What changed in this filing

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Item 1. Financial Statements

2021-05-06 compared with 2021-02-03 · 157 added, 147 removed, 572 unchanged (35% of the section changed)

30 unchanged sentences

Common stock, $ 0.05 par value;

issued and outstanding 35,768,086 and 35,625,716 common shares at December 31, 2020 and June 30, 2020, respectively

issued and outstanding 35,789,825 and 35,625,716 common shares at March 31, 2021 and June 30, 2020, respectively

Additional paid-in capital 23,672 22,011

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

For The Three And Six Months Ended December 31, 2020 And 2019

For The Three And Nine Months Ended March 31, 2021 And 2020

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

Three Months Ended December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2021 2020 2021 2020

14 unchanged sentences

TBG mall location restructuring (Note 3) — 146 — 2,368

Goodwill impairment — 40,164 — 40,164

Total operating expenses 118,808 213,182 392,869 686,357

22 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS (Unaudited)

For The Three And Six Months Ended December 31, 2020 And 2019

For The Three And Nine Months Ended March 31, 2021 And 2020

(Dollars in thousands)

Three Months Ended December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2021 2020 2021 2020

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)

For The Three And Six Months Ended December 31, 2020 And 2019

For The Three And Nine Months Ended March 31, 2021 And 2020

(Dollars in thousands)

Three Months Ended December 31, 2020

Three Months Ended March 31, 2021

Common Stock Additional

4 unchanged sentences

Shares Amount

Balance, September 30, 2020 35,665,783 $ 1,783 $ 20,596 $ 7,951 $ 59,211 $ 89,541

Balance, December 31, 2020 35,768,086 $ 1,788 $ 22,076 $ 8,786 $ 25,798 $ 58,448

Net loss — — — — ( 10,847 ) ( 10,847 )

Foreign currency translation — — — 306 — 306

Exercise of SARs 3,775 — ( 24 ) — — ( 24 )

Stock-based compensation — — 1,703 — — 1,703

Net restricted stock activity 17,964 1 ( 83 ) — — ( 82 )

Minority interest — — — — ( 534 ) ( 534 )

Balance, December 31, 2020 35,768,086 $ 1,788 $ 22,076 $ 8,786 $ 25,798 $ 58,448

Three Months Ended December 31, 2019

Balance, March 31, 2021 35,789,825 $ 1,789 $ 23,672 $ 9,092 $ 14,951 $ 49,504

Three Months Ended March 31, 2020

Common Stock Additional

4 unchanged sentences

Shares Amount

Balance, September 30, 2019 35,548,036 $ 1,777 $ 20,880 $ 8,939 $ 252,143 $ 283,739

Balance, December 31, 2019 35,563,611 $ 1,778 $ 21,230 $ 9,480 $ 235,534 $ 268,022

Net loss — — — — ( 67,541 ) ( 67,541 )

Foreign currency translation — — — ( 2,482 ) — ( 2,482 )

Exercise of SARs 1,500 — 28 — — 28

Stock-based compensation — — ( 25 ) — — ( 25 )

1 unchanged sentence

Minority interest — — — — 38 38

Balance, December 31, 2019 35,563,611 $ 1,778 $ 21,230 $ 9,480 $ 235,534 $ 268,022

Balance, March 31, 2020 35,566,206 $ 1,778 $ 21,186 $ 6,998 $ 168,031 $ 197,993

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)

For The Three And Six Months Ended December 31, 2020 And 2019 (Continued)

For The Three And Nine Months Ended March 31, 2021 And 2020 (Continued)

(Dollars in thousands)

Six Months Ended December 31, 2020

Nine Months Ended March 31, 2021

Common Stock Additional

7 unchanged sentences

Foreign currency translation — — — 1,643 — 1,643

Exercise of SARs 3,775 — ( 24 ) — — ( 24 )

Stock-based compensation — — 1,792 — — 1,792

1 unchanged sentence

Minority interest — — — — ( 520 ) ( 520 )

Balance, December 31, 2020 35,768,086 $ 1,788 $ 22,076 $ 8,786 $ 25,798 $ 58,448

Six Months Ended December 31, 2019

Balance, March 31, 2021 35,789,825 $ 1,789 $ 23,672 $ 9,092 $ 14,951 $ 49,504

Nine Months Ended March 31, 2020

Common Stock Additional

12 unchanged sentences

Minority interest — — — — ( 90 ) ( 90 )

Balance, December 31, 2019 35,563,611 $ 1,778 $ 21,230 $ 9,480 $ 235,534 $ 268,022

Balance, March 31, 2020 35,566,206 $ 1,778 $ 21,186 $ 6,998 $ 168,031 $ 197,993

_______________________________________________________________________________

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

For The Six Months Ended December 31, 2020 And 2019

For The Nine Months Ended March 31, 2021 And 2020

(Dollars in thousands)

Six Months Ended December 31,

Nine Months Ended March 31,

Cash flows from operating activities:

6 unchanged sentences

Deferred income taxes ( 806 ) ( 6,469 )

Inventory reserve 6,875 —

Gain from disposal of distribution center assets ( 14,878 ) —

Gain from sale of company headquarters, net — ( 2,513 )

Loss from sale of salon assets to franchisees, net 8,463 26,125

Goodwill impairment — 40,164

Stock-based compensation 1,792 2,114

9 unchanged sentences

Proceeds from sale of company headquarters — 8,996

Net cash provided by investing activities 624 59,284

Net cash (used in) provided by investing activities ( 908 ) 62,694

Cash flows from financing activities:

Borrowings on revolving credit facility — 213,000

Repayments of revolving credit facility — ( 30,000 )

3 unchanged sentences

Distribution center lease payments ( 724 ) ( 677 )

Net cash used in financing activities ( 1,252 ) ( 60,535 )

Net cash (used in) provided by financing activities ( 1,602 ) 152,109

Effect of exchange rate changes on cash and cash equivalents 6 ( 379 )

Decrease in cash, cash equivalents, and restricted cash ( 66,160 ) ( 20,458 )

(Decrease) increase in cash, cash equivalents, and restricted cash ( 82,511 ) 163,403

Cash, cash equivalents and restricted cash:

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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, 2020 and for the three and six months ended December 31, 2020 and 2019, reflect, in the opinion of management, all adjustments necessary to fairly state the consolidated financial position of the Company as of December 31, 2020 and its consolidated results of operations, comprehensive loss, changes in shareholders' equity and cash flows for the interim periods.

