Company Quick10K Filing
Regis
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 42 $678
10-Q 2019-10-29 Quarter: 2019-09-30
10-K 2019-08-27 Annual: 2019-06-30
10-Q 2019-04-30 Quarter: 2019-03-31
10-Q 2019-01-29 Quarter: 2018-12-31
10-Q 2018-10-30 Quarter: 2018-09-30
10-K 2018-08-23 Annual: 2018-06-30
10-Q 2018-05-01 Quarter: 2018-03-31
10-Q 2018-02-01 Quarter: 2017-12-31
10-Q 2017-10-31 Quarter: 2017-09-30
10-K 2017-08-23 Annual: 2017-06-30
10-Q 2017-05-04 Quarter: 2017-03-31
10-Q 2017-02-03 Quarter: 2016-12-31
10-Q 2016-10-27 Quarter: 2016-09-30
10-K 2016-08-23 Annual: 2016-06-30
10-Q 2016-04-28 Quarter: 2016-03-31
10-Q 2016-01-28 Quarter: 2015-12-31
10-Q 2015-10-29 Quarter: 2015-09-30
10-K 2015-08-28 Annual: 2015-06-30
10-Q 2015-04-30 Quarter: 2015-03-31
10-Q 2015-01-29 Quarter: 2014-12-31
10-Q 2014-11-04 Quarter: 2014-09-30
10-K 2014-08-26 Annual: 2014-06-30
10-Q 2014-04-30 Quarter: 2014-03-31
10-Q 2014-02-03 Quarter: 2013-12-31
10-Q 2013-11-05 Quarter: 2013-09-30
10-K 2013-08-27 Annual: 2013-06-30
10-Q 2013-05-07 Quarter: 2013-03-31
10-K 2012-08-29 Annual: 2012-06-30
10-Q 2012-05-10 Quarter: 2012-03-31
10-Q 2011-11-09 Quarter: 2011-09-30
10-K 2011-08-26 Annual: 2011-06-30
10-Q 2011-05-10 Quarter: 2011-03-31
10-Q 2011-02-09 Quarter: 2010-12-31
10-Q 2010-11-09 Quarter: 2010-09-30
10-K 2010-08-27 Annual: 2010-06-30
10-Q 2010-05-10 Quarter: 2010-03-31
10-Q 2010-02-09 Quarter: 2009-12-31
8-K 2019-12-30 Enter Agreement, Leave Agreement, Exhibits
8-K 2019-11-06 Officers, Exhibits
8-K 2019-10-29 Earnings, Exhibits
8-K 2019-10-22 Shareholder Vote
8-K 2019-08-27 Earnings, Exhibits
8-K 2019-07-03 Enter Agreement, Leave Agreement, Exhibits
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-03-29 Officers
8-K 2019-01-29 Earnings, Exhibits
8-K 2018-10-30 Earnings, Exhibits
8-K 2018-10-23 Leave Agreement, Officers, Shareholder Vote
8-K 2018-08-30 Officers
8-K 2018-08-21 Earnings, Exhibits
8-K 2018-05-01 Earnings, Exhibits
8-K 2018-04-24 Enter Agreement, Off-BS Arrangement, Amend Bylaw, Exhibits
8-K 2018-03-26 Enter Agreement, Leave Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-02-21 Officers, Exhibits
8-K 2018-02-01 Earnings, Exhibits
8-K 2018-01-08 Exit Costs, Exhibits
RGS 2019-09-30
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.1 rgsexhibit101rsuck.htm
EX-31.1 rgs-2019930xex3112.htm
EX-31.2 rgs-2019930xex3122.htm
EX-32.2 rgs-2019930xex322.htm

Regis Earnings 2019-09-30

RGS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
REDU 917 2,281 1,840 0 0 0 0 185 0%
NVEE 909 504 165 465 221 29 60 922 48% 15.4 6%
JP 812 1,980 613 0 0 0 0 -491 0%
RGS 678 683 359 1,069 616 -14 17 675 58% 40.0 -2%
EVH 648 1,652 506 733 0 -107 -41 736 0% -18.0 -7%
APEI 469 376 58 294 87 21 46 248 30% 5.3 5%
CRCM 465 241 78 203 152 -15 34 374 75% 11.0 -6%
TISI 449 1,032 585 1,186 316 -37 -9 800 27% -86.1 -4%
EVI 435 154 73 228 53 4 9 470 23% 54.5 2%
DFIN 420 1,009 760 918 616 63 172 830 67% 4.8 6%

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from             to            
Commission file number 1-12725
Regis Corporation
(Exact name of registrant as specified in its charter)
Minnesota
 
41-0749934
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
7201 Metro Boulevard
Edina
Minnesota
 
55439
(Address of principal executive offices)
 
