Company Quick10K Filing
Quick10K
Regis
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$18.75 39 $737
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-06-30 Annual: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-K 2016-06-30 Annual: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-K 2015-06-30 Annual: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-K 2014-06-30 Annual: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-07-03 Enter Agreement, Leave Agreement, Exhibits
8-K 2019-04-30 Earnings, Exhibits
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 2018-04-24 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 2018-01-08 Exit Costs, Exhibits
INTC Intel 208,720
CBSH Commerce Bancshares 6,630
LTM Life Time Fitness 5,850
WH Wyndham Hotels & Resorts 5,440
PRGS Progress Software 1,960
PTVCA Protective Insurance 227
HLM Hillman Companies 0
HAWK Blackhawk Network 0
CBDS Cannabis Sativa 0
HMMR Hammer Fiber Optics Holdings 0
RGS 2019-03-31
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 rgs-2019331xex101.htm
EX-10.2 rgs-2019331xex102.htm
EX-31.1 rgs-2019331xex311.htm
EX-31.2 rgs-2019331xex312.htm
EX-32 rgs-2019331xex32.htm

Regis Earnings 2019-03-31

RGS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 rgs-2019331x10q.htm 10-Q Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 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 x 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 x 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 x
 
Accelerated filer ¨
 
 
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
(Do not check if a 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 x  
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of April 24, 2019:
Common Stock, $.05 par value
 
39,326,526
Class
 
Number of Shares
 




REGIS CORPORATION
 
INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
REGIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in thousands, except share data)
 
 
 
March 31,
2019
 
June 30,
2018
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
71,146

 
$
110,399

Receivables, net
 
33,737

 
52,430

Inventories
 
90,869

 
79,363

Other current assets
 
32,386

 
47,867

Total current assets
 
228,138

 
290,059

 
 
 
 
 
Property and equipment, net
 
83,629

 
99,288

Goodwill
 
378,560

 
412,643

Other intangibles, net
 
9,346

 
10,557

Other assets
 
32,768

 
37,616

Non-current assets held for sale (Note 1)
 
6,529

 
6,572

Total assets
 
$
738,970

 
$
856,735

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
57,021

 
$
57,738

Accrued expenses
 
83,490

 
100,716

Total current liabilities
 
140,511

 
158,454

 
 
 
 
 
Long-term debt
 
90,000

 
90,000

Long-term lease liability
 
17,505

 

Other noncurrent liabilities
 
115,144

 
121,843

Total liabilities
 
363,160

 
370,297

Commitments and contingencies (Note 7)
 


 


Shareholders’ equity:
 
 

 
 

Common stock, $0.05 par value; issued and outstanding 39,433,124 and 45,258,571 common shares at March 31, 2019 and June 30, 2018 respectively
 
1,972

 
2,263

Additional paid-in capital
 
93,515

 
194,436

Accumulated other comprehensive income
 
9,050

 
9,656

Retained earnings
 
271,273

 
280,083

 
 
 
 
 
Total shareholders’ equity
 
375,810

 
486,438

 
 
 
 
 
Total liabilities and shareholders’ equity
 
$
738,970

 
$
856,735

 

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 and Nine Months Ended March 31, 2019 and 2018
(Dollars and shares in thousands, except per share data amounts)
 
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
 
Service
 
$
181,809

 
$
222,022

 
$
580,076

 
$
680,930

Product
 
53,766

 
64,911

 
173,006

 
197,701

Royalties and fees
 
22,768

 
18,850

 
67,767

 
56,465

 
 
258,343

 
305,783

 
820,849

 
935,096

Operating expenses:
 
 
 
 
 
 
 
 
Cost of service
 
111,632

 
132,081

 
348,060

 
406,767

Cost of product
 
31,167

 
37,139

 
99,698

 
107,165

Site operating expenses
 
34,339

 
37,548

 
106,723

 
116,175

General and administrative
 
41,694

 
45,727

 
135,257

 
129,485

Rent
 
32,332

 
39,391

 
102,952

 
147,280

Depreciation and amortization
 
8,630

 
9,558

 
27,732

 
46,764

TBG mall location restructuring (Note 3)
 
20,711

 

 
20,711

 

