REGIS CORPORATION

INDEX



Part I.	Financial Information

	Item 1.	Financial Statements (Unaudited):

		Condensed Consolidated Balance Sheet as of ~~December 31, 2018~~September 30, 2019 and June 30, ~~2018~~ 2019	3

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

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

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

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

		~~Item 2.~~Notes to Condensed Consolidated Financial Statements	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	248

	Item 3.2.	~~Quantitative~~Management’s Discussion and ~~Qualitative Disclosures about Market Risk~~Analysis of Financial Condition and Results of Operations	3721

	Item 4.3.	~~Controls~~Quantitative and ~~Procedures~~Qualitative Disclosures about Market Risk	37

~~Part II.~~	~~Other Information~~		3732

	Item 1.4.	~~Legal Proceedings~~Controls and Procedures	3732

Part II.	Other Information		32

	Item ~~1A.~~1.	~~Risk Factors~~Legal Proceedings	3832

	Item 2.1A.	~~Unregistered Sales of Equity Securities and Use of Proceeds~~Risk Factors	3933

	Item 6.2.	~~Exhibits~~Unregistered Sales of Equity Securities and Use of Proceeds	4035

	Item 6.	Exhibits	36

	Signatures		4137

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

REGIS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)

(Dollars in thousands, except share data)


	December 31, 2018		June 30, 2018		September 30, 2019		June 30, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	96,954	$	110,399	$	58,902	$	70,141
Receivables, net	32,329		52,430		28,724		30,143
Inventories	85,583		79,363		74,634		77,322
Other current assets	34,267		47,867		32,194		33,216
Total current assets	249,133		290,059		194,454		210,822

Property and equipment, net	96,133		105,860		71,442		78,090
Goodwill	393,774		412,643		313,251		345,718
Other intangibles, net	9,736		10,557		8,416		8,761
Right of use asset (Note 10)					930,784		—
Other assets	40,379		37,616		33,094		34,170
Long term assets held for sale (Note 1)					5,276		5,276
Total assets	$	789,155	$	856,735	$	1,556,717	$	682,837

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	57,127	$	57,738	$	53,219	$	47,532
Accrued expenses	86,634		100,716		62,241		80,751
Short-term lease liability (Note 10)					161,407		—
Total current liabilities	143,761		158,454		276,867		128,283

Long-term debt	90,000		90,000
Long-term lease liability	17,646		—
Long-term debt, net					90,000		90,000
Long-term lease liability (Note 10)					781,134		—
Long-term financing liabilities					28,719		28,910
Other noncurrent liabilities	112,738		121,843		96,258		111,399
Total liabilities	364,145		370,297		1,272,978		358,592
Commitments and contingencies (Note 7)
Shareholders’ equity:
Common stock, $0.05 par value; issued and outstanding 41,472,468 and 45,258,571 common shares at December 31, 2018 and June 30, 2018 respectively	2,074		2,263
Common stock, $0.05 par value; issued and outstanding 35,548,036 and 36,869,249 common shares at September 30, 2019 and June 30, 2019, respectively					1,777		1,843
Additional paid-in capital	128,964		194,436		20,880		47,152
Accumulated other comprehensive income	8,145		9,656		8,939		9,342
Retained earnings	285,827		280,083		252,143		265,908

Total shareholders’ equity	425,010		486,438		283,739		324,245

Total liabilities and shareholders’ equity	$	789,155	$	856,735	$	1,556,717	$	682,837

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

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

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

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


	Three Months Ended December 31,						Six Months Ended December 31,						Three Months Ended September 30,
	2018			2017			2018			2017			2019			2018
Revenues:
Service	$	190,419		$	223,278		$	398,267		$	458,908		$	141,941		$	207,848
Product	61,649			71,832			119,240			132,790			45,656			57,591
Royalties and fees	22,603			18,739			44,999			37,615			28,017			22,396
Franchise rental income (Note 10)													31,424			—
	274,671			313,849			562,506			629,313			247,038			287,835
Operating expenses:
Cost of service	114,931			134,850			236,428			274,686			90,482			121,497
Cost of product	36,350			39,864			68,531			70,026			26,327			32,181
Site operating expenses	35,563			38,598			72,384			78,627			32,942			36,821
General and administrative	45,836			48,592			93,563			83,758			40,625			47,727
Rent	34,642			65,473			70,620			107,889
Rent (Note 10)													24,264			35,978
Franchise rent expense (Note 10)													31,424			—
Depreciation and amortization	8,900			24,951			19,102			37,206			9,380			10,202
TBG restructuring (Note 3)													1,500			—
Total operating expenses	276,222			352,328			560,628			652,192			256,944			284,406

Operating (loss) income	(1,551		)	(38,479		)	1,878			(22,879		)	(9,906		)	3,429

Other (expense) income:
Interest expense	(1,072		)	(2,169		)	(2,078		)	(4,307		)	(1,439		)	(1,006		)
Gain (loss) from sale of salon assets to franchisees, net	2,865			(104		)	(1,095		)	18
Loss on sale of salon assets to franchisees, net													(5,860		)	(3,960		)
Interest income and other, net	629			2,019			989			2,439			171			360

Income (loss) from continuing operations before income taxes	871			(38,733		)	(306		)	(24,729		)
Loss from continuing operations before income taxes													(17,034		)	(1,177		)

Income tax (expense) benefit	(454		)	80,825			260			75,266
Income tax benefit													2,856			714

Income (loss) from continuing operations	417			42,092			(46		)	50,537
Loss from continuing operations													(14,178		)	(463		)

Income (loss) from discontinued operations, net of taxes	6,113			(6,601		)	5,849			(40,368		)
Income (loss) from discontinued operations, net of income taxes (Note 3)													373			(264		)

Net income	$	6,530		$	35,491		$	5,803		$	10,169
Net loss													$	(13,805	)	$	(727	)

Net income per share:
Basic:
Income (loss) from continuing operations	$	0.01		$	0.90		$	0.00		$	1.08
Net loss per share:

Basic and Diluted:
Loss from continuing operations													$	(0.39	)	$	(0.01	)
Income (loss) from discontinued operations	0.14			(0.14		)	0.13			(0.86		)	0.01			(0.01		)
Net income per share, basic (1)	$	0.15		$	0.76		$	0.13		$	0.22
Diluted:
Income (loss) from continuing operations	$	0.01		$	0.89		$	0.00		$	1.07
Income (loss) from discontinued operations	0.14			(0.14		)	0.13			(0.86		)
Net income per share, diluted (1)	$	0.15		$	0.75		$	0.13		$	0.22
Net loss per share (1)													$	(0.38	)	$	(0.02	)


Weighted average common and common equivalent shares outstanding:
Basic	43,619			46,821			44,175			46,719
Diluted	44,479			47,314			44,175			47,053
Basic and Diluted													36,249			44,730


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

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

REGIS CORPORATION

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

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

(Dollars in thousands)

Three Months Ended December 31, Six Months Ended December 31,
2018 2017 2018 2017
Net income $ 6,530
$ 35,491
$ 5,803
$ 10,169
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments during the period:
Foreign currency translation adjustments (2,592 ) (376 ) (1,511 ) 2,276
Reclassification adjustments for losses included in net income (Note 3) —
6,152
—
6,152
Net current period foreign currency translation adjustments (2,592 ) 5,776
(1,511 ) 8,428
Comprehensive income $ 3,938
$ 41,267
$ 4,292
$ 18,597



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

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

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)

For The Three Months Ended September 30, 2019 and 2018

(Dollars in thousands)



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



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

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

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

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

(Dollars in thousands)



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

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

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

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

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

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

Six Months Ended December 31,
2018 2017
Cash flows from operating activities:

Net income $ 5,803
$ 10,169
Adjustments to reconcile net income to net cash used in operating activities:
Non-cash impairment and other adjustments related to discontinued operations 176
25,095
Depreciation and amortization 16,799
20,491
Depreciation related to discontinued operations —
3,038
Deferred income taxes (7,915 ) (80,691 )
Gain on life insurance —
(7,986 )
Loss (gain) from sale of salon assets to franchisees, net 1,095
(18 )
Salon asset impairments 2,303
16,715
Accumulated other comprehensive income reclassification adjustment —
6,152
Stock-based compensation 4,552
4,618
Amortization of debt discount and financing costs 138
703
Other non-cash items affecting earnings (681 ) (105 )
Changes in operating assets and liabilities, excluding the effects of asset sales (33,223 ) (10,593 )
Net cash used in operating activities (10,953 ) (12,412 )

Cash flows from investing activities:
Capital expenditures (16,804 ) (13,773 )
Capital expenditures related to discontinued operations —
(1,171 )
Proceeds from sale of assets to franchisees 24,050
2,696
Proceeds from company-owned life insurance policies 24,616
18,108
Net cash provided by investing activities 31,862
5,860

Cash flows from financing activities:
Proceeds on issuance of common stock 330
—
Repurchase of common stock (65,136 ) —
Settlement of equity awards —
(375 )
Taxes paid for shares withheld (2,305 ) (2,039 )
Net proceeds from sale and leaseback transaction 18,068
—
Net cash used in financing activities (49,043 ) (2,414 )

Effect of exchange rate changes on cash and cash equivalents (174 ) 253

Decrease in cash, cash equivalents, and restricted cash (28,308 ) (8,713 )

Cash, cash equivalents and restricted cash:
Beginning of period 148,774
208,634
Cash, cash equivalents and restricted cash included in current assets held for sale —
1,352
Beginning of period, total cash, cash equivalents and restricted cash 148,774
209,986
End of period $ 120,466
$ 201,273

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

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

REGIS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


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

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

The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP). The unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, ~~2018~~2019 and other documents filed or furnished with the SEC during the current fiscal year.

Goodwill:

As of ~~December 31, 2018~~September 30, 2019 and June 30, ~~2018,~~2019, the Franchise reporting unit had $227.8 million and $227.9 million of goodwill and the Company-owned reporting unit had ~~$166.9~~$85.4 million and ~~$184.8 million of goodwill, respectively, and the Franchise salons reporting unit had $226.9 million and $227.9~~$117.8 million of goodwill, respectively. See Note 9 to the unaudited interim Condensed Consolidated Financial Statements. The Company assesses goodwill impairment on an annual basis, during the Company’s fourth fiscal quarter, and between annual assessments if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying amount. An interim impairment analysis was not required in the ~~six~~three months ended ~~December 31, 2018.~~September 30, 2019.