The unaudited interim Condensed Consolidated Financial Statements of Regis Corporation (the Company) as of March 31, 2021 and for the three and nine months ended March 31, 2021 and 2020, reflect, in the opinion of management, all adjustments necessary to fairly state the consolidated financial position of the Company as of March 31, 2021 and its consolidated results of operations, comprehensive loss, shareholders' equity and cash flows for the interim periods.

Adjustments consist only of normal recurring items, except for any discussed in the notes below.

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Impact of COVID-19 on Business Operations:

During the period ended December 31, 2020, the global coronavirus pandemic ("COVID-19") had an adverse impact on operations, including prolonged government mandated salon closures in California and Ontario, in addition to other U.S.

states and Canadian provinces.

As of January 25, 2021, salons in California were allowed to re-open.The COVID-19 pandemic continues to impact salon guest visits resulting in a significant reduction in revenue and traffic.

During the period ended March 31, 2021, the global coronavirus pandemic (COVID-19) had an adverse impact on operations, including prolonged government-mandated salon closures in California and Ontario, in addition to other U.S.

states and Canadian provinces during the three and nine months ended March 31, 2021.

The COVID-19 pandemic continues to impact salon guest visits resulting in a significant reduction in revenue and traffic.

Due to the economic disruption caused by the COVID-19 pandemic, the Company faces a greater degree of uncertainty than normal in making judgments and estimates needed to apply the Company's significant accounting policies.

Actual results and outcomes may differ from management's estimates and assumptions.

The Company has inventory valuation reserves for excess and obsolete inventories, or other factors that may render inventories unmarketable at their historical costs.

For the three and nine months ended March 31, 2021, the Company recorded $ 5.3 and $ 6.9 million of inventory excess and obsolescence charges, respectively.

The increase in the reserve in the three months ended March 31, 2021 was related to management's decision to exit its product sales business and wind down operations at the Company's two distribution centers.

The expense was recorded to Cost of product in the unaudited Condensed Consolidated Statement of Operations and is a non-cash add back to Net loss on the unaudited Condensed Consolidated Statement of Cash Flows.

Salon Long-Lived Asset and Right of Use Asset Impairment Assessments:

The Company assesses impairment of long-lived salon assets and right of use assets at the individual salon level, as this is the lowest level for which identifiable cash flows are largely independent of other groups of assets and liabilities, when events or changes in circumstances indicate the carrying value of the assets or the asset grouping may not be recoverable.

The Company assesses impairment of long-lived salon assets and right of use (ROU) assets at the individual salon level, as this is the lowest level for which identifiable cash flows are largely independent of other groups of assets and liabilities, when events or changes in circumstances indicate the carrying value of the assets or the asset grouping may not be recoverable.

Factors considered in deciding when to perform an impairment review include significant under-performance of an individual salon in relation to expectations, significant economic or geographic trends, and significant changes or planned changes in the use of the assets.

The first step is to assess recoverability, and in doing that, the undiscounted cash flows are compared to the carrying value.

The first step is to assess recoverability, and in doing that, the undiscounted salon cash flows are compared to the carrying value of the salon assets.

If the undiscounted estimated cash flows are less than the carrying value of the assets, the Company calculates an impairment charge based on the difference between the carrying value of the asset group and its fair value.

The fair value of the salon long-lived asset group is estimated using market participant methods based on the best information available.

See Note 10 for further discussion related to the right of use asset impairment.

Judgments made by management related to the expected useful lives of long-lived assets and the ability to realize undiscounted cash flows in excess of the carrying amounts of such assets are affected by factors such as the ongoing maintenance and improvement of the assets, changes in economic conditions, and changes in operating performance.

See Note 10 of the unaudited Condensed Consolidated Financial Statements for further discussion related to the ROU asset impairment.

Judgments made by management related to the expected useful lives of long-lived assets and the ability to realize undiscounted cash flows in excess of the carrying amounts of such assets are affected by factors such as changes in economic conditions and changes in operating performance.

As the ongoing expected cash flows and carrying amounts of long-lived assets are assessed, these factors could cause the Company to realize material impairment charges.

Long-lived asset impairment charges, including right of use and salon property and equipment, of $ 3.2 and $ 9.0 million were recorded in the three and six months ended December 31, 2020, respectively, and is separately stated on the unaudited Condensed Consolidated Statement of Operations.

Of the total long-lived asset impairment charges, $ 1.5 and $ 6.0 million, respectively, were allocated to the right of use asset and $ 1.7 and $ 3.0 million, respectively, were allocated to salon property and equipment.

Long-lived salon property and equipment asset impairment charges of $ 1.1 and $ 2.6 million were recorded during the three and six months ended December 31, 2019, respectively, and are recorded in Depreciation and amortization in the unaudited Condensed Consolidated Statement of Operations.