(Zip Code)
 (952) 947-7777
(Registrant’s telephone number, including area code) 
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to be submit and post such files). Yes  No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated filer 

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

Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes No   
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of October 23, 2019:
Common Stock, $.05 par value
 
35,548,036
Class
 
Number of Shares
 




REGIS CORPORATION
 
INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheet as of September 30, 2019 and June 30, 2019
 
 
 
 
 
 
Condensed Consolidated Statement of Operations for the three months ended September 30, 2019 and 2018
 
 
 
 
 
 
Condensed Consolidated Statement of Comprehensive (Loss) Income for the three months ended September 30, 2019 and 2018
 
 
 
 
 
 
Condensed Consolidated Statement of Shareholders' Equity for the three months ended September 30, 2019 and September 30, 2018
 
 
 
 
 
 
Condensed Consolidated Statement of Cash Flows for the three months ended September 30, 2019 and 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
REGIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in thousands, except share data)
 
 
 
September 30,
2019
 
June 30,
2019
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
58,902

 
$
70,141

Receivables, net
 
28,724

 
30,143

Inventories
 
74,634

 
77,322

Other current assets
 
32,194

 
33,216

Total current assets
 
194,454

 
210,822

 
 
 
 
 
Property and equipment, net
 
71,442

 
78,090

Goodwill
 
313,251

 
345,718

Other intangibles, net
 
8,416

 
8,761

Right of use asset (Note 10)
 
930,784

 

Other assets
 
33,094

 
34,170

Long term assets held for sale (Note 1)
 
5,276

 
5,276

Total assets
 
$
1,556,717

 
$
682,837

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
53,219

 
$
47,532

Accrued expenses
 
62,241

 
80,751

Short-term lease liability (Note 10)
 
161,407

 

Total current liabilities
 
276,867

 
128,283

 
 
 
 
 
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
 
96,258

 
111,399

Total liabilities
 
1,272,978

 
358,592

Commitments and contingencies (Note 7)
 


 


Shareholders’ equity:
 
 

 
 

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
 
20,880

 
47,152

Accumulated other comprehensive income
 
8,939

 
9,342

Retained earnings
 
252,143

 
265,908

Total shareholders’ equity
 
283,739

 
324,245

Total liabilities and shareholders’ equity
 
$
1,556,717

 
$
682,837

 

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

3



REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For The Three Months Ended September 30, 2019 and 2018
(Dollars and shares in thousands, except per share data amounts)
 
 
Three Months Ended September 30,
 
 
 
2019
 
2018
 
Revenues:
 
 
 
 
 
Service
 
$
141,941

 
$
207,848

 
Product
 
45,656

 
57,591

 
Royalties and fees
 
28,017

 
22,396

 
Franchise rental income (Note 10)
 
31,424

 

 
 
 
247,038

 
287,835

 
Operating expenses:
 
 
 
 
 
Cost of service
 
90,482

 
121,497

 
Cost of product
 
26,327

 
32,181

 
Site operating expenses
 
32,942

 
36,821

 
General and administrative
 
40,625

 
47,727

 
Rent (Note 10)
 
24,264

 
35,978

 
Franchise rent expense (Note 10)
 
31,424

 

 
Depreciation and amortization
 
9,380

 
10,202

 
TBG restructuring (Note 3)
 
1,500

 

 
Total operating expenses
 
256,944

 
284,406

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

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

 
360

 
 
 
 
 
 
 
Loss from continuing operations before income taxes
 
(17,034
)
 
(1,177
)
 
 
 
 
 
 
 
Income tax benefit
 
2,856

 
714

 
 
 
 
 
 
 
Loss from continuing operations
 
(14,178
)

(463
)
 
 
 
 
 
 
 
Income (loss) from discontinued operations, net of income taxes (Note 3)
 
373

 
(264
)
 
 
 
 
 
 
 
Net loss
 
$
(13,805
)
 
$
(727
)
 
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
 
 
 
 
 
 
Basic and Diluted:
 
 
 
 
 
Loss from continuing operations
 
$
(0.39
)
 
$
(0.01
)
 
Income (loss) from discontinued operations
 
0.01

 
(0.01
)
 
Net loss per share (1)
 
$
(0.38
)
 
$
(0.02
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common and common equivalent shares outstanding:
 
 
 
 
 
Basic and Diluted
 
36,249

 
44,730

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

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

4



REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME (Unaudited)
For The Three Months Ended September 30, 2019 and 2018
(Dollars in thousands)
 
 
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.

5



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.

6



REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
For The Three Months Ended September 30, 2019 and 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



(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.

7



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 September 30, 2019 and for the three months ended September 30, 2019 and 2018, reflect, in the opinion of management, all adjustments necessary to fairly state the consolidated financial position of the Company as of 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, 2019 and other documents filed or furnished with the SEC during the current fiscal year.