Total operating expenses
 
280,505

 
301,444

 
841,133

 
953,636

 
 
 
 
 
 
 
 


Operating (loss) income
 
(22,162
)
 
4,339

 
(20,284
)
 
(18,540
)
 
 
 
 
 
 
 
 
 
Other (expense) income:
 
 
 
 
 
 
 
 
Interest expense
 
(1,354
)
 
(5,095
)
 
(3,432
)
 
(9,402
)
Gain from sale of salon assets to franchisees, net
 
11,489

 
237

 
10,394

 
255

Interest income and other, net
 
464

 
1,495

 
1,453

 
3,934

 
 
 
 
 
 
 
 
 
(Loss) income from continuing operations before income taxes
 
(11,563
)
 
976

 
(11,869
)
 
(23,753
)
 
 
 
 
 
 
 
 
 
Income tax (expense) benefit
 
(3,248
)
 
2,609

 
(2,988
)
 
77,875

 
 
 
 
 
 
 
 
 
(Loss) income from continuing operations
 
(14,811
)

3,585

 
(14,857
)
 
54,122

 
 
 
 
 
 
 
 
 
Income (loss) from TBG discontinued operations, net of taxes
 
178

 
(10,605
)
 
6,027

 
(50,973
)
 
 
 
 
 
 
 
 
 
Net (loss) income
 
$
(14,633
)
 
$
(7,020
)
 
$
(8,830
)
 
$
3,149

 
 
 
 
 
 
 
 
 
Net (loss) income per share:
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
(Loss) income from continuing operations
 
$
(0.37
)
 
$
0.08

 
$
(0.35
)
 
$
1.16

Income (loss) from TBG discontinued operations
 
0.00

 
(0.23
)
 
0.14

 
(1.09
)
Net (loss) income per share, basic (1)
 
$
(0.36
)
 
$
(0.15
)
 
$
(0.21
)
 
$
0.07

Diluted:
 
 
 
 
 
 
 
 
(Loss) income from continuing operations
 
$
(0.37
)
 
$
0.08

 
$
(0.35
)
 
$
1.15

Income (loss) from TBG discontinued operations
 
0.00

 
(0.22
)
 
0.14

 
(1.08
)
Net (loss) income per share, diluted (1)
 
$
(0.36
)
 
$
(0.15
)
 
$
(0.21
)
 
$
0.07

 
 
 
 
 
 
 
 
 
Weighted average common and common equivalent shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
40,314

 
46,612

 
42,900

 
46,684

Diluted
 
40,314

 
47,153

 
42,900

 
47,093

_______________________________________________________________________________
(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 INCOME (Unaudited)
For The Three and Nine Months Ended March 31, 2019 and 2018
(Dollars in thousands)
 
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
 
2019
 
2018
 
2019
 
2018
Net (loss) income
 
$
(14,633
)
 
$
(7,020
)
 
$
(8,830
)
 
$
3,149

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments during the period:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
905

 
(1,372
)
 
(606
)
 
904

Reclassification adjustments for losses included in net (loss) income (Note 3)
 

 

 

 
6,152

Net current period foreign currency translation adjustments
 
905

 
(1,372
)
 
(606
)
 
7,056

Comprehensive (loss) income
 
$
(13,728
)
 
$
(8,392
)
 
$
(9,436
)
 
$
10,205


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

5



REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
(Dollars and shares in thousands, except per share data amounts)
 
 
Three Months Ended March 31, 2019
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings
 
Total
 
 
Shares
 
Amount
 
 
 
 
Balance, December 31, 2018
 
41,472,468

 
$
2,074

 
$
128,964

 
$
8,145

 
$
285,827

 
$
425,010

Net loss
 

 

 

 

 
(14,633
)
 
(14,633
)
Foreign currency translation adjustments
 

 

 

 
905

 

 
905

Stock repurchase program
 
(2,050,430
)
 
(102
)
 
(37,818
)
 

 

 
(37,920
)
Exercise of SARs
 
7,080

 

 
(101
)
 

 

 
(101
)
Stock-based compensation
 

 

 
2,512

 

 

 
2,512

Net restricted stock activity
 
4,006

 

 
(42
)
 

 

 
(42
)
Minority interest
 

 