As of December 31, 2020 and June 30, 2020, the Franchise reporting unit had $ 229.0 and $ 227.5 million, respectively, of goodwill.

For further information, see Note 9 of the interim unaudited Condensed Consolidated Financial Statements.

Long-lived asset impairment charges, including ROU and salon property and equipment, of $ 0.8 and $ 9.8 million were recorded in the three and nine months ended March 31, 2021, respectively, on the unaudited Condensed Consolidated Statement of Operations.

Of the total long-lived asset impairment charges, $ 0.3 and $ 6.3 million, respectively, were allocated to the ROU asset and $ 0.5 and $ 3.5 million, respectively, were allocated to salon property and equipment.

Long-lived salon property and equipment asset impairment charges of $ 1.2 and $ 3.9 million were recorded during the three and nine months ended March 31, 2020, respectively, and are recorded in Depreciation and amortization in the unaudited Condensed Consolidated Statement of Operations.

As of March 31, 2021 and June 30, 2020, the Franchise reporting unit had $ 229.2 and $ 227.5 million, respectively, of goodwill.

For further information, see Note 9 of the unaudited 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 December 31, 2020.

An interim impairment analysis was not required in the three and nine months ended March 31, 2021.

The COVID-19 pandemic, which began in March 2020, was an interim triggering event in fiscal year 2020.

The Company assessed its goodwill as of March 31, 2020 and determined that the Company-owned goodwill was fully impaired.

As a result, the Company recorded a goodwill impairment charge of $ 40.2 million in the three and nine months ended March 31, 2020.

The Company performs its annual impairment assessment as of April 30.

4 unchanged sentences

The key assumptions utilized in the analysis were the number of salons to be sold to franchisees and the discount rate.

If a future triggering event occurs or if during the Company's annual impairment assessment the fair value of the Franchise reporting unit has decreased significantly, it may result in a non-cash impairment charge to reduce the carrying value of goodwill.

Depreciation:

Depreciation expense in the three and six months ended December 31, 2020 includes $ 1.3 and $ 2.6 million of asset retirement obligations, which are cash expenses.

Depreciation expense in the three and nine months ended March 31, 2021 includes $ 0.8 and $ 3.4 million of asset retirement obligations, which are cash expenses.

Minority Interest:

10 unchanged sentences

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 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.

Product sales, including sales of the hardware related to our proprietary cloud-based management and point-of-sale commerce solution, to 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 to 90 days of delivery.

4 unchanged sentences

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.

The gross presentation increases both the 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.

3 unchanged sentences

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

Three Months Ended December 31, 2020 Three Months Ended December 31, 2019

Three Months Ended March 31, 2021 Three Months Ended March 31, 2020

Franchise Company-owned Franchise Company-owned

6 unchanged sentences

Royalty and other franchise fees $ 17,955 $ — $ 16,487 $ —

Advertising fund fees 4,715 — 10,703 —

Advertising fund fees (refunds), net (1) 5,580 — ( 7,789 ) —

Franchise rental income 31,317 — 31,821 —

1 unchanged sentence

Total revenue $ 67,931 $ 32,336 $ 55,837 $ 97,946

Six Months Ended December 31, 2020 Six Months Ended December 31, 2019

_______________________________________________________________________________

(1) Fiscal year 2020 includes the refund of $ 14.9 million of previously collected cooperative advertising fees.

Cooperative advertising fees were not refunded in fiscal year 2021.

Nine Months Ended March 31, 2021 Nine Months Ended March 31, 2020

Franchise Company-owned Franchise Company-owned

10 unchanged sentences

Total revenue $ 198,335 $ 117,648 $ 208,224 $ 401,362

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

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

2021 June 30,

8 unchanged sentences

Total current deferred revenue:

$ 8,345 $ 8,157

Deferred franchise fees unopened salons $ 7,656 $ 11,855 Other non-current liabilities

8 unchanged sentences

Write-offs ( 1,436 )

Balance as of December 31, 2020 $ 8,747

Balance as of March 31, 2021 $ 7,162

_______________________________________________________________________________

8 unchanged sentences

Write-offs ( 121 )

Balance as of December 31, 2020 $ 20,345

Balance as of March 31, 2021 $ 19,599

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, 2020 and 2019 was $ 0.1 and $ 0.7 million, respectively, and for the six months ended December 31, 2020 and 2019 was $ 0.4 and $ 1.5 million, respectively.

Gift card revenue for the three months ended March 31, 2021 and 2020 was $ 0.3 and $ 0.8 million, respectively, and for the nine months ended March 31, 2021 and 2020 was $ 0.7 and $ 2.3 million, respectively.

Deferred franchise fees related to open salons are generally recognized on a straight-line basis over the term of the franchise agreement.

Franchise fee revenue for the three months ended December 31, 2020 and 2019 was $ 1.6 and $ 1.3 million, respectively, and for the six months ended December 31, 2020 and 2019 was $ 3.3 and $ 2.4 million, respectively.

Estimated revenue expected to be recognized in the future related to deferred franchise fees for open salons as of December 31, 2020 is as follows (in thousands):

Franchise fee revenue for the three months ended March 31, 2021 and 2020 was $ 1.6 and $ 1.4 million, respectively, and for the nine months ended March 31, 2021 and 2020 was $ 4.9 and $ 3.8 million, respectively.

Estimated revenue expected to be recognized in the future related to deferred franchise fees for open salons as of March 31, 2021 is as follows (in thousands):

Remainder of 2021 $ 1,505

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Included in discontinued operations in fiscal year 2020 are adjustments to actuarial assumptions related to the discontinued operations.

