
Interest income and other, net(1,329)1,477 148 
Loss from continuing operations before income taxes(77,591)8,770 (68,821)
Income tax benefit2,253 (1,274)979 
Net loss(75,037)7,496 (67,541)
Net loss per share(2.10)0.22 (1.88)
Comprehensive loss(77,519)7,496 (70,023)
Short term lease liability as of March 31, 2020149,482 (578)148,904 
Other non-current liabilities as of March 31, 202092,698 121 92,819 

Six months ended December 31, 2019
As Previously ReportedAdjustments (1)As Revised
(Dollars in thousands, except per share amounts)
Loss from sale of salon assets to franchisees, net$(11,552)$(6,715)$(18,267)
Interest income and other, net4,517 (1,477)3,040 
Loss from continuing operations before income taxes(27,310)(8,192)(35,502)
Income tax benefit3,651 1,153 4,804 
Net loss(23,207)(7,039)(30,246)
Net loss per share(0.64)(0.20)(0.84)
Comprehensive loss(23,069)(7,039)(30,108)

Nine months ended March 31, 2020
As Previously ReportedAdjustments (2)As Revised
(Dollars in thousands, except per share amounts)
Rent expense$64,002 $(578)$63,424 
Goodwill impairment44,529 (4,365)40,164 
Operating loss(81,714)4,943 (76,771)
Loss from sale of salon assets to franchisees, net(21,760)(4,365)(26,125)
Interest income and other, net3,188 0 3,188 
Loss from continuing operations before income taxes(104,901)578 (104,323)
Income tax benefit5,904 (121)5,783 
Net loss(98,244)457 (97,787)
Net loss per share(2.73)0.01 (2.72)
Comprehensive loss(100,588)457 (100,131)

98
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(1) The Company revised the amounts originally reported for the second quarter of fiscal year 2020 for the following items:

(a) Recorded an additional $6.7 million loss from the sale of salons to franchisees, net that should have been recorded in the second quarter. The error in the Company's goodwill derecognition estimation calculation was identified in the fourth quarter. The goodwill derecognition was understated which understated the loss of the sale of salons to franchisees, net. The error impacted the three and six months ended December 31, 2019.

(b) Recorded a reduction to the gain on the sale of a building, included in interest income and other, net related to the sale of the Company's headquarters which occurred in the second quarter. Previously, the Company identified this error during the third quarter and recorded and disclosed the correction in the third quarter as an out-of-period adjustment. The correction applies to the three and six months ended December 31, 2019.

(2) The Company revised the amounts originally reported for the third quarter of fiscal year 2020 for the following items:

(c) During the third quarter goodwill derecognition was overstated by $2.4 million. As of March 31, 2020 the Company impaired its remaining Company-owned goodwill, with the amount of goodwill impairment being overstated by $4.4 million. As the second quarter error which understated goodwill derecognition was not identified until the fourth quarter, goodwill impairment and loss from the sale of salons to franchisees, net were misstated in the third quarter. The Company recorded a $4.4 million decrease to goodwill impairment and a $2.4 million decrease to loss from the sale of salon assets to franchisees, net to correct the error. Net loss for the nine months ended March 31, 2020 was not misstated. However, goodwill impairment and the loss from the sales of salons to franchisees, net were misstated in the nine months ended March 31, 2020 with goodwill impairment overstated by $4.4 million and loss from the sale of salons to franchisees, net understated by $4.4 million.

(d) Adjusted third quarter rent expense to include a $0.6 million benefit to rent expense that related to leases signed in the third quarter, but not identified until the fourth quarter. The net loss for the three and nine months were both impacted by the misstatement.





9994
Table of Contents
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

Item 9A.    Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As described in Note 16 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K, the Company identified an error in the quarterly financial statements related to the derecognition of goodwill associated with company-owned salons that were sold in the three months ended December 31, 2020. As a result, the Company identified a material weakness in internal control over financial reporting as we did not maintain effective controls over the derecognition calculation of the company-owned stores goodwill reporting unit. This material weakness existed until the end of the quarter ended March 31, 2020 when the remaining goodwill associated with the Company-owned reporting unit was fully impaired and, as a result, there was no longer a need for the derecognition of goodwill in conjunction with the sale of company-owned salons. At that point, because the conditions causing the material weakness no longer existed, and are not expected to exist, we determined the material weakness had been remediated.
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of the CEO and CFO, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), at the end of the period. Based on their evaluation, our CEO and CFO, concluded that our disclosure controls and procedures were effective as of June 30, 2020.2022.