Goodwill:

As of September 30, 2019 and June 30, 2019, the Franchise reporting unit had $227.8 million and $227.9 million of goodwill and the Company-owned reporting unit had $85.4 million and $117.8 million of goodwill, respectively. See Note 9 to the unaudited interim Condensed Consolidated Financial Statements. The Company assesses goodwill impairment on an annual basis, during the Company’s fourth fiscal quarter, and between annual assessments if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying amount. An interim impairment analysis was not required in the three months ended September 30, 2019.
The Company performs its annual impairment assessment as of April 30. For the fiscal year 2019 annual impairment assessment, due to the transformational efforts completed during the year, the Company elected to forgo the optional Step 0 assessment and performed the quantitative impairment analysis on the Franchise and Company-owned reporting units. The Company compared the carrying value of the reporting units, including goodwill, to their estimated fair value. The results of these assessments indicated that the estimated fair value of the Company's reporting units exceeded their carrying value.  The Franchise reporting unit had substantial headroom and the Company-owned reporting unit had headroom of approximately 20%. The fair value of the Company-owned reporting unit was determined based on a discounted cash flow analysis. The key assumptions used in determining fair value were the number and pace of salons sold to franchisees and proceeds from salon sales. We selected the assumptions by considering our historical financial performance and trends, historical salon sale proceeds and estimated future salon sale activities. The preparation of our fair value estimate includes uncertain factors and requires significant judgments and estimates which are subject to change.
There are a number of uncertain factors or events that exist which may result in a future triggering event and require an interim impairment analysis with respect to the carrying value of goodwill for the Company-owned reporting unit prior to our annual assessment. These internal and external factors include but are not limited to the following:
Changes in the company-owned salon strategy,
Salon closures or other restructuring,
Franchise expansion and sales opportunities,
Future market earnings multiples deterioration,
Our financial performance falls short of our projections due to internal operating factors,
Economic recession,
Reduced salon traffic,
Deterioration of industry trends,
Increased competition,
Inability to reduce general and administrative expenses as company-owned salon count potentially decreases,
Other factors causing our cash flow to deteriorate.


8



If the triggering event analysis indicates the fair value of the Company-owned reporting unit has potentially fallen below more than the 20% headroom, we may be required to perform an updated impairment assessment which may result in a non-cash impairment charge to reduce the carrying value of goodwill.
Assessing goodwill for impairment requires management to make assumptions and to apply judgment, including forecasting future sales and expenses, and selecting appropriate discount rates, which can be affected by economic conditions and other factors that can be difficult to predict. The Company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions it uses to calculate impairment losses of goodwill. However, if actual results are not consistent with the estimates and assumptions used in the calculations, or if there are significant changes to the Company's planned strategy for company-owned salons, the Company may be exposed to future impairment losses that could be material.
Non-Current Assets Held for Sale:

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

Accounting Standards Recently Adopted by the Company:

Leases

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

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

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

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

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



9



2.    REVENUE RECOGNITION:

Revenue Recognition and Deferred Revenue:

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

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

The following table disaggregates revenue by timing of revenue recognition and is reconciled to reportable segment revenues as follows:
 
 
Three Months Ended September 30, 2019
 
Three Months Ended September 30, 2018
 
 
Franchise
 
Company-owned
 
Franchise
 
Company-owned
 
 

 
 
 
 
 
 
Revenue recognized at a point in time:
 
 
 
 
 
 
 
 
Service
 
$

 
$
141,941

 
$

 
$
207,848

Product
 
13,105

 
32,551

 
15,629

 
41,962

Total revenue recognized at a point in time
 
$
13,105

 
$
174,492

 
$
15,629

 
$
249,810

 
 

 
 
 
 
 
 
Revenue recognized over time:
 
 
 
 
 
 
 
 
Royalty and other franchise fees
 
$
17,592

 
$

 
$
14,420

 
$

Advertising fund fees
 
10,425

 

 
7,976

 

Franchise rental income
 
31,424

 

 
 
 
 
Total revenue recognized over time
 
$
59,441

 
$

 
$
22,396

 
$

Total revenue
 
$
72,546

 
$
174,492

 
$
38,025

 
$
249,810




10



Information about receivables, broker fees and deferred revenue subject to the amended revenue recognition guidance is as follows:
 
 
September 30,
2019
 
June 30,
2019
 
Balance Sheet Classification
 
 
(dollars in thousands)
 
 
Receivables from contracts with customers, net
 
$
18,715

 
$
23,210

 
Accounts receivable, net
Broker fees
 
$
18,706

 
$
17,819

 
Other assets
 
 
 
 
 
 
 
Deferred revenue:
 
 
 
 
 
 
     Current
 
 
 