The Company performs its annual impairment assessment as of April 30. For the fiscal year ~~2018~~2019 annual impairment assessment, due to the transformational efforts completed during the year, the Company elected to forgo the optional Step 0 assessment and performed the quantitative impairment analysis on the ~~Company-owned~~Franchise and ~~Franchise~~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~~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 ~~24%~~20%. The fair value of the Company-owned reporting unit was determined based on a discounted cash flow ~~analysis and comparable market multiples.~~analysis. The key assumptions used in determining fair value were the number and pace of salons sold to franchisees and proceeds ~~for~~from salon ~~sales, weighted average cost of capital, general and administrative expenses and utilization of net operating loss benefits.~~sales. We selected the assumptions by considering our historical financial performance and trends, historical salon sale proceeds and estimated future salon sale activities. The preparation of our fair value estimate includes uncertain factors and requires significant judgments and estimates which are subject to change. ~~A 100 basis point increase in our weighted average cost~~

There are a number of ~~capital within the Company-owned reporting unit would result in a reduction in headroom to approximately 17%.~~

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

Changes in the company-owned salon strategy,

Salon closures or other restructuring,

Franchise expansion and sales opportunities,

Future market earnings multiples deterioration,

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

Economic recession,

Reduced salon traffic, ~~as defined by total transactions, and/or revenue,~~

Deterioration of industry trends,

Increased competition,

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

Other factors causing our cash flow to deteriorate.

If the triggering event analysis indicates the fair value of the Company-owned reporting unit has potentially fallen below more than the ~~24%~~20% headroom, we may be required to perform an updated impairment assessment which may result in a non-cash impairment charge to reduce the carrying value of goodwill.

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

Non-Current Assets Held for Sale:

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

Accounting Standards Recently Adopted by the Company:

~~Revenue~~Leases

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

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

~~In May 2014, the FASB issued amended~~The accounting guidance for ~~revenue recognition which provides a single comprehensive model for entities to use in accounting for revenue arising~~lessors remained largely unchanged from ~~contracts~~previous guidance, with ~~customers. The Company retrospectively adopted these standards on July 1, 2018. The impact of these standards was applied to all periods presented and~~ the ~~cumulative effect of applying the standard was recognized at the beginning~~exception of the ~~earliest period presented. See Note 2~~presentation of rent payments that the Company passes through to franchisees (lessees). Historically, these costs have been recorded on a net basis in the unaudited Condensed Consolidated ~~Financial~~ Statements ~~for additional information regarding the impact~~ of ~~the~~Operations but are now presented on a gross basis upon adoption of the ~~revenue~~new guidance. The adoption of the new guidance resulted in the recognition ~~guidance.~~of franchise rental income and rent expense of $31.4 million during the three months ended September 30, 2019. See Note 10 for further information about our transition to Topic 842 and the newly required disclosures.

~~Restricted Cash~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In ~~November 2016,~~February 2018, the FASB issued ~~cash flow guidance requiring restricted cash and restricted cash equivalents~~ASU 2018-02, Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI), which provides the option to ~~be included~~reclassify to retained earnings the tax effects resulting from the Tax Act related to items in the cash and cash equivalent balances in the statement of cash flows. Transfers between cash and cash equivalents and restricted cash are no longer presented in the statement of cash flows and a reconciliation between the balance sheet and statement of cash flows must be disclosed.AOCI. The Company ~~retrospectively~~ adopted this guidance on July 1, ~~2018. The impact of this standard was applied to all periods presented. As a result of including restricted cash in the beginning~~2019 and end of period balances, cash, cash equivalents and restricted cash presented in the statement of cash flows increased $38.4 million, $23.5 million and $37.6 million as of June 30, 2018, December 31, 2018 and June 30, 2017, respectively.

~~Statement of Cash Flows~~

In August 2016, the FASB issued updated cash flow guidance clarifying cash flow classification and presentation for certain items. The Company retrospectively adopted this guidance on July 1, 2018. The adoption of this standard did not ~~have a material~~elect to reclassify the income tax effects from the Tax Act from AOCI to retained earnings as the impact ~~on the Company's consolidated statement of cash flows.~~was not material.

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

~~Leases~~

In February 2016, the FASB issued updated guidance requiring organizations that lease assets to recognize the rights and obligations created by those leases on the consolidated balance sheet. The new standard is effective for the Company in the first quarter of fiscal year 2020, with early adoption permitted. In July 2018, the FASB issued ASU 2018-11, which provides companies with the option to apply the new lease standard either at the beginning of the earliest comparative period presented or in the period of adoption. The Company will elect this optional transition relief amendment that allows for a cumulative-effect adjustment in the period of adoption and will not restate prior periods. The Company is leveraging its lease management system to facilitate the adoption of this standard. The Company is continuing to evaluate the effect the new standard will have on the Company's consolidated financial statements but expects this adoption will result in a material increase in the assets and liabilities on the Company's consolidated balance sheet, as substantially all of its operating lease commitments will be subject to the new guidance.

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. The adjusted amounts include the application of a practical expedient that permitted the Company to reflect the aggregate effect of all modifications that occurred prior to fiscal year 2017 when identifying the satisfied and unsatisfied performance obligation, determining the transaction price and allocating the transaction price to the satisfied and unsatisfied performance obligation. 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~~in time

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

Revenue recognized over time

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

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



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

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

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

Three Months Ended December 31, 2018 Three Months Ended December 31, 2017
Company-owned Franchise Company-owned Franchise
(in thousands)
Revenue recognized at a point in time:
Service $ 190,419
$ —
$ 223,278
$ —
Product 43,831
17,818
56,764
15,068
Total revenue recognized at a point in time $ 234,250
$ 17,818
$ 280,042
$ 15,068

Revenue recognized over time:
Royalty and other franchise fees $ —
$ 14,736
$ —
$ 12,260
Advertising fund fees —
7,867
—
6,479
Total revenue recognized over time $ —
$ 22,603
$ —
$ 18,739
Total revenue $ 234,250
$ 40,421
$ 280,042
$ 33,807

Six Months Ended December 31, 2018 Six Months Ended December 31, 2017
Company-owned Franchise Company-owned Franchise
(in thousands)
Revenue recognized at a point in time:
Service $ 398,267
$ —
$ 458,908
$ —
Product 85,793
33,447
110,000
22,790
Total revenue recognized at a point in time $ 484,060
$ 33,447
$ 568,908
$ 22,790

Revenue recognized over time:
Royalty and other franchise fees $ —
$ 29,156
$ —
$ 24,410
Advertising fund fees —
15,843
—
13,205
Total revenue recognized over time $ —
$ 44,999
$ —
$ 37,615
Total revenue $ 484,060
$ 78,446
$ 568,908
$ 60,405

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



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

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

December 31,
2018 June 30,
2018 Balance Sheet Classification
(in thousands)
Receivables from contracts with customers, net $ 17,861
$ 21,504
Accounts receivable, net
Broker fees $ 15,584
$ 14,002
Other assets

Deferred revenue:
Current
Gift card liability $ 4,613
$ 3,320
Accrued expenses
Deferred franchise fees unopened salons 172
2,306
Accrued expenses
Deferred franchise fees open salons 3,428
3,030
Accrued expenses
Total current deferred revenue $ 8,213
$ 8,656

Non-current
Deferred franchise fees unopened salons $ 13,472
$ 11,161
Other non-current liabilities
Deferred franchise fees open salons 20,112
18,346
Other non-current liabilities
Total non-current deferred revenue $ 33,584
$ 29,507

Receivables relate primarily to payments due for royalties, franchise fees, advertising fees, franchise product sales and sales of salon services and ~~product.~~product paid by credit card. The ~~receivable~~receivables balance is presented net of an allowance for expected losses (i.e., doubtful accounts), primarily related to receivables from franchisees. As of ~~December 31, 2018~~September 30, 2019 and June 30, ~~2018,~~2019, the balance in the allowance for doubtful accounts was approximately $2.0 ~~million and $1.2 million, respectively. Activity in the period was not significant.~~million. Broker fees are the costs associated with using external brokers to identify new franchisees. These fees are paid upon the signing of the franchise agreement and recognized as General and Administrative expense over the term of the agreement. ~~The adoption of the amended revenue recognition guidance did not significantly change the Company's accounting for broker fees.~~

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



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

Balance as of June 30, 2018 $ 14,002
Additions 2,752
Amortization (1,158 )
Write-offs (12 )
Balance as of December 31, 2018 $ 15,584

Deferred revenue includes the gift card liability and deferred franchise fees for unopened salons and open salons. Gift card revenue for the three months ended ~~December 31,~~September 30, 2019 and 2018 ~~and 2017~~ was ~~$1.1~~$0.8 million and ~~$1.3 million, respectively, and for the six months ended December 31, 2018 and 2017 was $2.2 million and $2.7~~$1.0 million, respectively. Deferred franchise fees related to open salons are generally recognized on a straight-line basis over the term of the franchise agreement. Franchise fee revenue for the three months ended ~~December 31,~~September 30, 2019 and 2018 ~~and 2017~~ was ~~$0.8~~$1.2 million and ~~$0.7~~$0.9 million, ~~respectively, and for the six months ended December 31, 2018 and 2017 was $1.7 million and $1.3 million.~~respectively. Estimated revenue expected to the recognized in the future related to deferred franchise fees for open salons as of ~~December 31, 2018~~September 30, 2019 is as follows (in thousands):



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

Remainder of 2019 $ 1,643
2020 3,326
2021 3,238
2022 3,118
2023 2,941
Thereafter 9,274
Total $ 23,540

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

~~CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)~~

~~June 30, 2018~~

~~(Dollars in thousands)~~

Adjustments for new revenue recognition guidance
Previously Franchise Advertising Gift Card
Reported Fees Funds Breakage Taxes Adjusted
ASSETS

Current assets:

Cash and cash equivalents $ 110,399
$ —
$ —
$ —
$ —
$ 110,399
Receivables, net 52,430
—
—
—
—
52,430
Inventories 79,363
—
—
—
—
79,363
Other current assets 47,867
—
—
—
—
47,867
Total current assets 290,059
—
—
—
—
290,059

Property and equipment, net 105,860
—
—
—
—
105,860
Goodwill 412,643
—
—
—
—
412,643
Other intangibles, net 10,557
—
—
—
—
10,557
Other assets 37,616
—
—
—
—
37,616
Total assets $ 856,735
$ —
$ —
$ —
$ —
$ 856,735

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable $ 57,738
$ —
$ —
$ —
$ —
$ 57,738
Accrued expenses 97,630
3,030
—
56
—
100,716
Total current liabilities 155,368
3,030
—
56
—
158,454

Long-term debt 90,000
—
—
—
—
90,000
Other noncurrent liabilities 107,875
18,346
—
—
(4,378 ) 121,843
Total liabilities 353,243
21,376
—
56
(4,378 ) 370,297
Commitments and contingencies (Note 7)

Shareholders’ equity:
0

Common stock 2,263
—
—
—
—
2,263
Additional paid-in capital 194,436
—
—
—
—
194,436
Accumulated other comprehensive income 9,568
88
—
—
—
9,656
Retained earnings 297,225
(21,464 ) —
(56 ) 4,378
280,083

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

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

~~CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)~~

~~For The Three Months Ended December 31, 2017~~

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

Adjustments for new revenue recognition guidance
Previously Franchise Advertising Gift Card
Reported Fees Funds Breakage Taxes Adjusted
Revenues:
Service $ 223,214
$ —
$ —
$ 64
$ —
$ 223,278
Product 71,816
—
—
16
—
71,832
Royalties and fees 13,485
(1,225 ) 6,479
—
—
18,739
308,515
(1,225 ) 6,479
80
—
313,849
Operating expenses:
Cost of service 134,850
—
—
—
—
134,850
Cost of product 39,864
—
—
—
—
39,864
Site operating expenses 32,119
—
6,479
—
—
38,598
General and administrative 48,592
—
—
—
—
48,592
Rent 65,473
—
—
—
—
65,473
Depreciation and amortization 24,951
—
—
—
—
24,951
Total operating expenses 345,849
—
6,479
—
—
352,328