 

 

 
79

 
79

Balance, March 31, 2019
 
39,433,124

 
$
1,972

 
$
93,515

 
$
9,050

 
$
271,273

 
$
375,810

 
 
Three Months Ended March 31, 2018
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings
 
Total
 
 
Shares
 
Amount
 
 
 
 
Balance, December 31, 2017
 
46,688,423

 
$
2,335

 
$
216,301

 
$
11,843

 
$
283,694

 
$
514,173

Net loss
 

 

 

 

 
(7,020
)
 
(7,020
)
Foreign currency translation adjustments
 

 

 

 
(1,372
)
 

 
(1,372
)
Stock repurchase program
 
(585,967
)
 
(30
)
 
(9,605
)
 

 

 
(9,635
)
Exercise of SARs
 
18,697

 
1

 
(184
)
 

 

 
(183
)
Stock-based compensation
 

 

 
1,690

 

 

 
1,690

Net restricted stock activity
 
5,096

 

 
(53
)
 

 

 
(53
)
Minority interest
 

 

 

 

 
67

 
67

Balance, March 31, 2018
 
46,126,249

 
$
2,306

 
$
208,149

 
$
10,471

 
$
276,741

 
$
497,667

 
 
Nine Months Ended March 31, 2019
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings
 
Total
 
 
Shares
 
Amount
 
 
 
 
Balance, June 30, 2018
 
45,258,571

 
$
2,263

 
$
194,436

 
$
9,656

 
$
280,083

 
$
486,438

Net loss
 

 

 

 

 
(8,830
)
 
(8,830
)
Foreign currency translation adjustments
 

 

 

 
(606
)
 

 
(606
)
Stock repurchase program
 
(6,023,523
)
 
(301
)
 
(105,951
)
 

 

 
(106,252
)
Exercise of SARs
 
15,412

 
1

 
(205
)
 

 

 
(204
)
Stock-based compensation
 

 

 
7,065

 

 

 
7,065

Net restricted stock activity
 
182,664

 
9

 
(1,830
)
 

 

 
(1,821
)
Minority interest
 

 

 

 

 
20

 
20

Balance, March 31, 2019
 
39,433,124

 
$
1,972

 
$
93,515

 
$
9,050

 
$
271,273

 
$
375,810

 
 
Nine Months Ended March 31, 2018
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings
 
Total
 
 
Shares
 
Amount
 
 
 
 
Balance, June 30, 2017
 
46,400,367

 
$
2,320

 
$
214,109

 
$
3,415

 
$
273,776

 
$
493,620

Net income
 

 

 

 

 
3,149

 
3,149

Foreign currency translation adjustments
 

 

 

 
7,056

 

 
7,056

Stock repurchase program
 
(585,967
)
 
(30
)
 
(9,605
)
 

 

 
(9,635
)
Exercise of SARs
 
27,793

 
2

 
(278
)
 

 

 
(276
)
Stock-based compensation
 

 

 
5,933

 

 

 
5,933

Shares issued through franchise stock incentive program
 
522

 

 
7

 

 

 
7

Net restricted stock activity
 
283,534

 
14

 
(2,017
)
 

 

 
(2,003
)
Minority interest
 

 

 

 

 
(184
)
 
(184
)
Balance, March 31, 2018
 
46,126,249

 
$
2,306

 
$
208,149

 
$
10,471

 
$
276,741

 
$
497,667

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

6



REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
For The Nine Months Ended March 31, 2019 and 2018
(Dollars in thousands)
 
 
Nine Months Ended March 31,
 
 
2019
 
2018
Cash flows from operating activities:
 
 

 
 

Net (loss) income
 
$
(8,830
)
 
$
3,149

Adjustments to reconcile net (loss) income to net cash used in operating activities:
 
 
 
 

Non-cash impairment and other adjustments related to TBG discontinued operations
 
(163
)
 
37,020

Depreciation and amortization
 
24,727

 
29,736

Depreciation related to TBG discontinued operations
 

 
3,723

Deferred income taxes
 
(6,034
)
 
(85,026
)
Gain on life insurance
 

 
(7,986
)
Non-cash TBG mall location restructuring charge
 
20,711

 