Other than the items presented in the unaudited Consolidated Statement of Cash Flows, there were no other significant non-cash operating activities or non-cash investing activities related to discontinued operations for the six months ended December 31, 2020 and 2019.

For the three and six months ended December 31, 2019, the Company recorded $ 0.7 and $ 2.2 million of professional fees and restructuring charges related to the Company assisting TBG with operating expenses to mitigate the risk of default associated with TBG's lease obligations.

For the three and nine months ended March 31, 2020, the Company recorded $ 0.1 and $ 2.4 million of professional fees and restructuring charges related to the Company assisting TBG with operating expenses to mitigate the risk of default associated with TBG's lease obligations.

In the second quarter of fiscal year 2020, TBG transferred 207 of its North American mall-based salons to the Company.

The 207 North American mall-based salons transferred were the salons that the Company was the guarantor of the lease obligation.

As of December 31, 2020, prior to any mitigation efforts which may be available, the Company remains liable for up to approximately $ 14 million related to its mall-based salon lease commitments on the 77 salons that remain open, a $ 9 million reduction from June 30, 2020.

As of March 31, 2021, prior to any mitigation efforts which may be available, the Company remains liable for up to approximately $ 12 million related to its mall-based salon lease commitments on the 62 salons that remain open, an $ 11 million reduction from June 30, 2020.

The commitments are included in our lease liabilities.

3 unchanged sentences

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 and six months ended December 31, 2020, there were 421,687 and 432,774 , respectively, and for the three and six months ended December 31, 2019 there were 1,322,308 and 1,338,634 , respectively, common stock equivalents of dilutive common stock 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 3,041,962 and 66,151 of stock-based awards during the three months ended December 31, 2020 and 2019, respectively, and 1,990,449 and 77,514 of stock-based awards during the six months ended December 31, 2020 and 2019, respectively, as they were not dilutive under the treasury stock method.

For the three and nine months ended March 31, 2021, there were 972,485 and 511,970 , respectively, and for the three and nine months ended March 31, 2020 there were 663,636 and 1,145,053 , respectively, common stock equivalents of dilutive common stock 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 1,261,200 and 670,997 of stock-based awards during the three months ended March 31, 2021 and 2020, respectively, and 2,240,743 and 174,698 of stock-based awards during the nine months ended March 31, 2021 and 2020, respectively, as they were not dilutive under the treasury stock method.

SHAREHOLDERS’ EQUITY:

Stock-Based Employee Compensation:

During the three and six months ended December 31, 2020, the Company granted various equity awards including RSUs, PSUs and SOs.

During the three and nine months ended March 31, 2021, the Company granted various equity awards including RSUs, PSUs and SOs.

A summary of equity awards granted is as follows:

Three Months Ended December 31, 2020 Six Months Ended December 31, 2020

Three Months Ended March 31, 2021 Nine Months Ended March 31, 2021

Restricted stock units 47,303 891,825

1 unchanged sentence

Stock option units — 1,458,680

The RSUs granted to employees during the three and six months ended December 31, 2020 vest in equal amounts over a three-year period subsequent to the grant date, cliff vest after a one-year period, cliff vest after a three-year period or cliff vest after a five-year period subsequent to the grant date.

The RSUs granted to employees during the three and nine months ended March 31, 2021 vest in equal amounts over a three-year period subsequent to the grant date, cliff vest after a one-year period, cliff vest after a three-year period or cliff vest after a five-year period subsequent to the grant date.

The CEO, who was appointed in October 2020, was granted 0.4 million "sign-on" RSUs that vest pro-rated over one year .

1 unchanged sentence

The PSUs granted have a maximum vesting percentage of 200 % based on the level of performance achieved for the respective award.

The SOs granted during the three and six months ended December 31, 2020 were granted in connection with the appointment of the Company's CEO and consists of options to purchase shares of the Company's common stock.

The SOs granted during the nine months ended March 31, 2021 were granted in connection with the appointment of the Company's CEO and consist of options to purchase shares of the Company's common stock.

The SOs are subject to both a four-year service-based vesting condition and a performance-based vesting condition.

Additionally, 0.4 million SOs are matching options that vest on the fourth anniversary of employment up to the number of RSUs the CEO still holds of the "sign-on" RSUs.

Total compensation cost for stock-based payment arrangements totaling $ 1.3 and $ 0.3 million for the three months ended December 31, 2020 and 2019, respectively, and $ 0.1 and $ 2.1 million for the six months ended December 31, 2020 and 2019, respectively, was recorded within General and administrative expense on the unaudited Condensed Consolidated Statement of Operations.

In the six months ended December 31, 2020 stock compensation includes a $ 2.4 million benefit from the forfeiture of awards related to the departure of the Company's former CEO.

Total compensation cost for stock-based payment arrangements totaling $ 1.7 and $ 0.0 million for the three months ended March 31, 2021 and 2020, respectively, and $ 1.8 and $ 2.1 million for the nine months ended March 31, 2021 and 2020, respectively, was recorded within General and administrative expense on the unaudited Condensed Consolidated Statement of Operations.

In the nine months ended March 31, 2021, stock compensation includes a $ 2.4 million benefit from the forfeiture of awards related to the departure of the Company's former CEO.

Share Repurchases:

During the six months ended December 31, 2020, the Company did no t repurchase shares under the previously approved stock repurchase program.

During the six months ended December 31, 2019, the Company repurchased 1.5 million shares for $ 26.4 million under a previously approved stock repurchase program.

At December 31, 2020, $ 54.6 million remains outstanding under the approved stock repurchase program.

During the nine months ended March 31, 2021, the Company did no t repurchase shares under the previously approved stock repurchase program.