Management’sManagement's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including the CEO and the CFO, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 20202022 using the criteria established in "Internal Control-Integrated Framework "Framework" (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon this evaluation, management concluded the Company's internal controls over financial reporting were effective as of June 30, 20202022 based on those criteria.

The effectiveness of the Company's internal control over financial reporting as of June 30, 20202022 has been audited by PricewaterhouseCoopersGrant Thornton LLP, an independent registered public accounting firm, as stated in its report, which appears in Item 8.

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

Item 9B.    Other Information
None.

Item 9C.    Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.


10095
Table of Contents
PART III

Item Item��10.    Directors, Executive Officers and Corporate Governance
Information regarding the Directors of the Company will be set forth in the sections titled "Item 1—Election of Directors" of the Company's 20202022 Proxy Statement and is incorporated herein by reference. The information required by Item 401 of Regulation S-K regarding the Company's executive officers is included under "Information About Our Executive Officers" in Item 1 of this Annual Report on this Form 10-K. Additionally, information regarding the Company's audit committee and audit committee financial expert, as well nominating committee functions, will be set forth in the section titled "Our Board's Committees" and shareholder communications with directors will be set forth in the section titled "Communications with the Board" of the Company's 20202022 Proxy Statement, and are incorporated herein by reference.
The Company has adopted a code of ethics, known as the Code of Business Conduct & Ethics that applies to all employees, including the Company's chief executive officer, chief financial officer, directors and executive officers. The Code of Business Conduct & Ethics is available on the Company's website at www.regiscorp.com, under the heading "Corporate Governance - Policies and Disclosures" (within the "Investor Relations" section). The Company intends to disclose any substantive amendments to, or waivers from, its Code of Business Conduct & Ethics on its website or in a report on Form 8-K. In addition, the charters of the Company's Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee and the Company's Corporate Governance Guidelines may be found in the same section of the Company's website. Copies of any of these documents are available upon request to any shareholder of the Company by writing to the Company's Corporate Secretary at Regis Corporation, 3701 Wayzata Boulevard, Suite 500, Minneapolis, Minnesota 55416.

Item 11.    Executive Compensation
Information about executive and director compensation will be set forth in the sections titled "Executive Compensation," "How Our Directors Are Paid," "Fiscal 20202022 Director Compensation Table," and "CEO Pay Ratio" of the Company's 20202022 Proxy Statement and is incorporated herein by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding the Company's equity compensation plans will be set forth in the section titled "Equity Compensation Plan Information" and information regarding the beneficial ownership of the Company will be set forth in the section titled "Security Ownership of Certain Beneficial Holders and Management" of the Company's 20202022 Proxy Statement, and are incorporated herein by reference.

Item 13.    Certain Relationships and Related Transactions, and Director Independence
Information regarding certain relationships and related transactions will be set forth in the section titled "Certain Relationships and Related Transactions" of the Company's 20202022 Proxy Statement and is incorporated herein by reference. Information regarding director independence will be set forth in the section titled "How We Govern the Company" of the Company's 20202022 Proxy Statement and is incorporated herein by reference.

Item 14.    Principal AccountingAccountant Fees and Services
A description of the fees paid to the independent registered public accounting firm will be set forth in the section titled "Item 3—3 - Ratification of Appointment of Independent Registered Public Accounting Firm" of the Company's 20202022 Proxy Statement and is incorporated herein by reference.
10196
Table of Contents
PART IV