Gain from sale of salon assets to franchisees, net
 
(10,394
)
 
(255
)
Salon asset impairments
 
3,005

 
11,099

Accumulated other comprehensive income reclassification adjustment
 

 
6,152

Stock-based compensation
 
7,065

 
6,483

Amortization of debt discount and financing costs
 
206

 
4,011

Other non-cash items affecting earnings
 
(492
)
 
(287
)
Changes in operating assets and liabilities, excluding the effects of asset sales
 
(50,074
)
 
(29,483
)
Net cash used in operating activities
 
(20,273
)
 
(21,664
)
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 

Capital expenditures
 
(23,160
)
 
(20,065
)
Capital expenditures related to TBG discontinued operations
 

 
(1,171
)
Proceeds from sale of assets to franchisees
 
54,619

 
5,620

Proceeds from company-owned life insurance policies
 
24,617

 
18,108

Net cash provided by investing activities
 
56,076

 
2,492

 
 
 
 
 
Cash flows from financing activities:
 
 
 
 

Borrowings on revolving credit facilities
 

 
90,000

Repayment of long-term debt and capital lease obligations
 

 
(124,230
)
Repurchase of common stock
 
(105,364
)
 
(9,634
)
Settlement of equity awards
 

 
(550
)
Taxes paid for shares withheld
 
(2,447
)
 
(2,279
)
Net proceeds from sale and leaseback transaction
 
18,068

 

Net cash used in financing activities
 
(89,743
)
 
(46,693
)
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
5

 
(30
)
 
 
 
 
 
Decrease in cash, cash equivalents, and restricted cash
 
(53,935
)
 
(65,895
)
 
 
 
 
 
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
 
$
94,839

 
$
144,091

__________________________________________________________        

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 March 31, 2019 and for the three and nine months ended March 31, 2019 and 2018, reflect, in the opinion of management, all adjustments necessary to fairly state the consolidated financial position of the Company as of March 31, 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 and other documents filed or furnished with the SEC during the current fiscal year.

Goodwill:

As of March 31, 2019 and June 30, 2018, the Company-owned reporting unit had $151.1 million and $184.8 million of goodwill, respectively, and the Franchise salons reporting unit had $227.4 million and $227.9 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 nine months ended March 31, 2019.
The Company performs its annual impairment assessment as of April 30. For the fiscal year 2018 annual impairment assessment, due to the transformational efforts completed during the year, the Company elected to forgo the optional Step 0 assessment and performed the quantitative impairment analysis on the Company-owned and Franchise reporting units. The Company compared the carrying value of the reporting units, including goodwill, to their estimated fair value. The results of these assessments indicated that the estimated fair value of our reporting units exceeded their carrying value.  The Franchise reporting unit had substantial headroom and the Company-owned reporting unit had headroom of approximately 24%. The fair value of the Company-owned reporting unit was determined based on a discounted cash flow analysis and comparable market multiples. The assumptions used in determining fair value were the number and pace of salons sold to franchisees, proceeds for salon sales, weighted average cost of capital, general and administrative expenses and utilization of net operating loss benefits. We selected the assumptions by considering our historical financial performance and trends, historical salon sale proceeds and estimated 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 of capital within the Company-owned reporting unit would result in a reduction in headroom to approximately 17%.
Other uncertain factors or events 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,
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.


8



If the triggering event analysis indicates the fair value of the Company-owned reporting unit has potentially fallen below more than the 24% 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 in its goodwill impairment assessment. 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 entered into a ten year lease for a new corporate headquarters and would be selling the land and buildings in Edina, MN, currently used for its headquarters. The non-current assets held for sale represent the net book value of the land of $1.7 and $1.7 million and buildings of $4.8 and $4.9 million, as of March 31, 2019 and June 30, 2018, respectively. No impairments were identified as of March 31, 2019.

Accounting Standards Recently Adopted by the Company:

Revenue from Contracts with Customers

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 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 of the earliest period presented. See Note 2 to the unaudited Condensed Consolidated Financial Statements for additional information regarding the impact of the adoption of the revenue recognition guidance.