During the nine months ended March 31, 2020, the Company repurchased 1.5 million shares for $ 26.4 million under a previously approved stock repurchase program.

At March 31, 2021, $ 54.6 million remains outstanding under the approved stock repurchase program.

INCOME TAXES:

A summary of income tax benefits and corresponding effective tax rates is as follows:

Three Months Ended December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2021 2020 2021 2020

2 unchanged sentences

Effective tax rate 3.0 % 1.4 % 1.7 % 5.5 %

The recorded tax provisions and effective tax rates for the three and six months ended December 31, 2020 were different than what would normally be expected primarily due to the impact of the deferred tax valuation allowance.

The recorded tax provisions and effective tax rates for the three and six months ended December 31, 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 recorded tax provisions and effective tax rates for the three and nine months ended March 31, 2021 and 2020 were different than what would normally be expected primarily due to the impact of the deferred tax valuation allowance.

The Company is no longer subject to IRS examinations for years before 2014.

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Barring successful objection from plaintiffs’ attorneys to the first class action, the second case will be subsumed into the first case’s settlement.

As of June 30, 2020 and December 31, 2020, $ 2.1 million was included within accrued expenses on the unaudited Condensed Consolidated Balance Sheet related to these class action lawsuits.

As of June 30, 2020 and March 31, 2021, $ 2.1 million was included within accrued expenses on the unaudited Condensed Consolidated Balance Sheet related to these class action lawsuits.

In addition, our existing point-of-sale system supplier has challenged the development of certain parts of our technology systems in litigation brought in the Northern District of California, case No.

18 unchanged sentences

Translation rate adjustments 1,764

Goodwill, net at December 31, 2020 $ 228,950

Goodwill, net at March 31, 2021 $ 229,221

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.

1 unchanged sentence

The Company leases its company-owned salons and some of its corporate facilities under operating leases.

The original terms of the salon leases range from 1 to 20 years with many leases renewable for an additional 5 to 10 year terms at the option of the Company.

The original terms of the salon leases range from 1 to 20 years with many leases renewable for an additional 5 to 10 year term at the option of the Company.

In addition to the obligation to make fixed rental payments for the use of the salons, the Company also has variable lease payments that are based on sales levels.

1 unchanged sentence

Total Rent includes the following:

Three Months Ended December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2021 2020 2021 2020

3 unchanged sentences

Real estate taxes and other expenses 1,989 3,672 7,147 9,842

Lease termination expense (1) 1,087 38 6,638 79

Lease termination (benefit) expense (1) ( 154 ) 44 6,484 123

Lease liability benefit (2) ( 3,009 ) — ( 11,295 ) —

3 unchanged sentences

_______________________________________________________________________________

(1) During the three and six months ended December 31, 2020, the Company terminated the leases for 98 and 229 company-owned salons, respectively, before the lease end dates.

During the three and six months ended December 31, 2019, the Company terminated the leases for 20 and 57 company-owned salons, respectively, before the lease end dates.

For the three and six months ended December 31, 2020, lease termination fees include $ 2.2 and $ 4.6 million, respectively, of early termination payments to close salons before lease end date and relieve the Company of future lease obligations.

For the three and six months ended December 31, 2020, lease termination fees also include $( 1.1 ) and $ 2.0 million, respectively, of adjustments to accrued future lease payments for underperforming salons.

The early termination payments made in the six months ended December 31, 2020 will save the Company approximately $ 4.3 million in future minimum rent plus associated real estate taxes and other lease expenses.

(2) For the three and six months ended December 31, 2020, upon termination of previously impaired leases, the Company derecognized ROU assets of $ 3.0 and $ 10.1 million, respectively, and lease liabilities of $ 4.2 and $ 14.5 million, respectively, that resulted in a net gain of $ 1.2 and $ 4.4 million, respectively.

(1) During the three and nine months ended March 31, 2021, the Company terminated the leases for 15 and 244 company-owned salons, respectively, before the lease end dates.

During the three and nine months ended March 31, 2020, the Company terminated the leases for 3 and 60 company-owned salons, respectively, before the lease end dates.

For the three and nine months ended March 31, 2021, lease termination fees include $ 0.3 and $ 4.9 million, respectively, of early termination payments to close salons before the lease end date to relieve the Company of future lease obligations.

For the three and nine months ended March 31, 2021, lease termination fees also include $( 0.5 ) and $ 1.5 million, respectively, of adjustments to accrue future lease payments for salons that are no longer operating.

The early termination payments made in the nine months ended March 31, 2021 decreased the future minimum rent liability by $ 9.5 million plus saved the Company from the associated real estate taxes and other lease expenses.

(2) For the three and nine months ended March 31, 2021, upon termination of previously impaired leases, the Company derecognized ROU assets of $ 3.2 and $ 13.3 million, respectively, and lease liabilities of $ 5.2 and $ 19.7 million, respectively, that resulted in a net gain of $ 2.0 and $ 6.4 million, respectively.

In addition, the Company recognized a benefit from lease liabilities decreasing in excess of previously impaired ROU assets.

The benefit recognized was $ 1.0 and $ 3.9 million in the three and six months ended December 31, 2020, respectively.

The benefit recognized was $ 1.0 and $ 4.9 million in the three and nine months ended March 31, 2021, respectively.

The Company leases salon premises in which the majority of its franchisees operate and has entered into corresponding sublease arrangements with franchisees.

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The Company records the rental payments due from franchisees as franchise rental income and the corresponding amounts owed to landlords as franchise rent expense on the unaudited Condensed Consolidated Statement of Operations.

For the three months ended December 31, 2020 and 2019, franchise rental income and franchise rent expense were $ 32.3 and $ 33.6 million, respectively.