Operating income (37,334 ) (1,225 ) —
80
—
(38,479 )

Other (expense) income:
Interest expense (2,169 ) —
—
—
—
(2,169 )
Gain from sale of salon assets to franchisees, net (104 ) —
—
—
—
(104 )
Interest income and other, net 2,466
—
—
(447 ) —
2,019

Income from continuing operations before income taxes (37,141 ) (1,225 ) —
(367 ) —
(38,733 )

Income tax expense 76,462
—
—
—
4,363
80,825

Income from continuing operations 39,321
(1,225 ) —
(367 ) 4,363
42,092

Loss from discontinued operations, net of taxes (6,601 ) —
—
—
—
(6,601 )

Net loss $ 32,720
$ (1,225 ) $ —
$ (367 ) $ 4,363
$ 35,491

Net loss per share:
Basic:
Income from continuing operations $ 0.84
$ (0.03 ) $ 0.00
$ (0.01 ) $ 0.09
$ 0.90
Loss from discontinued operations (0.14 ) 0.00
0.00
0.00
0.00
(0.14 )
Net loss per share, basic (1) $ 0.70
$ (0.03 ) $ 0.00
$ (0.01 ) $ 0.09
$ 0.76
Diluted:
Income from continuing operations $ 0.83
$ (0.03 ) $ 0.00
$ (0.01 ) $ 0.09
$ 0.89
Loss from discontinued operations (0.14 ) 0.00
0.00
0.00
0.00
(0.14 )
Net loss per share, diluted (1) $ 0.69
$ (0.03 ) $ 0.00
$ (0.01 ) $ 0.09
$ 0.75

Weighted average common and common equivalent shares outstanding:
Basic 46,821
46,821
46,821
46,821
46,821
46,821
Diluted 47,314
47,314
47,314
47,314
47,314
47,314

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

~~CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)~~

~~For The Six Months Ended December 31, 2017~~

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

Adjustments for new revenue recognition guidance
Previously Franchise Advertising Gift Card
Reported Fees Funds Breakage Taxes Adjusted
Revenues:
Service $ 458,773
$ —
$ —
$ 135
$ —
$ 458,908
Product 132,756
—
—
34
—
132,790
Royalties and fees 26,859
(2,449 ) 13,205
—
—
37,615
618,388
(2,449 ) 13,205
169
—
629,313
Operating expenses:
Cost of service 274,686
—
—
—
—
274,686
Cost of product 70,026
—
—
—
—
70,026
Site operating expenses 65,422
—
13,205
—
—
78,627
General and administrative 83,758
—
—
—
—
83,758
Rent 107,889
—
—
—
—
107,889
Depreciation and amortization 37,206
—
—
—
—
37,206
Total operating expenses 638,987
—
13,205
—
—
652,192

Operating income (20,599 ) (2,449 ) —
169
—
(22,879 )

Other (expense) income:
Interest expense (4,307 ) —
—
—
—
(4,307 )
Gain from sale of salon assets to franchisees, net 18
—
—
—
—
18
Interest income and other, net 3,371
—
—
(932 ) —
2,439

Income from continuing operations before income taxes (21,517 ) (2,449 ) —
(763 ) —
(24,729 )

Income tax expense 71,630
—
—
—
3,636
75,266

Income from continuing operations 50,113
(2,449 ) —
(763 ) 3,636
50,537

Loss from discontinued operations, net of taxes (40,368 ) —
—
—
—
(40,368 )

Net loss $ 9,745
$ (2,449 ) $ —
$ (763 ) $ 3,636
$ 10,169

Net loss per share:
Basic:
Income from continuing operations $ 1.07
$ (0.05 ) $ 0.00
$ (0.02 ) $ 0.08
$ 1.08
Loss from discontinued operations (0.86 ) 0.00
0.00
0.00
0.00
(0.86 )
Net loss per share, basic (1) $ 0.21
$ (0.05 ) $ 0.00
$ (0.02 ) $ 0.08
$ 0.22
Diluted:
Income from continuing operations $ 1.07
$ (0.05 ) $ 0.00
$ (0.02 ) $ 0.08
$ 1.07
Loss from discontinued operations (0.86 ) 0.00
0.00
0.00
0.00
(0.86 )
Net loss per share, diluted (1) $ 0.21
$ (0.05 ) $ 0.00
$ (0.02 ) $ 0.08
$ 0.22

Weighted average common and common equivalent shares outstanding:
Basic 46,719
46,719
46,719
46,719
46,719
46,719
Diluted 47,053
47,053
47,053
47,053
47,053
47,053

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


3.	TBG RESTRUCTURING AND DISCONTINUED OPERATIONS:

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

~~As part of the sale of the mall-based business, TBG~~ ~~agreed to pay for the value of certain inventory, prepaid rent and assumed specific liabilities, including lease liabilities.~~ In March 2018, the Company entered into discussions with TBG regarding a waiver of working capital and prepaid rent payments associated with the original transaction and the financing of certain receivables to assist TBG with its cash flow and operational needs. Based on the status of these discussions as of March 31, 2018, the Company fully reserved for the working capital and prepaid rent amount of $11.7 million. In August 2018, the Company entered into promissory notes for approximately $11.7 million in working capital receivables and $8.0 million in accounts receivables, a majority of which was for inventory purchases. All notes have a maturity date of August 2, 2020. Under the working capital notes, if no default has occurred under such notes and certain other conditions are met, such notes will be forgiven as of the maturity date and will be exchanged for a three-year contingent payment right that is payable to us upon the occurrence of certain TBG monetization events. Should the Company need to record reserves against its current and future receivables from TBG these reserves would be recorded within general and administrative expenses.

~~For the International segment,~~June 2019, the Company entered into a ~~share purchase~~settlement agreement with TBG regarding the US and Canadian salons, which, among other things, substitutes the master franchise agreement for ~~minimal consideration.~~

a license agreement. The Company classified the results of its mall-based business and its International segment as discontinued operations for all periods presented in the Condensed Consolidated Statement of Operations. In connection with the sale of the mall-based business and the International segment, the Company performed an impairment assessment of the asset groups. The Company recognized net impairment charges within discontinued operations based on the difference between the expected sale prices and the carrying value of the asset groups.

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

For the Three Months Ended December 31, For the Six Months Ended December 31,
2018 2017 2018 2017
(Dollars in thousands) (Dollars in thousands)
Revenues $ —
$ 7,773
$ —
$ 101,140

Loss from discontinued operations, before income taxes (750 ) (10,073 ) (1,086 ) (43,840 )
Income tax benefit on discontinued operations 6,863
3,472
6,935
3,472
Income (loss) from discontinued operations, net of income taxes $ 6,113
$ (6,601 ) $ 5,849
$ (40,368 )

For the three months ended ~~December 31, 2018,~~September 30, 2019 the ~~$6.1~~Company recorded $1.5 million ~~income from~~of TBG restructuring charges which relate to the Company assisting TBG with operating expenses to mitigate the risk of default associated with TBG's lease obligations where Regis has potential contingent liability. Included in discontinued operations includes $6.9 million of income tax benefits recognized in the quarter with respect to the wind-down of the transaction, partly offset by $0.8 million of actuarial insurance accrual adjustments associated with the transaction. For the six months ended December 31, 2018, the $5.8 million income from discontinued operations includes $6.9 million of income tax benefits associated with the wind-down and transfer of legal entities related to discontinued operations, partly offset by professional fees and actuarial insurance accrual adjustments associated with the transaction.

~~For~~for the three months ended ~~December 31, 2017, included within the $6.6 million loss from discontinued operations were $4.8 million of asset impairment charges, $1.1 million of loss from operations~~September 30, 2019 and ~~$4.2 million of~~September 30, 2018 is insurance reserve benefits and professional fees, associated with the transaction, partly offset by a $3.5 million income tax benefit generated due to federal tax legislation enacted during the three months ended December 31, 2017. For the six months ended December 31, 2017, included within the $40.4 million loss from discontinued operations were $29.1 million of asset impairment charges, $6.2 million of cumulative foreign currency translation adjustment associated with the Company's liquidation of substantially all foreign entities with British pound denominated currencies, $2.8 million of loss from operations and $5.8 million of professional fees associated with the transaction, partly offset by a $3.5 million income tax benefit.

respectively. Other than the items presented in the Consolidated Statement of Cash Flows, there were no other significant non-cash operating activities or any significant non-cash investing activities related to discontinued operations for the three ~~and six~~ months ended ~~December 31, 2018~~September 30, 2019 and ~~2017.~~2018.

The Company utilized the consolidation of variable interest entities guidance to determine whether or not TBG was a variable interest entity (VIE), and if so, whether the Company was the primary beneficiary of TBG. ~~As of December 31, 2018, the~~The Company concluded that TBG is a VIE, based on the fact that the equity investment at risk in TBG is not sufficient. The Company determined that it is not the primary beneficiary of TBG based on its exposure to the expected losses of TBG and as it is not the variable interest holder that is most closely associated within the relationship and the significance of the activities of TBG. The exposure to loss related to the Company's involvement with TBG is the ~~carrying value of the amounts due from TBG of $16.4 million as of December 31, 2018 and the~~ guarantee of the operating leases. As of September 30, 2019, prior to any mitigation efforts which may be available, the Company remains liable for up to $35 million associated with remaining TBG salon lease commitments, should TBG not perform.


4.	EARNINGS PER SHARE:

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

For the three months ended December 31, 2018, 859,598 common stock equivalents of dilutive common stock were included in the diluted earnings per share calculations due to the net income from continuing operations. For the six months ended December 31, 2018, 903,107September 30, 2019, 902,478 common stock equivalents of dilutive common stock were excluded in the diluted earnings per share calculations due to the net loss from continuing operations. For the three ~~and six~~ months ended ~~December 31, 2017, 492,889 and 334,062, respectively,~~September 30, 2018, 930,666 common stock equivalents of dilutive common stock were ~~included~~excluded in the diluted earnings per share calculations due to the net ~~income~~loss from continuing operations.

The computation of weighted average shares outstanding, assuming dilution, excluded ~~734,526~~391,531 and ~~2,373,110~~357,468 of stock-based awards during the three months ended ~~December 31,~~September 30, 2019 and 2018, ~~and 2017, respectively, and 520,348 and 1,199,042 of stock-based awards during the six months ended December 31, 2018 and 2017,~~ respectively, as they were not dilutive under the treasury stock method.


5.	SHAREHOLDERS’ EQUITY:

Stock-Based Employee Compensation:

During the three ~~and six~~ months ended ~~December 31, 2018,~~September 30, 2019, the Company granted ~~various equity awards including~~186,076 restricted stock units (RSUs) and 51,018 performance-based restricted stock units (PSUs).