 
 
 
Gift card liability
 
$
2,686

 
$
3,050

 
Accrued expenses
Deferred franchise fees unopened salons
 
99

 
193

 
Accrued expenses
Deferred franchise fees open salons
 
4,748

 
4,164

 
Accrued expenses
Total current deferred revenue
 
$
7,533

 
$
7,407

 
 
     Non-current
 
 
 
 
 
 
Deferred franchise fees unopened salons
 
$
13,230

 
$
15,173

 
Other non-current liabilities
Deferred franchise fees open salons
 
28,546

 
24,194

 
Other non-current liabilities
Total non-current deferred revenue
 
$
41,776

 
$
39,367

 
 

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

The following table is a rollforward of the broker fee balance for the periods indicated (in thousands):
Balance as of June 30, 2019
 
$
17,819

Additions
 
1,548

Amortization
 
(661
)
Write-offs
 

Balance as of September 30, 2019
 
$
18,706



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

Remainder of 2020
 
$
3,327

2021
 
4,498

2022
 
4,378

2023
 
4,202

2024
 
3,967

Thereafter
 
12,922

Total
 
$
33,294





11



3.
TBG RESTRUCTURING AND DISCONTINUED OPERATIONS:

In October 2017, the Company sold substantially all its mall-based salon business in North America, representing 858 salons, 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, with TBG who operates these locations as franchise locations. In June 2019, the Company entered into a settlement agreement with TBG regarding the US and Canadian salons, which, among other things, substitutes the master franchise agreement for 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.

For the three months ended September 30, 2019 the Company recorded $1.5 million 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 for the three months ended September 30, 2019 and September 30, 2018 is insurance reserve benefits and professional fees, 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 months ended September 30, 2019 and 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. 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 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 loss divided by weighted average common shares outstanding, excluding unvested outstanding restricted stock awards (RSAs), restricted stock units (RSUs) and stock-settled performance units (PSUs). The Company’s diluted earnings per share is calculated as net 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 September 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 months ended September 30, 2018930,666 common stock equivalents of dilutive common stock were excluded in the diluted earnings per share calculations due to the net loss from continuing operations.

The computation of weighted average shares outstanding, assuming dilution, excluded 391,531 and 357,468 of stock-based awards during the three months ended September 30, 2019 and 2018, respectively, as they were not dilutive under the treasury stock method.


12



5.
SHAREHOLDERS’ EQUITY:
 
Stock-Based Employee Compensation:

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

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

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

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

Share Repurchases:
 
During the three months ended September 30, 2019 and 2018, the Company repurchased 1.5 million and 1.1 million shares, respectively, for $26.4 million and $19.3 million, respectively, under a previously approved stock repurchase program. At September 30, 2019$54.6 million remains outstanding under the approved stock repurchase program.

6. 
INCOME TAXES:
 
A summary of income tax 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
%
 


The recorded tax provision and effective tax rate for the three months ended September 30, 2019 were different than what would normally be expected primarily due to the impact of the deferred tax valuation allowance and global intangible low-taxed income (“GILTI”). The Company includes GILTI as a current period expense when incurred. The recorded tax provision and effective tax rate for the three months ended September 30, 2018 were different than what would normally be expected primarily due to the impact of Tax Cuts and Jobs Act (“Tax Act”), state conformity of the new federal provisions and the deferred tax 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.


13



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:
 
September 30,
2019
 
June 30,
2019
 
(Dollars in thousands)
Cash and cash equivalents
$
58,902

 
$
70,141

Restricted cash, included in other current assets (1)
21,724

 
22,238

Total cash, cash equivalents and restricted cash
$
80,626

 
$
92,379

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

9.    GOODWILL AND OTHER INTANGIBLES:

The table below contains details related to the Company's goodwill:
 
 
Franchise
 
Company-owned
 
Consolidated
 
 
(Dollars in thousands)
Goodwill, net at June 30, 2019
 
$
227,928

 
$
117,790

 
$
345,718

Translation rate adjustments
 
(85
)
 
(299
)
 
(384
)
Derecognition related to sale of salon assets to franchisees (1)
 

 
(32,083
)
 
(32,083
)
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


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


14



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.

15



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:

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

Sale and Leaseback Transaction


16



The Company’s long-term financing liabilities consists of the following:
 
 
Maturity Date
 
Interest Rate
 
September 30,
2019
 
June 30,
2019
 
 
(Fiscal Year)
 
 
 
(Dollars in thousands)
Financial liability- Salt Lake City Distribution Center
 
2034
 
3.30%
 
$
17,187

 
$
17,354

Financial liability- Chattanooga Distribution Center
 
2034
 
3.70%
 
11,532

 
11,556

Long-term financing liability
 
 
 
 
 
$
28,719

 
$
28,910