For the six months ended December 31, 2020 and 2019, franchise rental income and franchise rent expense was $ 64.6 and $ 65.1 million.

For the three months ended March 31, 2021 and 2020, franchise rental income and franchise rent expense were $ 31.3 and $ 31.8 million, respectively.

For the nine months ended March 31, 2021 and 2020, franchise rental income and franchise rent expense were $ 95.9 and $ 96.9 million.

These leases generally have lease terms of approximately 5 years.

Excluding underperforming salons we plan to close, leases are assumed to be renewed upon expiration.

The Company expects to renew SmartStyle and Supercuts franchise leases upon expiration.

Other leases are expected to be renewed by the franchisee upon expiration.

This represents a Board approved change in estimate, which was intended to reduce lease exposure.

This represents a Board-approved change in estimate that occurred in the second quarter of fiscal year 2021 and was intended to reduce lease exposure.

The change in estimate resulted in a decrease to lease liabilities and right of use assets of $ 72.9 million, with no impact to net income.

For franchise and company-owned salon operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date, including one lease term option when the lease is expected to be renewed.

The Right of Use (ROU) asset is initially and subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, less any accrued lease payments and unamortized lease incentives received, if any.

The Company's consolidated ROU asset balance was $ 637.1 and $ 786.2 million as of December 31, 2020 and June 30, 2020, respectively.

The ROU asset is initially and subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, less any accrued lease payments and unamortized lease incentives received, if any.

The Company's consolidated ROU asset balance was $ 629.0 and $ 786.2 million as of March 31, 2021 and June 30, 2020, respectively.

For leases classified as operating leases, expense for lease payments is recognized on a straight-line basis over the lease term, including the lease renewal option when the lease is expected to be renewed.

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The Company uses the portfolio approach in applying the discount rate based on the original lease term.

The weighted average remaining lease term was 6.50 and 6.87 years and the weighted average discount rate was 4.03 % and 3.95 % for all salon operating leases as of December 31, 2020 and June 30, 2020, respectively.

The weighted average remaining lease term was 6.44 and 6.87 years and the weighted average discount rate was 4.07 % and 3.95 % for all salon operating leases as of March 31, 2021 and June 30, 2020, respectively.

A lessee’s ROU asset is subject to the same asset impairment guidance in ASC 360, Property, Plant, and Equipment, applied to other elements of property, plant, and equipment.

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Poor salon performance, primarily due to the COVID-19 pandemic, resulted in an ASC 360-10-35-21 triggering event.

As a result, management assessed all salon asset groups, which included the related ROU assets, for impairment in accordance with ASC 360.

As a result, management assessed underperforming salon asset groups, which included the related ROU assets, for impairment in accordance with ASC 360.

The first step in the impairment test under ASC 360 is to determine whether the long-lived assets are recoverable, which is determined by comparing the net carrying value of the salon asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset group.

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The ultimate severity and longevity of the COVID-19 pandemic is unknown and therefore, if actual results are not consistent with the estimates and assumptions used in the calculations, the Company may be exposed to future impairment losses that could be material.

In the three and six months ended December 31, 2020, the Company recognized a long-lived impairment charge of $ 3.2 and $ 9.0 million, respectively, which included $ 1.5 and $ 6.0 million, respectively, related to the right of use assets, in the unaudited Condensed Consolidated Statement of Operations.

The impairments recorded for the three and six months ended December 31, 2020 were primarily the result of triggering events identified on certain underperforming salons, salons that were identified to close in the year, and certain salons where franchisees are unable to fulfill their rent obligations.

As of December 31, 2020, future operating lease commitments, including one renewal option for leases expected to be renewed, to be paid and received by the Company were as follows:

In the three and nine months ended March 31, 2021, the Company recognized a long-lived impairment charge of $ 0.8 and $ 9.8 million, respectively, which included $ 0.3 and $ 6.3 million, respectively, related to the right of use assets, in the unaudited Condensed Consolidated Statement of Operations.

The impairments recorded for the three and nine months ended March 31, 2021 were primarily the result of triggering events identified on certain underperforming salons, salons that were identified to close in the year, and certain salons where franchisees were unable to fulfill their rent obligations.

As of March 31, 2021, future operating lease commitments, including one renewal option for leases expected to be renewed, to be paid and received by the Company were as follows (in thousands):

Fiscal Year Leases for Franchise Salons Leases for Company-owned Salons Corporate Leases Total Operating Lease Payments Sublease Income To Be Received From Franchisees Net Rent Commitments

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Revolving Credit Facility

Maturity Date December 31,

2020 December 31,

Maturity Date March 31,

2021 March 31,

2021 June 30,

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Revolving credit facility 2023 5.00 % $ 177,500 $ 177,500

At December 31, 2020, cash and cash equivalents totaled $ 50.9 million.

As of December 31, 2020, the Company has $ 177.5 million of outstanding borrowings under a $ 295.0 million revolving credit facility.

At December 31, 2020, the Company has outstanding standby letters of credit under the revolving credit facility of $ 18.7 million, primarily related to the Company's self-insurance program.

The unused available credit under the facility was $ 98.8 million as of December 31, 2020.

The Company's liquidity, which includes the unused available balance under the credit facility and unrestricted cash and cash equivalents, totaled $ 149.7 million as of December 31, 2020.

At March 31, 2021, cash and cash equivalents totaled $ 34.5 million.

As of March 31, 2021, the Company has $ 177.5 million of outstanding borrowings under a $ 295.0 million revolving credit facility.

At March 31, 2021, the Company has outstanding standby letters of credit under the revolving credit facility of $ 18.7 million, primarily related to the Company's self-insurance program.