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

For the Three Months Ended December 31, 2018 For the Six Months Ended December 31, 2018
Restricted stock units 1,437
338,859
Performance-based restricted stock units 3,506
733,688

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

The PSUs granted to employees have a ~~three year~~three-year performance period ending June 30, ~~2021~~2022 linked to the Company's stock price reaching a specified volume weighted average closing price for a ~~50 day~~50-day period that ends on June 30, 2021. The PSUs granted ~~to certain executives include an additional two year service period after the performance period. Of the total PSUs granted, 52,590 PSUs~~ have a maximum vesting percentage of 200% based on the level of performance achieved for the respective ~~award, while the remaining PSUs have a maximum vesting percentage of 100%.~~award.

Total compensation cost for stock-based payment arrangements totaling ~~$2.2~~$1.8 million and ~~$2.6~~$2.3 million for the three months ended ~~December 31,~~September 30, 2019 and 2018, ~~and 2017, respectively, and $4.6 million for the six months ended December 31, 2018 and 2017,~~ respectively was recorded within general and administrative expense on the unaudited Condensed Consolidated Statement of Operations.

~~Additional Paid-In Capital:~~Share Repurchases:

The $65.5 million decrease in additional paid-in capital during the six months ended December 31, 2018 was primarily due to $68.1 million of common stock repurchases and $2.0 million of other stock-based compensation activity, primarily shares forfeited for withholdings on vestings, partly offset by $4.6 million of stock-based compensation.

During the three ~~and six~~ months ended ~~December 31,~~September 30, 2019 and 2018, the Company repurchased ~~2.9~~1.5 million and ~~4.0~~1.1 million shares, respectively, for ~~$48.9~~$26.4 million and ~~$68.3~~$19.3 million, respectively, under a previously approved stock repurchase program. At ~~December 31, 2018, $167.0~~September 30, 2019, $54.6 million remains outstanding under the approved stock repurchase program.


6.	INCOME TAXES:

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



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

For the Three Months Ended December 31, For the Six Months Ended December 31,
2018 2017 2018 2017
(Dollars in thousands)
Income tax (expense) benefit $ (454 ) $ 80,825
$ 260
$ 75,266
Effective tax rate 52.1 % 208.7 % 85.0 % 304.4 %

~~On December 22, 2017,~~The recorded tax provision and effective tax rate for the ~~U.S. government enacted comprehensive~~three months ended September 30, 2019 were different than what would normally be expected primarily due to the impact of the deferred tax ~~legislation commonly referred~~valuation allowance and global intangible low-taxed income (“GILTI”). The Company includes GILTI as a current period expense when incurred. The recorded tax provision and effective tax rate for the three months ended September 30, 2018 were different than what would normally be expected primarily due to as the impact of Tax Cuts and Jobs Act ~~(the “Tax~~(“Tax Act”)~~. The Company applied the guidance under SEC Staff Accounting Bulletin No. 118 which allowed for a measurement period up to one year after the December 22, 2017 enactment date~~, state conformity of the ~~Tax Act to complete~~new federal provisions and the ~~accounting requirements. The Company recorded a provisional net~~deferred tax benefit of $68.1 million in continuing operations through fiscal year 2018. During the three and six months ended December 31, 2018, the Company made no adjustments to previously recorded provisional amounts related to the Tax Act and is now complete with its accounting.valuation allowance.

The Company is no longer subject to IRS examinations for years before 2013. Furthermore, with limited exceptions, the Company is no longer subject to state and international income tax examinations by tax authorities for years before 2012.


7.	COMMITMENTS AND CONTINGENCIES:

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

8. CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:

The table below reconciles the cash and cash equivalents balances and restricted cash balances, recorded in other current assets from the unaudited Condensed Consolidated Balance Sheet to the amount of cash, cash equivalents and restricted cash reported on the unaudited Condensed Consolidated Statement of Cash flows:


	December 31, 2018		June 30, 2018		September 30, 2019		June 30, 2019
	(Dollars in thousands)				(Dollars in thousands)
Cash and cash equivalents	$	96,954	$	110,399	$	58,902	$	70,141
Restricted cash, included in Other current assets (1)	23,512		38,375
Restricted cash, included in other current assets (1)					21,724		22,238
Total cash, cash equivalents and restricted cash	$	120,466	$	148,774	$	80,626	$	92,379


(1)	Restricted cash within ~~Other~~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.

9. GOODWILL AND OTHER INTANGIBLES:

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


	Company-owned			Franchise			Consolidated			Franchise			Company-owned			Consolidated
	(Dollars in thousands)									(Dollars in thousands)
Goodwill, net at June 30, 2018	$	184,788		$	227,855		$	412,643
Goodwill, net at June 30, 2019										$	227,928		$	117,790		$	345,718
Translation rate adjustments	(337		)	(936		)	(1,273		)	(85		)	(299		)	(384		)
Derecognition related to sale of salon assets to franchisees (1)	(17,596		)	—			(17,596		)	—			(32,083		)	(32,083		)
Goodwill, net at December 31, 2018	$	166,855		$	226,919		$	393,774
Goodwill, net at September 30, 2019										$	227,843		$	85,408		$	313,251

(1)

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

The table below presents other intangible assets:



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

December 31, 2018 June 30, 2018
Cost (1)
Accumulated
Amortization (1)
Net Cost (1)
Accumulated
Amortization (1)
Net
(Dollars in thousands)
Amortized intangible assets:

Brand assets and trade names $ 7,910
$ (4,274 ) $ 3,636
$ 8,128
$ (4,260 ) $ 3,868
Franchise agreements 9,562
(7,717 ) 1,845
9,763
(7,712 ) 2,051
Lease intangibles 13,967
(10,096 ) 3,871
13,997
(9,770 ) 4,227
Other 1,945
(1,561 ) 384
1,983
(1,572 ) 411
$ 33,384
$ (23,648 ) $ 9,736
$ 33,871
$ (23,314 ) $ 10,557


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


~~10.~~	~~FINANCING ARRANGEMENTS:~~

10. RIGHT OF USE ASSET AND LEASE LIABILITIES

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




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

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

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

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

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



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

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

11.FINANCING ARRANGEMENTS:

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

Maturity Date Interest Rate December 31,
2018 June 30,
2018
(Fiscal Year) (Dollars in thousands)
Revolving credit facility 2023 3.77% $ 90,000
$ 90,000

Revolving Credit Facility



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

As of ~~December 31, 2018~~September 30, 2019 and June 30, ~~2018,~~2019, the Company has ~~$90.0~~$90 million of outstanding borrowings under a $295.0 million revolving credit facility. At ~~December 31, 2018~~September 30, 2019 and June 30, ~~2018,~~2019, the Company has outstanding standby letters of credit under the revolving credit facility of ~~$23.0~~$21.5 million, ~~and $1.5 million, respectively,~~ primarily related to the Company's self-insurance program. The unused available credit under the facility was ~~$182.0~~$183.5 million as of September 30, 2019 and ~~$203.5 million, respectively.~~June 30, 2019. Amounts outstanding under the revolving credit facility are due at maturity in March 2023.

Sale and Leaseback Transaction

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



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

Maturity Date Interest Rate December 31,
2018 June 30,
2018
(Fiscal Year) (Dollars in thousands)
Long-term lease liability 2033 3.50% $ 17,646
$ —

~~Sale and Leaseback Transaction~~

In ~~November 2018,~~fiscal year 2019, the Company sold its Salt Lake City and Chattanooga Distribution ~~Center~~Centers to ~~Nearon Enterprises, LLC (Nearon),~~ an unrelated party. The Company is leasing the ~~property~~properties back ~~from Nearon~~ for 15 years with the option to ~~renew three times for five year periods.~~renew. As the Company plans to lease the property for more than 75% of its economic life, the sales proceeds received from the buyer-lessor are recognized as a financial liability. This financial liability is reduced based on the rental payments made under the lease that are allocated between principal and interest. As of ~~December 31, 2018,~~September 30, 2019, the current portion of the Company’s ~~financial~~financing liability was ~~$0.6 million.~~ $0.9 million which was recorded in accrued expenses on the unaudited Condensed Consolidated Balance Sheet. The weighted average remaining lease term was 14.4 years and the weighted-average discount rate was 3.46% percent for financing leases as of September 30, 2019.

As of ~~December 31, 2018,~~September 30, 2019, future lease payments due are as follows:



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

Remainder of 2019 $ 585
2020 1,111
2021 1,063
2022 1,042
2023 1,021
Thereafter 13,374
Total $ 18,196

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

The Company was in compliance with all covenants and requirements of its financing arrangements as of and during the three ~~and six~~ months ended ~~December 31, 2018.~~September 30, 2019.

~~11.~~

12.FAIR VALUE MEASUREMENTS:

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of ~~December 31, 2018~~September 30, 2019 and June 30, ~~2018,~~2019, the estimated fair value of the Company’s cash, cash equivalents, restricted cash, receivables, ~~and~~ accounts payable, debt and long-term financial liabilities approximated their carrying values. As of December 31, 2018 and June 30, 2018, the estimated fair value of the Company's debt was $90.0 million and the carrying value was $90.0 million. As of December 31, 2018 the estimated fair value of the Company’s long-term financial liability was $17.6 million. The estimated fair values of the Company's debt and long-term financial liability are based on Level 2 inputs.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

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



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

For the Three Months Ended December 31, For the Six Months Ended December 31,
2018 2017 2018 2017
(Dollars in thousands)
Long-lived assets $ 472
$ 14,435
$ 2,303
$ 16,715

~~12.~~13.SEGMENT INFORMATION:

Segment information is prepared on the same basis that the chief operating decision maker reviews financial information for operational decision-making purposes.