Restricted Cash

In November 2016, the FASB issued cash flow guidance requiring restricted cash and restricted cash equivalents to be included in the cash and cash equivalent balances in the statement of cash flows. Transfers between cash and cash equivalents and restricted cash 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. 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 and end of period balances, cash, cash equivalents and restricted cash presented in the statement of cash flows increased $38.4 million, $23.6 million and $37.6 million as of June 30, 2018, March 31, 2019 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 impact on the Company's consolidated statement of cash flows.

Accounting 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 will also elect 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 is leveraging its lease management system to facilitate the adoption of this standard and is evaluating business processes and internal controls related to lease accounting to assist in the application of the new guidance. The Company is continuing to evaluate the effect the new standard will have on the Company's consolidated financial

9



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 its operating lease commitments, including leases signed on behalf of franchisees, will be subject to the new guidance. The Company does not expect the adoption of the new guidance to have a material impact on net income, cash flows or compliance with debt agreements.
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
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 for franchisee product revenue is generally collected within 30 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. Upon adoption of the new revenue recognition guidance, 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 the initial franchise fees were recognized in full upon salon opening.

The following table disaggregates revenue by timing of revenue recognition and is reconciled to reportable segment revenues as follows:
 
 
Three Months Ended March 31, 2019
 
Three Months Ended March 31, 2018
 
 
Company-owned
 
Franchise
 
Company-owned
 
Franchise
 
 
(in thousands)
Revenue recognized at a point in time:
 
 
 
 
 
 
 
 
Service
 
$
181,809

 
$

 
$
222,022

 
$

Product
 
39,427

 
14,339

 
49,980

 
14,931

Total revenue recognized at a point in time
 
$
221,236

 
$
14,339

 
$
272,002

 
$
14,931

 
 
 
 
 
 
 
 
 
Revenue recognized over time:
 
 
 
 
 
 
 
 
Royalty and other franchise fees
 
$

 
$
14,339

 
$

 
$
12,322

Advertising fund fees
 

 
8,429

 

 
6,528

Total revenue recognized over time
 

 
22,768

 

 
18,850

Total revenue
 
$
221,236

 
$
37,107

 
$
272,002

 
$
33,781


10




 
 
Nine Months Ended March 31, 2019
 
Nine Months Ended March 31, 2018
 
 
Company-owned
 
Franchise
 
Company-owned
 
Franchise
 
 
(in thousands)
Revenue recognized at a point in time:
 
 
 
 
 
 
 
 
Service
 
$
580,076

 
$

 
$
680,930

 
$

Product
 
125,220

 
47,786

 
159,980

 
37,721

Total revenue recognized at a point in time
 
$
705,296

 
$
47,786

 
$
840,910

 
$
37,721

 
 
 
 
 
 
 
 
 
Revenue recognized over time:
 
 
 
 
 
 
 
 
Royalty and other franchise fees
 
$

 
$
43,495

 
$

 
$
36,733

Advertising fund fees
 

 
24,272

 

 
19,732

Total revenue recognized over time
 

 
67,767

 

 
56,465

Total revenue
 
$
705,296

 
$
115,553

 
$
840,910

 
$
94,186

Information about receivables, broker fees and deferred revenue subject to the amended revenue recognition guidance is as follows:
 
 
March 31,
2019
 
June 30,
2018
 
Balance Sheet Classification
 
 
(in thousands)
 
 
Receivables from contracts with customers, net
 
$
23,904

 
$
21,504

 
Accounts receivable, net
Broker fees
 
$
16,904

 
$
14,002

 
Other assets
 
 
 
 
 
 
 
Deferred revenue:
 
 
 
 
 
 
     Current
 
 
 
 
 
 
Gift card liability
 
$
3,439

 
$
3,320

 
Accrued expenses
Deferred franchise fees unopened salons
 
137

 
2,306

 
Accrued expenses
Deferred franchise fees open salons
 
3,767

 
3,030

 
Accrued expenses
Total current deferred revenue
 
$
7,343

 
$
8,656

 
 
     Non-current
 
 
 
 
 
 
Deferred franchise fees unopened salons
 
$
13,941

 
$
11,161

 
Other non-current liabilities
Deferred franchise fees open salons
 
21,943

 
18,346

 
Other non-current liabilities
Total non-current deferred revenue
 
$
35,884

 
$
29,507

 
 
Receivables relate primarily to payments due for royalties, franchise fees, advertising fees, and sales of salon services and product. The receivables balance is presented net of an allowance for expected losses (i.e., doubtful accounts), primarily related to receivables from franchisees. As of March 31, 2019 and June 30, 2018, the balance in the allowance for doubtful accounts was $15.7 and $1.2 million, respectively. The increase in the allowance for doubtful accounts is due to reserving for $12.7 million of TBG receivables in the three months ended March 31, 2019 (see Note 3). 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.


11



The following table is a rollforward of the broker fee balance for the periods indicated (in thousands):
Balance as of June 30, 2018
 
$
14,002

Additions
 
4,393

Amortization
 
(1,484
)
Write-offs
 
(7
)
Balance as of March 31, 2019
 
$
16,904


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 March 31, 2019 and 2018 was $1.8 and $1.9 million, respectively, and for the nine months ended March 31, 2019 and 2018 was $4.0 and $4.6 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 March 31, 2019 and 2018 was $0.9 and $0.7 million, respectively, and for the nine months ended March 31, 2019 and 2018 was $2.6 and $2.0 million. Estimated revenue expected to the recognized in the future related to deferred franchise fees for open salons as of March 31, 2019 is as follows (in thousands):

Remainder of 2019
 
$
840

2020
 
3,631

2021
 
3,543

2022
 
3,423

2023
 
3,246

Thereafter
 
11,027

Total
 
$
25,710



12



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
 
99,288

 

 

 

 

 
99,288

Goodwill
 
412,643

 

 

 

 

 
412,643

Other intangibles, net
 
10,557

 

 

 

 

 
10,557

Other assets
 
37,616

 

 

 

 

 
37,616

Non-current assets held for sale (Note 1)
 
6,572

 

 

 

 

 
6,572

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



13



CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For The Three Months Ended March 31, 2018
(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
 
$
221,926

 
$

 
$

 
$
96

 
$

 
$
222,022

Product
 
64,887

 

 

 
24

 

 
64,911

Royalties and fees
 
13,988

 
(1,666
)
 
6,528

 

 

 
18,850

 
 
300,801

 
(1,665
)
 
6,527

 
120

 

 
305,783

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Cost of service
 
132,081

 

 

 

 

 
132,081

Cost of product
 
37,139

 

 

 

 

 
37,139

Site operating expenses
 
31,021

 

 
6,527

 

 

 
37,548

General and administrative
 
45,727

 

 

 

 

 
45,727

Rent
 
39,391

 

 

 

 

 
39,391

Depreciation and amortization
 
9,558

 

 

 

 

 
9,558

Total operating expenses
 
294,917

 

 
6,527

 

 

 
301,444

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
5,884

 
(1,665
)
 

 
120

 

 
4,339

 
 
 
 
 
 
 
 
 
 
 
 
 
Other (expense) income:
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(5,095
)
 

 

 

 

 
(5,095
)
Gain from sale of salon assets to franchisees, net
 
237

 

 

 

 

 
237

Interest income and other, net
 
1,548

 

 

 
(53
)
 

 
1,495

 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations before income taxes
 
2,574

 
(1,665
)
 

 
67

 

 
976

 
 


 


 


 


 


 


Income tax expense
 
2,225

 

 

 

 
384

 
2,609

 
 


 


 


 


 


 


Income from continuing operations
 
4,799

 
(1,665
)
 

 
67

 
384

 
3,585

 
 


 


 


 


 


 


Loss from TBG discontinued operations, net of taxes
 
(10,605
)
 

 

 

 

 
(10,605
)
 
 


 


 


 


 


 


Net loss
 
$
(5,806
)
 
$
(1,665
)
 
$

 
$
67

 
$
384

 
$
(7,020
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations (1)
 
$
0.10

 
$
(0.04
)
 
$
0.00

 
$
0.00

 
$
0.01

 
$
0.08

Loss from TBG discontinued operations
 
(0.23
)
 
0.00

 
0.00

 
0.00

 
0.00

 
(0.23
)
Net loss per share, basic (1)
 
$
(0.12
)
 
$
(0.04
)
 
$
0.00

 
$
0.00

 
$
0.01