The unused available credit under the facility was $ 98.8 million as of March 31, 2021.

The Company's liquidity, which includes the unused available balance under the credit facility and unrestricted cash and cash equivalents, totaled $ 133.3 million as of March 31, 2021.

The revolving credit facility has a minimum liquidity covenant of $ 75.0 million.

As of December 31, 2020, the Company had cash, cash equivalents and restricted cash of $ 56.7 million and current liabilities of $ 213.8 million.

The Company is in compliance with all covenants and other requirements of the financing arrangements as of December 31, 2020 and believes it will continue to be in compliance for at least one year from our filing date.

As of March 31, 2021, the Company had cash, cash equivalents and restricted cash of $ 40.4 million and current liabilities of $ 203.2 million.

The Company is in compliance with all covenants and other requirements of the financing arrangements as of March 31, 2021 and believes it will continue to be in compliance for at least one year from our filing date.

Sale and Leaseback Transaction

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

Maturity Date Interest Rate December 31,

Maturity Date Interest Rate March 31,

2021 June 30,

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In fiscal year 2019, the Company sold its Salt Lake City and Chattanooga Distribution Centers to an unrelated party.

The Company is leasing the properties back for 15 years with the option to renew.

As the Company plans to lease the property for more than 75% of its economic life, the sales proceeds received from the buyer-lessor are recognized as a financial liability.

This financial liability is reduced based on the rental payments made under the lease that are allocated between principal and interest.

As of December 31, 2020, the current portion of the Company’s lease liability was $ 1.0 million, which was recorded in accrued expenses on the unaudited Condensed Consolidated Balance Sheet.

The weighted average remaining lease term was 13.1 years and the weighted average discount rate was 3.46 % for financing leases as of December 31, 2020.

As of December 31, 2020, future lease payments due are as follows:

Fiscal year Salt Lake City Distribution Center Chattanooga Distribution Center

(Dollars in thousands)

Remainder of 2021 $ 581 $ 409

2022 1,171 829

2023 1,186 842

2024 1,200 854

2025 1,215 867

Thereafter 10,683 8,414

Total $ 16,036 $ 12,215

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.

Total interest expense for the financing lease was $ 0.3 and $ 0.5 million for the three and six months ended December 31, 2020.

At the time of the sale, the transactions were considered failed sale and leaseback transactions, as the Company had planned to lease the property for more than 75% of its economic life.

The sale proceeds received from the buyer-lessor were recognized as a financial liability, which was reduced based on the rental payments made under the lease that were allocated between principal and interest.

In the third quarter of fiscal year 2021, as a result of the Company exiting its wholesale product sales business, the Company informed the landlord of its intention to exit the leased spaces.

Because the Company no longer plans to lease the distribution centers for the majority of the assets’ useful lives, these transactions are subsequently considered sale and leaseback transactions.

As a result, the Company derecognized the financial liability of $ 28.5 million and the carrying value of the related assets of $ 13.6 million and recognized a gain of $ 14.9 million for the difference between the liability and asset.

The gain on distribution centers was recorded to Interest income and other, net in the unaudited Condensed Consolidation Statement of Operations.

As the leases for the two distribution centers meet the sale and leaseback criteria, the Company recognized a right of use asset and lease liability of $ 20.3 million on the unaudited Condensed Consolidated Balance Sheet as of March 31, 2021.

FAIR VALUE MEASUREMENTS:

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of December 31, 2020 and June 30, 2020, the estimated fair value of the Company’s cash, cash equivalents, restricted cash, receivables, accounts payable, debt and long-term financial liabilities approximated their carrying values.

As of March 31, 2021 and June 30, 2020, the estimated fair value of the Company’s cash, cash equivalents, restricted cash, receivables, accounts payable, debt and long-term financial liabilities approximated their carrying values.

The estimated fair values of the Company's debt and long-term financial liability are based on Level 2 inputs.

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

Three Months Ended December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2021 2020 2021 2020

(Dollars in thousands)

Goodwill $ — $ 40,164 $ — $ 40,164

Long-lived asset impairment (1) 833 1,208 9,817 3,851

_______________________________________________________________________________

(1) Long-lived asset impairment charges, including right of use and salon property and equipment, are separately stated on the unaudited Condensed Consolidated Statement of Operations for the three and six months ended December 31, 2020.

Long-lived salon property and equipment asset impairment charges are recorded in Depreciation and amortization in the unaudited Condensed Consolidated Statement of Operations for the three and six months ended December 31, 2019.

See Note 1 to the unaudited Condensed Consolidated Financial Statements.

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They are included in continuing operations under the Company-owned operating segment from January 1, 2020.

As of December 31, 2020, the Franchise operating segment is comprised primarily of Supercuts ® , SmartStyle ® , Cost Cutters ® , First Choice Haircutters ® , Magicuts ® , and Roosters ® concepts and the Company-owned operating segment is comprised primarily of SmartStyle ® , Supercuts ® , Cost Cutters ® , and other regional trade names.

As of March 31, 2021, the Franchise operating segment is comprised primarily of Supercuts ® , SmartStyle ® , Cost Cutters ® , First Choice Haircutters ® , Magicuts ® , and Roosters ® concepts and the Company-owned operating segment is comprised primarily of SmartStyle ® , Supercuts ® , Cost Cutters ® , and other regional trade names.