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


	December 31, 2018		June 30, 2018		September 30, 2019		June 30, 2019
COMPANY-OWNED SALONS:

FRANCHISE SALONS:
SmartStyle/Cost Cutters in Walmart Stores	1,615		1,660		825		615
Supercuts	760		928		2,456		2,340
Signature Style	1,293		1,378		948		766
Total Company-owned Salons	3,668		3,966
Total North American Salons					4,229		3,721
Total International Salons (1)					227		230
Total Franchise Salons					4,456		3,951
as a percent of total Company-owned and Franchise salons	46.2	%	49.1	%	63.6	%	56.0	%

FRANCHISE SALONS:

COMPANY-OWNED SALONS:
SmartStyle/Cost Cutters in Walmart Stores	594		561		1,333		1,550
Supercuts	1,930		1,739		312		403
Signature Style	747		745		906		1,155
Total franchise locations, excluding TBG	3,271		3,045
as a percent of total Company-owned and Franchise salons	41.2	%	37.7	%

Total North America TBG Salons (1)	732		807
as a percent of total Company-owned and Franchise salons	9.2	%	10.0	%

Total North American Salons	4,003		3,852

Total International TBG Salons (1)	263		262
as a percent of total Company-owned and Franchise salons	3.3	%	3.2	%

Total Franchise Salons	4,266		4,114
Total Company-owned salons					2,551		3,108
as a percent of total Company-owned and Franchise salons	53.8	%	50.9	%	36.4	%	44.0	%

OWNERSHIP INTEREST LOCATIONS:

Equity ownership interest locations	87		88		85		86

Grand Total, System-wide	8,021		8,168
Grand Total, System-Wide					7,092		7,145


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


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

~~As of December 31, 2018, the Company-owned operating segment is comprised primarily of SmartStyle~~^®~~, Supercuts~~^®~~, Cost Cutters~~^®~~, and other regional trade names and the Franchise operating segment is comprised primarily of Supercuts~~^®~~, Regis~~^®~~, MasterCuts~~^®~~, SmartStyle~~^®~~, Cost Cutters~~^®~~, First Choice Haircutters~~^®~~, Roosters~~^® ~~and Magicuts~~^® ~~concepts.~~

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


	For the Three Months Ended December 31, 2018										For the Three Months Ended September 30, 2019
	Company-owned		Franchise		Corporate			Consolidated			Franchise		Company - owned		Corporate			Consolidated
	(Dollars in thousands)										(Dollars in thousands)
Revenues:
Service	$	190,419	$	—	$	—		$	190,419		$	—	$	141,941	$	—		$	141,941
Product	43,831		17,818		—			61,649			13,105		32,551		—			45,656
Royalties and fees	—		22,603		—			22,603			28,017		—		—			28,017
Franchise rental income											31,424		—		—			31,424
	234,250		40,421		—			274,671			72,546		174,492		—			247,038
Operating expenses:
Cost of service	114,931		—		—			114,931			—		90,482		—			90,482
Cost of product	21,901		14,449		—			36,350			10,280		16,047		—			26,327
Site operating expenses	27,696		7,867		—			35,563			10,426		22,516		—			32,942
General and administrative	14,198		9,466		22,172			45,836			8,357		10,150		22,118			40,625
Rent	34,258		184		200			34,642			190		23,789		285			24,264
Franchise rent expense											31,424		—		—			31,424
Depreciation and amortization	6,728		215		1,957			8,900			160		6,107		3,113			9,380
TBG restructuring (Note 3)											1,500		—		—			1,500
Total operating expenses	219,712		32,181		24,329			276,222			62,337		169,091		25,516			256,944

Operating income (loss)	14,538		8,240		(24,329		)	(1,551		)	10,209		5,401		(25,516		)	(9,906		)

Other (expense) income:
Interest expense	—		—		(1,072		)	(1,072		)	—		—		(1,439		)	(1,439		)
Loss from sale of salon assets to franchisees, net	—		—		2,865			2,865
Loss on sale of salon assets to franchisees, net											—		—		(5,860		)	(5,860		)
Interest income and other, net	—		—		629			629			—		—		171			171

Income (loss) from continuing operations before income taxes	$	14,538	$	8,240	$	(21,907	)	$	871		$	10,209	$	5,401	$	(32,644	)	$	(17,034	)

For the Three Months Ended December 31, 2017
Company-owned Franchise Corporate Consolidated
(Dollars in thousands)
Revenues:
Service $ 223,278
$ —
$ —
$ 223,278
Product 56,764
15,068
—
71,832
Royalties and fees —
18,739
—
18,739
280,042
33,807
—
313,849
Operating expenses:
Cost of service 134,850
—
—
134,850
Cost of product 28,044
11,820
—
39,864
Site operating expenses 32,119
6,479
—
38,598
General and administrative 17,947
6,869
23,776
48,592
Rent 65,159
70
244
65,473
Depreciation and amortization 22,054
91
2,806
24,951
Total operating expenses 300,173
25,329
26,826
352,328
Operating income (loss) (20,131 ) 8,478
(26,826 ) (38,479 )
Other (expense) income:
Interest expense —
—
(2,169 ) (2,169 )
Gain from sale of salon assets to franchisees, net —
—
(104 ) (104 )
Interest income and other, net —
—
2,019
2,019
Income (loss) from continuing operations before income taxes $ (20,131 ) $ 8,478
$ (27,080 ) $ (38,733 )


	For the Six Months Ended December 31, 2018										For the Three Months Ended September 30, 2018
	Company-owned		Franchise		Corporate			Consolidated			Franchise		Company-owned		Corporate			Consolidated
	(Dollars in thousands)										(Dollars in thousands)
Revenues:
Service	$	398,267	$	—	$	—		$	398,267		$	—	$	207,848	$	—		$	207,848
Product	85,793		33,447		—			119,240			15,629		41,962		—			57,591
Royalties and fees	—		44,999		—			44,999			22,396		—		—			22,396
	484,060		78,446		—			562,506			38,025		249,810		—			287,835
Operating expenses:
Cost of service	236,428		—		—			236,428			—		121,497		—			121,497
Cost of product	41,669		26,862		—			68,531			12,413		19,768		—			32,181
Site operating expenses	56,541		15,843		—			72,384			7,976		28,845		—			36,821
General and administrative	30,579		17,130		45,854			93,563			7,664		16,381		23,682			47,727
Rent	69,944		278		398			70,620			94		35,686		198			35,978
Depreciation and amortization	14,785		373		3,944			19,102			158		8,057		1,987			10,202
Total operating expenses	449,946		60,486		50,196			560,628			28,305		230,234		25,867			284,406

Operating income (loss)	34,114		17,960		(50,196		)	1,878			9,720		19,576		(25,867		)	3,429

Other (expense) income:
Interest expense	—		—		(2,078		)	(2,078		)	—		—		(1,006		)	(1,006		)
Loss from sale of salon assets to franchisees, net	—		—		(1,095		)	(1,095		)
Loss on sale of salon assets to franchisees, net											—		—		(3,960		)	(3,960		)
Interest income and other, net	—		—		989			989			—		—		360			360

Income (loss) from continuing operations before income taxes	$	34,114	$	17,960	$	(52,380	)	$	(306	)	$	9,720	$	19,576	$	(30,473	)	$	(1,177	)

For the Six Months Ended December 31, 2017
Company-owned Franchise Corporate Consolidated
(Dollars in thousands)
Revenues:
Service $ 458,908
$ —
$ —
$ 458,908
Product 110,000
22,790
—
132,790
Royalties and fees —
37,615
—
37,615
568,908
60,405
—
629,313
Operating expenses:
Cost of service 274,686
—
—
274,686
Cost of product 52,491
17,535
—
70,026
Site operating expenses 65,422
13,205
—
78,627
General and administrative 33,771
12,415
37,572
83,758
Rent 107,282
117
490
107,889
Depreciation and amortization 31,948
183
5,075
37,206
Total operating expenses 565,600
43,455
43,137
652,192
Operating income (loss) 3,308
16,950
(43,137 ) (22,879 )
Other (expense) income:
Interest expense —
—
(4,307 ) (4,307 )
Gain from sale of salon assets to franchisees, net —
—
18
18
Interest income and other, net —
—
2,439
2,439
Income (loss) from continuing operations before income taxes $ 3,308
$ 16,950
$ (44,987 ) $ (24,729 )

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of our consolidated financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. This MD&A should be read in conjunction with the MD&A included in our June 30, ~~2018~~2019 Annual Report on Form 10-K and other documents filed or furnished with the Securities and Exchange Commission (SEC) during the current fiscal year.

MANAGEMENT’S OVERVIEW

Regis Corporation (RGS) franchises, owns ~~franchises~~ and operates beauty salons. As of ~~December 31, 2018,~~September 30, 2019, the Company franchised, owned ~~franchised~~ or held ownership interests in ~~8,021~~7,092 worldwide locations. Our locations consisted of ~~7,934~~7,007 system-wide North American and International salons, and in 8785 locations we maintained a non-controlling ownership interest less than 100 percent. Each of the Company’s salon concepts generally offer similar salon products and services and serve the mass market. As of ~~December 31, 2018,~~September 30, 2019, we had approximately ~~24,000~~16,000 corporate employees worldwide.

CRITICAL ACCOUNTING POLICIES

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

Our significant accounting policies can be found in Note 1 to the Consolidated Financial Statements contained in Part II, Item 8 of the June 30, ~~2018~~2019 Annual Report on Form 10-K, as well as Notes 1 and 2 to the unaudited Condensed Consolidated Financial Statements contained within this Quarterly Report on Form 10-Q. We believe the accounting policies related to the valuation of goodwill, the valuation and estimated useful lives of long-lived assets, estimates used in relation to tax liabilities, and deferred taxes are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations. Discussion of each of these policies is contained under “Critical Accounting Policies” in Part II, Item 7 of our June 30, ~~2018~~2019 Annual Report on Form 10-K. Our updated policies on the amended revenue recognition guidance, ASC Topic 606, can be found in Note 2 to the unaudited Condensed Consolidated Financial ~~Statements~~Statements.

Recent Accounting Pronouncements

The Company adopted the amended ~~revenue recognition~~leasing guidance, ~~ASC~~ Topic ~~606,~~842, on July 1, ~~2018~~2019 using the ~~full~~modified retrospective ~~transition~~ method which required the adjustment of ~~each prior~~only the current reporting period presented. Recent accounting pronouncements are discussed in detail in Notes 1 and 210 to the unaudited Condensed Consolidated Financial Statements.

RESULTS OF OPERATIONS

Beginning with the period ended September 30, 2017, the mall-based business and International segment were accounted for as discontinued operations for all periods presented. Discontinued operations are discussed at the endImpact of ~~this section.~~ ~~See Note 3~~salons sold to ~~the unaudited Condensed Consolidated Financial Statements for further discussion~~franchisees on ~~this transaction.~~operations.

~~The Company realigned its field leadership team by brand during the~~ ~~period ended September 30, 2017~~. 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, which affected one month of comparability during the six months, does not impact the overall consolidated results. 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 the six months ended December 31, 2017. This expense classification does not have a financial impact on the Company's reported operating (loss) income, reported net income or cash flows from operations.

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

In the three ~~and six~~ months ended ~~December 31, 2018,~~September 30, 2019, the Company sold ~~133 and 257, respectively,~~545 company-owned salons to franchisees. The impact of these ~~transaction is~~transactions are as follows:


	Three Months Ended December 31,						(Decrease) Increase				Six Months Ended December 31,								(Decrease) Increase			Three Months Ended September 30,						Increase
(Dollars in thousands)	2018			2017						2018				2017				2019					2018					Increase
							(Decrease) Increase												(Decrease) Increase
Salons sold to franchisees ~~(1)~~	133			1,219			(1,086		)		257				1,311				(1,054		)	545			124			421
Cash proceeds received	$	11,628		$	1,224		$	10,404			$	24,050			$	2,696			$	21,354
Cash proceeds received in quarter																						$	37,945		$	12,422		$	25,523

Gain on sale of venditions, excluding goodwill derecognition	$	9,369		$	167		$	9,202			$	16,501			$	560			$	15,941		26,223			7,132			19,091
Non-cash goodwill derecognition	(6,504		)	(271		)	(6,233		)		(17,596		)		(542		)		(17,054		)	(32,083		)	(11,092		)	20,991
Gain (loss) from sale of salon assets to franchisees, net	$	2,865		$	(104	)	$	2,969			$	(1,095	)		$	18			$	(1,113	)
Loss on sale of salon assets to franchisees, net																						$	(5,860	)	$	(3,960	)	$	(1,900	)

~~(1) In October 2017,~~

System-wide results

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

~~858 salons, and substantially all of its International segment, representing approximately 250 salons~~

System-wide same-store sales by concept are detailed in the ~~UK, to The Beautiful Group (TBG).~~table below:



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

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

_____________________________

(1)

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

Condensed Consolidated Results of Operations (Unaudited)

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


	For the Periods Ended December 31,
	Three Months														Six Months														For the Three Months Ended September 30,
	2018			2017			2018		2017		2018		2017		2018			2017			2018		2017		2018		2017		2019			2018			2019		2018		2019		2018
	($ in millions)						% of Total Revenues (1)				Basis Point (Decrease) Increase				($ in millions)						% of Total Revenues (1)				Basis Point (Decrease) Increase				($ in millions)						% of Total Revenues (1)				Basis Point (Decrease) Increase
Service revenues	$	190.4		$	223.3		69.4	%	71.1	%	(170	)	(230	)	$	398.3		$	458.9		70.8	%	72.9	%	(210	)	(120	)	$	141.9		$	207.8		57.5	%	72.2	%	(1,470	)	(250	)
Product revenues	61.6			71.8			22.4		22.9		(50	)	160		119.2			132.8			21.2		21.1		10		70		45.7			57.6			18.5		20.0		(150	)	70
Franchise royalties and fees	22.6			18.7			8.2		6.0		220		60		45.0			37.6			8.0		6.0		200		60
Royalties and fees																													28.0			22.4			11.3		7.8		350		180
Franchise rental income																													31.4			—			12.7		—		1,270		—

Cost of service (2)	114.9			134.9			60.4		60.4		—		(370	)	236.4			274.7			59.4		59.9		(50	)	(320	)	90.5			121.5			63.7		58.5		520		(80	)
Cost of product (2)	36.4			39.9			59.0		55.5		350		480		68.5			70.0			57.5		52.7		480		320		26.3			32.2			57.7		55.9		180		640
Site operating expenses	35.6			38.6			12.9		12.3		60		20		72.4			78.6			12.9		12.5		40		40		32.9			36.8			13.3		12.8		50		10
General and administrative	45.8			48.6			16.7		15.5		120		410		93.6			83.8			16.6		13.3		330		210		40.6			47.7			16.4		16.6		(20	)	550
Rent	34.6			65.5			12.6		20.9		(830	)	690		70.6			107.9			12.6		17.1		(450	)	300		24.3			36.0			9.8		12.5		(270	)	(90	)
Franchise rent expense																													31.4			—			12.7		—		1,270		—
Depreciation and amortization	8.9			25.0			3.2		8.0		(480	)	410		19.1			37.2			3.4		5.9		(250	)	210		9.4			10.2			3.8		3.5		30		(40	)
TBG restructuring																													1.5			—			0.6		—		60		—

Operating (loss) income	(1.6		)	(38.5		)	(0.6	)	(12.3	)	1,170		(1,290	)	1.9			(22.9		)	0.3		(3.6	)	390		(540	)
Operating loss (income)																													(9.9		)	3.4			(4.0	)	1.2		(520	)	(370	)

Interest expense	1.1			2.2			0.4		0.7		(30	)	—		2.1			4.3			0.4		0.7		(30	)	—		(1.4		)	(1.0		)	(0.6	)	(0.3	)	(30	)	40
Gain (loss) from sale of salon assets to franchisees, net	2.9			(0.1		)	1.0		—		100		—		(1.1		)	—			(0.2	)	—		(20	)	—
Interest (expense) income and other, net	0.6			2.0			0.2		0.6		(40	)	40		1.0			2.4			0.2		0.4		(20	)	20
Loss on sale of salon assets to franchisees, net																													(5.9		)	(4.0		)	(2.4	)	(1.4	)	(100	)	(140	)
Interest income and other, net																													0.2			0.4			0.1		0.1		—		—

Income tax (expense) benefit (3)	(0.5		)	80.8			52.1		208.7		N/A		N/A		0.3			75.3			85.0		304.4		N/A		N/A
Income tax benefit (3)																													2.9			0.7			16.8		25.7		N/A		N/A

Income (loss) from discontinued operations, net of taxes	6.1			(6.6		)	2.2		(2.1	)	430		(110	)	5.8			(40.4		)	1.0		(6.4	)	740		(550	)
Income (loss) from discontinued operations, net of income taxes																													0.4			(0.3		)	0.2		(0.1	)	30		1,060

_____________________________


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


(2)	Excludes depreciation and amortization expense.


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

Consolidated Revenues

Consolidated revenues primarily include revenues of ~~company-owned~~Company-owned salons, product and equipment sales to franchisees, ~~and~~ franchise royalties and ~~fees.~~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:


	Three Months Ended December 31,						Six Months Ended December 31,						Three Months Ended September 30,
	2018			2017			2018			2017			2019			2018
													(Dollars in thousands)
Franchise salons:
Product													$	13,105		$	15,629
Royalties and fees													28,017			22,396
Franchise rental income													31,424			—
Total Franchise salons													$	72,546		$	38,025
Franchise salon same-store sales (decrease) increase (1)													(0.1		)%	1.2		%
	(Dollars in thousands)
Company-owned salons:
SmartStyle	$	94,363		$	122,497		$	190,326		$	248,699		$	85,531		$	95,963
Supercuts	58,856			71,034			126,135			142,466			24,353			67,279
Signature Style	81,031			86,511			167,599			177,743			64,608			86,568
Total Company-owned salons	234,250			280,042			484,060			568,908			$	174,492		$	249,810

Franchise salons:
Product	17,818			15,068			33,447			22,790
Royalties and fees	22,603			18,739			44,999			37,615
Total Franchise salons	40,421			33,807			78,446			60,405
Company-owned salon same-store sales (decrease) increase (2)													(2.0		)%	0.5		%

Consolidated revenues	$	274,671		$	313,849		$	562,506		$	629,313		$	247,038		$	287,835
Percent change from prior year	(12.5		)%	(2.3		)%	(10.6		)%	(2.6		)%	(14.2		)%	(8.8		)%
Company-owned salon same-store sales increase (decrease) (1)	0.5		%	(0.7		)%	0.5		%	(0.2		)%

Franchise Salons



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

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

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

_______________________________________________________________________________

For the Three Months Ended December 31, For the Six Months Ended December 31,
2018 2017 2018 2017 2018 2017 2018 2017
(Dollars in millions) Increase (Dollars in millions) Increase
Revenue
Product $ 10.6
$ 8.7
$ 1.9
$ 1.1
$ 20.7
$ 16.4
$ 4.3
$ 1.4
Product sold to TBG 7.2
6.4
0.8
6.4
12.7
6.4
6.3
6.4
Total product $ 17.8
$ 15.1
$ 2.8
$ 7.5
$ 33.4
$ 22.8
$ 10.7
$ 7.8
Royalties and fees (1) 22.6
18.7
3.9
1.5
45.0
37.6
7.4
2.5
Total franchise salons revenue (2) $ 40.4
$ 33.8
$ 6.6
$ 9.0
$ 78.4
$ 60.4
$ 18.0
$ 10.3

Operating income $ 7.0
$ 8.2
$ (1.2 ) $ 0.6
$ 16.2
$ 16.7
$ (0.5 ) $ 1.2
Operating income from TBG 1.2
0.3
0.9
0.3
1.8
0.3
1.5
0.3
Total operating income (2) $ 8.2
$ 8.5
$ (0.2 ) $ 0.9
$ 18.0
$ 17.0
$ 1.0
$ 1.5


(1)	Total includes ~~$1.2 and $1.7~~$0.5 million of royalties related to TBG during the three ~~and six~~ months ended ~~December 31,~~September 30, 2018. ~~As part of the transaction TBG did not pay royalties in the prior period.~~


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

(3)

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

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



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

Total	(0.1	)%	1.2	%

Franchise Salon Revenues

Franchise salon revenues ~~increased $6.6 and $18.0~~were $72.5 million during the three ~~and six~~ months ended ~~December 31, 2018, respectively,~~September 30, 2019 an increase of $34.5 million over the prior comparable period. The increase during the three months ended September 30, 2019, was primarily due to ~~increases~~revenue of ~~$2.8~~$31.4 million associated with the adoption of Topic 842 and ~~$10.7~~an increase of $5.6 million in royalties, ad fund revenue, fees and product sales due to higher franchise salon counts, offset by a decrease of $4.2 million in franchise product sales ~~respectively, as a result of higher franchise salon counts. Royalties, ad fund revenue and fees also increased $3.9 and $7.4 million, respectively, due~~ to ~~higher franchise salon counts.~~TBG. During the twelve months ended ~~December 31, 2018,~~September 30, 2019, franchisees constructed (net of relocations) and closed 7559 and ~~258~~170 franchise-owned salons, respectively, and purchased (net of Company buybacks) ~~520~~1,143 salons from the Company during the same period. Additionally, in June 2019 the Company converted 569 TBG locations to license agreements.

Franchise Salon Operating Income

During the three months ended ~~December 31, 2018,~~September 30, 2019, Franchise salon operations generated an operating income of $10.2 million, an increase of $0.5 million compared to the prior comparable period. The increase during the three months ended September 30, 2019 was primarily due to higher royalties, fees and product sales associated with the increase in salon count and higher costs associated with supporting the growing franchise segment.

Company-owned Salons



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

Operating income	$	5.4		$	19.6		(72.4	)%

Company-owned Salon Revenues

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



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

Total	(2.0	)%	0.5	%

Company-owned salon revenues decreased by $75.3 million during the three months ended September 30, 2019 which was primarily due to the sale of 1,143 company-owned salons (net of buybacks) to franchisees and the closure of 147 salons during the twelve months ended September 30, 2019. The decrease was also due to company-owned same-store sale decreases of 2.0% during the three months ended September 30, 2019. The company-owned same-store sales decreases were due to decreases of 5.0% in same-store guest transactions, partly offset by increases of 3.0% in average ticket price during the three months ended September 30, 2019.

Company-owned Salon Operating Income

During the three months ended September 30, 2019, Company-owned salon operations generated operating income of ~~$8.2 million, a decrease of $0.2~~$5.4 million compared to $19.6 million in the prior comparable period. The decrease during the three months ended December 31, 2018 was primarily due a shift into lower margin products and lower margin franchisees, partly offset by higher royalties and fees. During the six months ended December 31, 2018, Franchise salon operations generated operating income of $18.0 million, an increase of $1.0 million compared to prior comparable period. The increase during the six months ended December 31, 2018September 30, 2019 was primarily due to the ~~increased number of new franchised locations resulting~~net reduction in ~~an increase in royalties, partially offset by lower product margins.~~company-owned salons.

Corporate

Corporate Operating Loss

Corporate operating loss decreased ~~$2.5~~$0.4 million during the three months ended ~~December 31, 2018~~September 30, 2019 primarily driven by lower general and administrative salaries. Corporate operating loss increased $7.1 million during the six months ended December 31, 2018 primarily driven by prior year's favorable impact from a $8.0 million gain associated with life insurance proceeds in connection with the passing of a former executive officersalaries and ~~$4.0 million of professional fees,~~bonuses, partially offset by ~~lower general and administrative salaries.~~the franchise convention.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

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

As of ~~December 31, 2018,~~September 30, 2019, cash and cash equivalents were ~~$97.0~~$58.9 million, with ~~$89.2~~$47.3 million and ~~$7.7~~$11.6 million within the United States and Canada, respectively.

The Company's borrowing arrangements include a $295.0 million five-year unsecured revolving credit facility that expires in March 2023, of which ~~$182.0~~$183.5 million was available as of ~~December 31, 2018.~~September 30, 2019. See Note 1011 to the unaudited Condensed Consolidated Financial Statements.

Uses of Cash

The Company closely manages its liquidity and capital resources. The Company's liquidity requirements depend on key variables, including the level of investment needed to support its business strategies, the performance of the business, capital expenditures, credit facilities and borrowing arrangements and working capital management. Capital expenditures are a component of the Company's cash flow and capital management strategy, which can be adjusted in response to economic and other changes to the Company's business environment. The Company has a disciplined approach to capital allocation, which focuses on investing in key priorities to support the Company's multi-year strategic plan as discussed within Part I, Item 1 of our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018.~~2019.

Cash Flows

Cash Flows from Operating Activities

During the ~~six~~three months ended ~~December 31, 2018,~~September 30, 2019, cash used in operating activities ~~of $11.0~~was $13.5 million, a decrease of ~~$1.5~~$3.7 million compared to the prior comparable ~~period,~~period. The decrease in cash used was primarily due to lower annual bonus payments in the three months ended September 30, 2019 compared to the three months ended September 30, 2018.Cash from operations was used primarily for strategic investments in general and administrative expenses to enhance the Company's franchisor capabilities and support the increased volume and cadence of transactions and conversions into the Franchise portfolio, partially offset by the elimination of certain general and administrative costs.

Cash Flows from Investing Activities

During the ~~six~~three months ended ~~December 31, 2018,~~September 30, 2019, cash provided by investing activities of ~~$31.9~~$32.0 million, an increase of ~~$26.0~~$6.2 million compared to the prior comparable period, was primarily from cash proceeds from the ~~settlement of company-owned life insurance policies of $24.6 million and cash proceeds from~~ sale of salon assets of ~~$24.1~~$37.9 million, partly offset by capital expenditures of ~~$16.8~~$4.9 million.

Cash Flows from Financing Activities

During the ~~six~~three months ended ~~December 31, 2018,~~September 30, 2019, cash used in financing activities of ~~$49.0~~$30.3 million, an increase of ~~$46.6~~$9.0 million compared to the prior comparable period, was primarily from the repurchase of common stock of $65.1 million, employee taxes paid for shares withheld of $2.3 million, partly offset by the $18.1 million of proceeds from the sale and lease back transaction of one of the Company's distribution centers.$28.2 million.

Financing Arrangements

See Note 1011 of the Notes to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for the quarter ended ~~December 31, 2018~~September 30, 2019 and Note 7 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018,~~2019, for additional information regarding our financing arrangements.

Debt to Capitalization Ratio

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

As of
Debt to
Capitalization
Basis Point Increase (Decrease) (1)
December 31, 2018 20.3 % 470
June 30, 2018 15.6 % (390 )



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

_____________________________


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

~~(1)~~(2) Represents the basis point change in debt to capitalization as compared to the prior fiscal year end (June 30, ~~2018~~2019 and

June 30, ~~2017,~~2018, respectively).

The ~~470~~270 basis point increase in the debt to capitalization ratio as of ~~December 31, 2018~~September 30, 2019, as compared to June 30, ~~2018~~2019, was primarily due to decreases in shareholders' equity resulting from the repurchase of ~~4.0~~1.5 million of the Company's shares for ~~$68.3~~$26.3 million, ~~as well as~~and the ~~debt~~liability associated with the sale ~~leaseback of one~~leasebacks of the Company's distribution centers.

Share Repurchase Program

In May 2000, the Company’s Board of Directors (Board) approved a stock repurchase program with no stated expiration date. Since that time and through ~~December 31, 2018,~~September 30, 2019, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program. All repurchased shares become authorized but unissued shares of the Company. The timing and amounts of any repurchases depend on many factors, including the market price of the common stock and overall market conditions. During the three months ended ~~December 31, 2018,~~September 30, 2019, the Company repurchased ~~2.9~~1.5 million shares for ~~$48.9~~$26.3 million. As of ~~December 31, 2018, 23.8~~September 30, 2019, 30.0 million shares have been cumulatively repurchased for ~~$483.0~~$595.4 million, and ~~$167.0~~$54.6 million remains outstanding under the approved stock repurchase program.

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

This Quarterly Report on Form 10-Q, as well as information included in, or incorporated by reference from, future filings by the Company with the Securities and Exchange Commission and information contained in written material, press releases and oral statements issued by or on behalf of the Company contains or may contain ~~“forward-looking statements”~~"forward-looking statements" within the meaning of the federal securities laws, including statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this document reflect ~~management’s~~management's best judgment at the time they are made, but all such statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied by the statements herein. Such forward-looking statements are often identified herein by use of words including, but not limited to, ~~“may,” “believe,” “project,” “forecast,” “expect,” “estimate,” “anticipate,”~~"may," "believe," "project," "forecast," "expect," "estimate," "anticipate," and ~~“plan.”~~"plan." In addition, the following factors could affect the ~~Company’s~~Company's actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include the continued ability of the Company to implement its strategy, priorities and initiatives; our and our franchisee's ability to attract, train and retain talented stylists; financial performance of our franchisees; acceleration of sale of ~~certain~~ salons to franchisees; if our capital investments in improving technology do not achieve appropriate returns; our ability to manage cyber threats and protect the security of potentially sensitive information about our guests, employees, vendors or Company information; The Beautiful Group's ~~ability~~inability to ~~transition and~~ operate its salons successfully, as well as maintain adequate working capital; the ability of the Company to maintain a satisfactory relationship with Walmart; marketing efforts to drive traffic; changes in regulatory and statutory laws including increases in minimum wages; our ability to maintain and enhance the value of our brands; premature termination of agreements with our franchisees; ~~our ability to manage cyber threats and protect the security of sensitive information about our guests, employees, vendors or Company information;~~ reliance on information technology systems; reliance on external vendors; consumer shopping trends and changes in manufacturer distribution channels; competition within the personal hair care industry; changes in tax exposure; changes in healthcare; changes in interest rates and foreign currency exchange rates; failure to standardize operating processes across brands; ~~consumer shopping trends and changes in manufacturer distribution channels;~~ financial performance of Empire Education Group; the continued ability of the Company to implement cost reduction initiatives; compliance with debt covenants; changes in economic conditions; changes in consumer tastes and fashion trends; exposure to uninsured or unidentified risks; ~~ability to attract and retain key management personnel;~~ reliance on our management team and other key personnel or other factors not listed above. Additional information concerning potential factors that could affect future financial results is set forth in the ~~Company’s~~Company's Annual Report on Form 10-K for the year ended June 30, ~~2018.~~2019. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual and periodic reports filed or furnished with the SEC on Forms ~~10-K, 10-Q~~10-K,10-Q and 8-K and Proxy Statements on Schedule 14A.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There has been no material change to the factors discussed within Part II, Item 7A in the Company’s June 30, ~~2018~~2019 Annual Report on Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Management, with the participation of the CEO and CFO, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of the end of the period. Based on their evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of ~~December 31, 2018.~~September 30, 2019.

Changes in Internal Controls over Financial Reporting

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

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018,~~2019, except for the revisions to the ~~fifth~~seventh risk factor listed below:

TBG’s inability to ~~transition~~operate its salons successfully could adversely affect our business, financial condition and results of operations or cash flows.

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

In October 2017, we sold substantially all of our mall-based salon business in North America and substantially all of our International segment to TBG, an affiliate of Regent, which is operating the salons in North America as a licensee (from October 2017 to June 2019 TBG operated them as a franchisee) and the salons in the United Kingdom as a franchisee. The success of TBG depends upon a number of factors that are beyond our control, including, among other factors, market conditions, retail trends in mall locations, industry trends, stylist recruiting and retention, customer traffic, as defined by total transactions, the capabilities of TBG, the accuracy and reliability of TBG’s financial reporting systems, ~~TBG's~~TBG 's ability to maintain adequate working capital, technology and landlord issues. In particular, as of ~~December 31, 2018,~~September 30, 2019, prior to any mitigation efforts which may be available to us, we estimate that we remain liable for up to ~~$75~~$35 million, which is a material reduction from October 1, 2017 of approximately $140 million, under the leases for certain of these salons until the end of their various terms, and we could be required to make cash payments if TBG fails to do so, which could materially adversely impact our results of operations or cash flows. ~~Under the agreements with~~ TBG ~~we receive fees for certain services, fees for certain transition services, and product sales revenue; however, the amount of these fees is tied~~has struggled to ~~the success of the business as operated by TBG. It is taking longer than we originally anticipated for TBG to implement the~~make changes ~~intended to~~that improve the business of the mall-based salons and the International ~~business, TBG~~business. TBG’s same store sales have declined year over ~~year and there is no assurance that TBG will be successful in improving performance in the future.~~year. In addition, several of the services we provided to TBG under the transition services agreement ended in the fourth quarter of fiscal year 2018, thereby ~~reducing~~ending this ~~current~~ income stream. We anticipate we will attempt to reduce related general and administrative costs and other associated expenses in connection with providing these transition services; however it will take time for us to reduce all of these costs even though the related income stream has ended and we continue to provide consulting services to TBG to continue to facilitate its transition. In connection with the purchase agreements, subleases, transition services and other related agreements with the Company, ~~from time to time,~~ TBG has been consistently delinquent on its payments to the Company and to third parties. ~~It is foreseeable~~TBG’s continued failure to pay landlords, suppliers, service providers and other third parties could adversely affect the Company’s relationships with such third parties and/or result in an allegation by such third parties that the Company should be responsible for TBG’s payment obligations, which in turn could adversely affect the Company’s operations and financial condition.

On June 27, 2019, the Company entered into a Second US and Canada Omnibus Settlement Agreement with TBG as previously disclosed, which, among other things, notes that TBG ~~may~~has entered into lease termination and concession agreements with certain landlords which had the effect of reducing the Company’s potential lease liability in connection with TBG operated salons and substituted the ~~future continue~~master franchise agreement for a license agreement in North America only. In addition, pursuant to ~~have cash flow~~the settlement agreement, the Company released and ~~working capital issues, which could have significant adverse impacts on our business, including a need to record reserves on receivables~~forgave TBG from, ~~TBG. In~~among other amounts, approximately $6.6 million in respect of amounts for inventory invoiced through January 17, 2019, $1.3 million in respect of continuing fees invoiced through April 5, 2019, $28,000 in respect of amounts for services under the transition services agreement, and the obligations under the United States and Canada Secured Promissory Notes dated August 2, 2018 ~~we restructured certain payments due to us from TBG in the form of promissory notes~~ representing approximately $11.7 million in working capital receivables and $8.0 million in accounts ~~receivables, a majority of~~receivable, plus accrued interest, which ~~was for inventory payables. All notes have~~had a maturity date of August 2, 2020. Under the working capital notes, if no default has occurred under such notes and certain other conditions are met, such notes will be forgiven as of the maturity date and will be exchanged for a three-year contingent payment right that is payable to us upon the occurrence of certain TBG monetization events. Based on the likelihood of future forgiveness of the working capital notes, the Company recorded a full reserve against such notes. Should the Company need to record reserves against its current and future receivables from TBG or their abilityTBG’s inability to meet the requirements of the promissory notes, the Company prior to the settlement agreement, recorded a full reserve against the promissory notes (including the remaining United Kingdom promissory note). Risks and other issues related to franchisees described elsewhere in these ~~non-cash reserves would be recorded within general~~risk factors still apply to TBG for the most part even though the Company and ~~administrative expenses. As~~TBG now have a licensor-licensee instead of ~~December 31, 2018,~~a franchisor-franchisee relationship. Even with the ~~net amount of receivables~~settlement agreement and ~~notes due~~after its implementation, TBG has struggled to successfully turnaround its North America business. Based upon additional information received from TBG ~~amounted~~in October 2019, the Company expects TBG to ~~$16.4 million. In~~default on its obligations under the subleases and to certain other third parties and the Company intends to make arrangements to satisfy its liabilities under the approximately 225 store leases. The Company believes this satisfaction could be achieved by, among other options, reverting the stores and operating them corporately, attempting to transition some or all the stores to one or more franchisees or licensees and/or negotiating lease termination and settlement agreements with one or more landlords.

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

As a result of its current situations in the United States and United Kingdom, TBG may experience, without limitation, increased levels of employee attrition, customer losses, and supplier interruption. A loss of key personnel or material erosion of the ~~outcome~~employee base as well as fruition of other risks could adversely affect TBG’s business and results of operations making it difficult for TBG, the Company or a third party to attempt to turnaround all or a portion of the ~~CVA, TBG may in the~~business at a future ~~need to further restructure (operationally, legally, or otherwise) its businesses, operations and obligations.~~date. The Company has certain rights and remedies under the various agreements with TBG, including, but not limited to, utilization of collateral, litigation, and reversion of the leases in respect of certain divested salons back to the ~~Company and enforcement of a guarantee.~~Company. If the divested salons were to revert as the Company expects may occur, we may have difficulty supporting the businesses because of the challenges involved in quickly and sufficiently staffing the salons and corporate functions to support an influx in company-owned stores, addressing the stores’ performance issues, implementing required data privacy requirements in the United Kingdom and resuming support for the salons’ IT and marketing requirements. Overall, TBG’s inability to transition and operate the salons successfully, or its ability to make payments when due under the promissory notes or otherwise under the franchise agreements and transition service agreements,The Company expects a default by TBG could adversely affect our business, including increased reputation risks, brand degradation, litigation risks, financial condition, ~~and~~ results of operations or cash ~~flows, and could prevent the transaction from delivering the anticipated benefits and shareholder value.~~flows.

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

Share Repurchase Program

In May 2000, the Company’s Board of Directors (Board) approved a stock repurchase program with no stated expiration date. Since that time and through ~~December 31, 2018,~~September 30, 2019, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program. All repurchased shares become authorized but unissued shares of the Company. The timing and amounts of any repurchases depend on many factors, including the market price of the common stock and overall market conditions. During the three ~~and six~~ months ended ~~December 31, 2018,~~September 30, 2019, the Company repurchased ~~2.9 million and 4.0~~1.5 million shares ~~respectively,~~ for ~~$48.9 million and $68.3 million, respectively.~~$26.3 million. As of ~~December 31, 2018,~~September 30, 2019, a total accumulated ~~23.8~~30.0 million shares have been repurchased for ~~$483.0~~$595.4 million. At ~~December 31, 2018, $167.0~~September 30, 2019, $54.6 million remains outstanding under the approved stock repurchase program.

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 ~~December 31, 2018:~~September 30, 2019:

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

10/1/18 - 10/31/18 —
$ —
20,958,906
$ 215,956
11/1/18 - 11/30/18 1,399,685
17.71
22,358,591
191,161
12/1/18 - 12/31/18 1,479,729
16.31
23,838,320
167,020
Total 2,879,414
$ 16.99
23,838,320
$ 167,020



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

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

Item 6. Exhibits



Exhibit ~~3.1~~		~~Articles of Amendment of Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q filed on May 1, 2018.)~~

~~Exhibit 3.2~~10.1		~~Bylaws~~Form of ~~Regis Corporation. (Incorporated by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K filed on April 27, 2018.)~~ Restricted Stock Unit Award (Chad Kapadia September 1 and June 5, 2019)

~~Exhibit 10.1~~		Stock Purchase and Matching RSU Program, including forms of SPMP, including forms of Matching RSU Award Agreements (Incorporated by referenced to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed on August 31, 2018 (No. 333-227163).)

~~Exhibit 10.2~~		~~Form of Letter Agreement with Executive Officers (September 2018)~~

~~Exhibit 10.3~~		~~Form of Restricted Stock Unit Award (Annual Fiscal 2019 Executive Grants, Excluding Hugh E. Sawyer)~~

~~Exhibit 10.4~~		~~Form of Restricted Stock Unit Award (Annual Fiscal 2019 Grant, Hugh E. Sawyer)~~

~~Exhibit 10.5~~		~~Form of Performance Stock Unit Award (Annual Fiscal 2019 Executive Grants, Excluding Hugh E. Sawyer)~~

~~Exhibit 10.6~~		~~Form of Performance Stock Unit Award (Annual Fiscal 2019, Hugh E. Sawyer)~~

~~Exhibit 10.7~~		~~Form of Restricted Stock Unit Agreement (Non-Employee Director Grants)~~

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

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

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

Exhibit 101		The following financial information from Regis Corporation's Quarterly Report on Form 10-Q for the quarterly and year-to-date periods ended ~~December 31, 2018,~~September 30, 2019, formatted in ~~Extensible~~Inline Xtensible Business Reporting Language ~~(XBRL)~~(iXBRL) and filed electronically herewith: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Earnings; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated Financial Statements.

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

SIGNATURES

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



	REGIS CORPORATION

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




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

4137



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

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



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

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



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



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



Common Stock, $.05 par value		~~40,235,526~~35,548,036
Class		Number of Shares



	Three Months Ended December 31, 2018				Three Months Ended December 31, 2017
	Company-owned		Franchise		Company-owned		Franchise
	(in thousands)
Revenue recognized at a point in time:
Service	$	190,419	$	—	$	223,278	$	—
Product	43,831		17,818		56,764		15,068
Total revenue recognized at a point in time	$	234,250	$	17,818	$	280,042	$	15,068

Revenue recognized over time:
Royalty and other franchise fees	$	—	$	14,736	$	—	$	12,260
Advertising fund fees	—		7,867		—		6,479
Total revenue recognized over time	$	—	$	22,603	$	—	$	18,739
Total revenue	$	234,250	$	40,421	$	280,042	$	33,807



	Six Months Ended December 31, 2018				Six Months Ended December 31, 2017
	Company-owned		Franchise		Company-owned		Franchise
	(in thousands)
Revenue recognized at a point in time:
Service	$	398,267	$	—	$	458,908	$	—
Product	85,793		33,447		110,000		22,790
Total revenue recognized at a point in time	$	484,060	$	33,447	$	568,908	$	22,790

Revenue recognized over time:
Royalty and other franchise fees	$	—	$	29,156	$	—	$	24,410
Advertising fund fees	—		15,843		—		13,205
Total revenue recognized over time	$	—	$	44,999	$	—	$	37,615
Total revenue	$	484,060	$	78,446	$	568,908	$	60,405



Balance as of June 30, 2018	$	14,002
Additions	2,752
Amortization	(1,158		)
Write-offs	(12		)
Balance as of December 31, 2018	$	15,584



Remainder of 2019	$	1,643
2020	3,326
2021	3,238
2022	3,118
2023	2,941
Thereafter	9,274
Total	$	23,540



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

Property and equipment, net	105,860		—			—		—			—			105,860
Goodwill	412,643		—			—		—			—			412,643
Other intangibles, net	10,557		—			—		—			—			10,557
Other assets	37,616		—			—		—			—			37,616
Total assets	$	856,735	$	—		$	—	$	—		$	—		$	856,735

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

Long-term debt	90,000		—			—		—			—			90,000
Other noncurrent liabilities	107,875		18,346			—		—			(4,378		)	121,843
Total liabilities	353,243		21,376			—		56			(4,378		)	370,297
Commitments and contingencies (Note 7)
Shareholders’ equity:			0
Common stock	2,263		—			—		—			—			2,263
Additional paid-in capital	194,436		—			—		—			—			194,436
Accumulated other comprehensive income	9,568		88			—		—			—			9,656
Retained earnings	297,225		(21,464		)	—		(56		)	4,378			280,083

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

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



	For the Three Months Ended December 31,						For the Six Months Ended December 31,
	2018			2017			2018			2017
	(Dollars in thousands)						(Dollars in thousands)
Revenues	$	—		$	7,773		$	—		$	101,140

Loss from discontinued operations, before income taxes	(750		)	(10,073		)	(1,086		)	(43,840		)
Income tax benefit on discontinued operations	6,863			3,472			6,935			3,472
Income (loss) from discontinued operations, net of income taxes	$	6,113		$	(6,601	)	$	5,849		$	(40,368	)



Remainder of 2019	$	585
2020	1,111
2021	1,063
2022	1,042
2023	1,021
Thereafter	13,374
Total	$	18,196



	Three Months Ended December 31,				Six Months Ended December 31,
Factor	2018		2017		2018		2017
Company-owned same-store sales	0.5	%	(0.7	)%	0.5	%	(0.2	)%
Closed salons	(5.7	)	(1.9	)	(5.6	)	(2.0	)
Salons sold to franchisees	(8.7	)	(2.8	)	(7.7	)	(2.2	)
New company-owned salons	—		0.6		—		0.6
Franchise	2.2		2.8		2.5		1.6
Advertising fund	0.4		—		0.4		0.1
Foreign currency	(0.3	)	0.4		(0.3	)	0.3
Other	(0.9	)	(0.7	)	(0.4	)	(0.8	)
	(12.5	)%	(2.3	)%	(10.6	)%	(2.6	)%



As of	Debt to Capitalization		Basis Point Increase (Decrease) (1)
December 31, 2018	20.3	%	470
June 30, 2018	15.6	%	(390	)

For the Three Months Ended December 31, 2018

For the Six Months Ended December 31, 2018

Restricted stock units

Performance-based restricted stock units