Item 15.    Exhibits and Financial Statement Schedules
(b)(a)The following documents are filed as part of this report:
(1). All financial statements:
Consolidated Financial Statements filed as part of this report are listed under Part II, Item 8 of this Form 10-K.
(c)(2) Financial statement schedules:
All financial statement schedules are omitted as the required information is inapplicable, not required, or the information is presented in the consolidated financial statements or related notes.
(3) Exhibits:
The exhibits listed in the accompanying index are filed as part of this report. Except where otherwise indicated below, the SEC file number for each report and registration statement from which the exhibits are incorporated by reference is 1-12725. There are no financial statement schedules included with this filing for the reason they are not applicable, not required or the information is included in the financial statements or notes thereto.
Exhibit Number/Description
2(a)Exhibit NumberDescription
2.1
2(b)2.2
3(a)2.3
3.1
3(b)3.2
4(b)4.1
10(a)*10.1*
10(b)*10.2*
10.3*
10.4*
10(c)*10.5*
10(d)*
10.6*
10(e)*10.7*
10(f)*10.8*
97
Table of Contents
10(g)*10.9*
Employment Agreement dated December 1, 2014, between thethe Company and Kersten D. Zupfer. (Incorporated by reference to Exhibit 10(g) of the Company's Annual Report on Form 10-K filed on August 31, 2020.)
10(h)*10.10*
10.11*
10.12*
10.13*
10(i)*10.14*
Amendment to the Amended and Restated 2004 Long Term Incentive Plan, effective August 29, 2014. (Incorporated by reference to Exhibit 10(b) of the Company's Quarterly Report on Form 10-Q filed on November 4, 2014.)
10(j)*10.15*
10(k)*10.16*
102
Table of Contents
10(l)*
10(m)*
10(n)*
10(o)*10.17*
10(p)*10.18*
10(q)*10.19*
10(r)
10(s)10.20
10(t)
10(u)
10(v)*
10(w)*10.21*
10(x)*10.22*
10(y)*10.23*
10(z)*
10(aa)*10.24*
10(bb)*10.25*
10(cc)*10.26*
10(dd)*10.27*
10(ee)*
103
Table of Contents
10(ff)10.28
10.29
10.30*
10.31*
98
Table of Contents
10.32*
10.33*
10.34*
21
23
31.1
31.2
32
101The following financial information from Regis Corporation's Annual Report on Form 10-K for the year ended June 30, 2020,2022, formatted in Inline Xtensible Business Reporting Language (iXBRL) and filed electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Earnings; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated Financial Statements.
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
104The cover page from Regis Corporation's Annual Report on Form 10-K for the year ended June 30, 2020,2022, formatted in iXBRL (included as Exhibit 101).

(*)    Management contract, compensatory plan or arrangement required to be filed as an exhibit to the Company's Report on          Form 10-K.
(P) This Exhibit was originally filed in paper format. Accordingly, a hyperlink has not been provided.

Item 16.    Form 10-K Summary
Not applicable.
10499
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 REGIS CORPORATION
 By/s/ HUGH. E SAWYERMATTHEW DOCTOR
Hugh E. Sawyer,Matthew Doctor,
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
 By/s/ KERSTEN D. ZUPFER
Kersten D. Zupfer,
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
 Date: August 31, 202022, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Hugh E. SawyerDAVID J. GRISSEN 
Hugh E. Sawyer,David J. Grissen,
 Chairman of the Board of Directors
Date: August 31, 202022, 2022
/s/ DAVID P. WILLIAMSLOCKIE ANDREWS
David P. Williams,Lockie Andrews,
Independent LeadDirector
Date: August 31, 202022, 2022
/s/ DANIEL G. BELTZMANMATTHEW DOCTOR 
Daniel G. Beltzman,Matthew Doctor,
Director
Date: August 22, 2022
/s/ MARK LIGHT
Mark Light,
Director
Date: August 22, 2022
/s/ MICHAEL MANSBACH
Michael Mansbach,
Director
Date: August 22, 2022
/s/ MICHAEL J. MERRIMAN
Michael J. Merriman,
 Director
Date: August 31, 202022, 2022
/s/ M. ANN RHOADES 
M. Ann Rhoades,
 Director
Date: August 31, 2020
/s/ MICHAEL J. MERRIMAN
Michael J. Merriman,
Director
Date: August 31, 2020
/s/ VIRGINIA GAMBALE
Virginia Gambale,
Director
Date: August 31, 2020
/s/ DAVID J. GRISSEN
David J. Grissen,
Director
Date: August 31, 2020
/s/ MARK LIGHT
Mark Light,
Director
Date: August 31, 202022, 2022

105100