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

Three Months Ended December 31, 2020

Three Months Ended March 31, 2021

Franchise Company-owned Corporate Consolidated

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Income (loss) from continuing operations before income taxes $ 11,960 $ ( 12,623 ) $ ( 10,517 ) $ ( 11,180 )

Three Months Ended December 31, 2019

Three Months Ended March 31, 2020

Franchise Company-owned Corporate Consolidated

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TBG mall location restructuring 146 — — 146

Goodwill impairment — 40,164 — 40,164

Total operating expenses 44,755 148,607 19,820 213,182

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Income (loss) from continuing operations before income taxes $ 11,082 $ ( 50,661 ) $ ( 29,242 ) $ ( 68,821 )

Six Months Ended December 31, 2020

Nine Months Ended March 31, 2021

Franchise Company-owned Corporate Consolidated

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Income (loss) from continuing operations before income taxes $ 28,735 $ ( 50,739 ) $ ( 58,355 ) $ ( 80,359 )

Six Months Ended December 31, 2019

Nine Months Ended March 31, 2020

Franchise Company-owned Corporate Consolidated

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TBG mall location restructuring 2,368 — — 2,368

Goodwill impairment — 40,164 — 40,164

Total operating expenses 174,807 447,727 63,823 686,357

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Income (loss) from continuing operations before income taxes $ 33,417 ( 46,365 ) $ ( 91,375 ) $ ( 104,323 )

REVISION OF SECOND QUARTER 2020 UNAUDITED RESULTS:

During the fourth quarter of fiscal year 2020, the Company identified an error in the calculation of the goodwill derecognition associated with the sale of salons to franchisees in the second quarter.

In the second quarter, goodwill derecognition was understated by $ 6.7 million, resulting in the loss from the sale of salons to franchisees and net loss being understated and goodwill being overstated by $ 6.7 million.

The Company assessed the applicable guidance issued by the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) and concluded these misstatements were not material, individually or in the aggregate, to the Company’s Unaudited Condensed Consolidated Financial Statements for the aforementioned interim period.

However, to facilitate comparisons among periods, the Company has decided to revise its previously issued second quarter unaudited condensed consolidated financial information.

Three Months Ended December 31, 2019

REVISION OF THIRD QUARTER 2020 UNAUDITED RESULTS:

During the fourth quarter of 2020, the Company identified an error in the calculation of the goodwill derecognition associated with the sale of salons to franchisees in the second quarter and third quarter.

During the third quarter, goodwill derecognition was overstated by $ 2.4 million.

As of March 31, 2020, the Company fully impaired its remaining Company-owned goodwill with the amount of goodwill impairment being overstated by $ 4.4 million in the third quarter.

However, to facilitate comparisons among periods, the Company has decided to revise its previously issued second and third quarter unaudited condensed consolidated financial information.

Three Months Ended March 31, 2020

As Previously Reported Adjustments As Revised

(Dollars in thousands, except per share amounts)

Rent expense (1) $ 19,243 $ ( 578 ) $ 18,665

Goodwill impairment (2) 44,529 ( 4,365 ) 40,164

Operating loss ( 64,342 ) 4,943 ( 59,399 )

Loss from sale of salon assets to franchisees, net ( 10,208 ) 2,350 ( 7,858 )

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Comprehensive loss ( 77,519 ) 7,496 ( 70,023 )

Goodwill as of December 31, 2019 293,019 ( 6,715 ) 286,304

Other assets as of December 31, 2019 38,144 ( 1,477 ) 36,667

Other non-current liabilities as of December 31, 2019 95,979 ( 1,153 ) 94,826

Six Months Ended December 31, 2019

Nine Months Ended March 31, 2020

As Previously Reported Adjustments As Revised

(Dollars in thousands, except per share amounts)

Rent expense (1) $ 64,002 $ ( 578 ) $ 63,424

Goodwill impairment (2) 44,529 ( 4,365 ) 40,164

Operating loss ( 81,714 ) 4,943 ( 76,771 )

Loss from sale of salon assets to franchisees, net ( 21,760 ) ( 4,365 ) ( 26,125 )

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_______________________________________________________________________________

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

(1) Recorded an additional $ 6.7 million loss from the sale of salons to franchisees, net that should have been recorded in the second quarter.

The error in the Company's goodwill derecognition estimation calculation was identified in the fourth quarter of fiscal year 2020.

The goodwill derecognition was understated which understated the loss of the sale of salons to franchisees, net.

The error impacted the three and six months ended December 31, 2019.

(2) Recorded a reduction to the gain on the sale of a building, included in interest income and other, net related to the sale of the Company's headquarters which occurred in the second quarter of fiscal year 2020.

Previously, the Company identified this error during the third quarter of fiscal year 2020 and recorded and disclosed the correction in the third quarter as an out-of-period adjustment.

The correction applies to the three and six months ended December 31, 2019.

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

(1) Adjusted third quarter rent expense includes a $ 0.6 million benefit related to leases signed in the third quarter, but not identified until the fourth quarter.

The net loss for the three and nine months ended March 31, 2020 were both impacted by the misstatement.

(2) During the third quarter, goodwill derecognition was overstated by $ 2.4 million.

As of March 31, 2020, the Company impaired its remaining Company-owned goodwill, with the amount of goodwill impairment being overstated by $ 4.4 million.

As the second quarter error which understated goodwill derecognition was not identified until the fourth quarter, goodwill impairment and loss from the sale of salons to franchisees, net were misstated in the third quarter.

The Company recorded a $ 4.4 million decrease to goodwill impairment and a $ 2.4 million decrease to loss from the sale of salon assets to franchisees, net to correct the error.

Net loss for the nine months ended March 31, 2020 was not misstated.

However, goodwill impairment and the loss from the sales of salons to franchisees, net were misstated in the nine months ended March 31, 2020, with goodwill impairment overstated by $ 4.4 million and loss from the sale of salons to franchisees, net understated by $ 4.4 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements