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REGIS CORP
FORM 10-K
(Annual Report)
Filed 08/26/11 for the Period Ending 06/30/11
Address 7201 METRO BLVD
MINNEAPOLIS, MN 55439
Telephone 9529477777
CIK 0000716643
Symbol RGS
SIC Code 7200 - Services-Personal Services
Industry Personal Services
Sector Services
Fiscal Year 06/30
http://www.edgar-online.com
© Copyright 2013, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    REGIS CORP FORM 10-K (Annual Report) Filed 08/26/11 for the Period Ending 06/30/11 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 7201 METRO BLVD MINNEAPOLIS, MN 55439 9529477777 0000716643 RGS 7200 - Services-Personal Services Personal Services Services 06/30 http://www.edgar-...

  • Page 2
    ... executive offices) 55439 (Zip Code) 41-0749934 (I.R.S. Employer Identification No.) (952) 947-7777 (registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, par value $0.05 per share Preferred Share Purchase...

  • Page 3
    ... non-voting common equity. As of August 12, 2011, the registrant had 57,728,624 shares of Common Stock, par value $0.05 per share, issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive Proxy Statement for the annual meeting of shareholders to be held on...

  • Page 4
    ... Statements and Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors, Executive Officers and Corporate...

  • Page 5
    ... to acquire hair and retail product salons. Regis Corporation is listed on the NYSE under the ticker symbol "RGS." Discussions of the general development of the business take place throughout this Annual Report on Form 10-K. (b) Financial Information about Segments Segment data for the years ended...

  • Page 6
    ...hair therapy, which are targeted at the mass market consumer. The Company is organized to manage its operations based on significant lines of business-salons and hair restoration centers. Salon operations are managed based on geographical location-North America and International. The Company's North...

  • Page 7
    ...exit strategy for independent salon owners and operators, which affords the Company numerous opportunities for continued selective acquisitions. Salon Business Strategy: The Company's goal is to provide high quality, affordable hair care services and products to a wide range of mass market consumers...

  • Page 8
    ... company-owned and franchise salons, traffic volume, signage and other leasehold factors in a given center or area. Because the Company's various salon concepts target slightly different mass market customer groups, more than one of the Company's salon concepts may be located in the same real estate...

  • Page 9
    ... can offer employee benefit programs, training and career path opportunities that are often superior to its smaller competitors. Centralized Control Over Salon Operations. The Company manages its expansive salon base through a combination of area and regional supervisors, corporate salon directors...

  • Page 10
    ...each offering attractive and affordable hair care products and services in the United States, Canada and Puerto Rico. The Company's International salon operations consist of 400 hair care salons located in Europe, primarily in the United Kingdom. The number of new salons expected to be opened within...

  • Page 11
    ... the last five years, as well as the number of salons opened, closed, relocated, converted and acquired during each of these periods. COMPANY-OWNED AND FRANCHISE SALON SUMMARY NORTH AMERICAN SALONS: 2011 2010 2009 2008 2007 REGIS SALONS Open at beginning of period Salons constructed Acquired Less...

  • Page 12
    ...Contents NORTH AMERICAN SALONS: 2011 2010 2009 2008 2007 SMARTSTYLE/COST CUTTERS IN WALMART Company-owned salons: Open at beginning of period Salons constructed Acquired Franchise buybacks Less relocations Salon openings Conversions Salons closed Total company-owned salons Franchise salons: Open at...

  • Page 13
    ... NORTH AMERICAN SALONS: 2011 2010 2009 2008 2007 PROMENADE Company-owned salons: Open at beginning of period Salons constructed Acquired Franchise buybacks Less relocations Salon openings Conversions Salons closed Total company-owned salons Franchise salons: Open at beginning of period Salons...

  • Page 14
    ... Salons were located in strip centers. The customer mix at Regis Salons is approximately 79 percent women, and both appointments and walk-in customers are common. These salons offer a full range of custom styling, cutting, hair coloring and waving services, as well as professional hair care products...

  • Page 15
    ... $7,600. Average annual salon revenues in a company-owned Supercuts salon which has been open five years or more are approximately $269,000. The Supercuts franchise salons provide consistent, high quality hair care services and professional products to customers at convenient times and locations and...

  • Page 16
    ...prominent high-street locations and offer a full range of custom hairstyling, cutting, coloring and waving, as well as professional hair care products. The initial capital investment required is approximately £450,000. Average annual salon revenues for a salon which has been open five years or more...

  • Page 17
    ... designed to help the franchisee build a successful business. Standards of Operations. The Company does not control the day to day operations of its franchisees, including hiring and firing, establishing prices to charge for products and services, business hours, personnel management and capital...

  • Page 18
    ... operations, personnel management, marketing fundamentals and financial controls. Existing franchisees receive training, counseling and information from the Company on a continuous basis. The Company provides store managers and stylists with extensive technical training for Supercuts franchises...

  • Page 19
    ... benefit from the Company's high-traffic locations and receive a steady source of new business from walk-in customers. In addition, the Company offers a career path with the opportunity to move into managerial and training positions within the Company. Salon Design: The Company's salons are designed...

  • Page 20
    ... fragmented and competitive. In every area in which the Company has a salon, there are competitors offering similar hair care services and products at similar prices. The Company faces competition within malls from companies which operate salons within department stores and from smaller chains of...

  • Page 21
    ... a large and relatively untapped market. Women now represent approximately 35 percent of new customers. Currently, all locations offer hair systems, hair therapy and hair care products. Among the hair restoration centers' product offerings are hair transplants. The hair restoration centers employ 19

  • Page 22
    ... Provost Salon Group created a newly formed entity, Provalliance. The Franck Provost Salon Group management structure has a proven platform to build and acquire company-owned stores as well as a strong franchise operating group that is positioned for expansion. In March of 2011, the Company acquired...

  • Page 23
    ... President of Financial Reporting from 1991 to 1994. During fiscal year 2006, he was also elected Director and Audit Committee Chair of Ascena Retail Group, Inc., which operates a chain of women's apparel specialty stores. David Bortnem was appointed to Corporate Chief Operating Officer in 2011. He...

  • Page 24
    ... and Chief Financial Officer in 2011. He served as Vice President and Corporate Controller from 2006 to 2011, as Vice President of Finance from 2002 to 2006, and as Director of Finance from 2000 to 2002. Corporate Community Involvement: Many of the Company's employees volunteer their time to support...

  • Page 25
    ... patterns to our salons and hair restoration centers can be adversely impacted by increases in unemployment rates and decreases in discretionary income levels. If we continue to have negative same-store sales our business and results of operations may be affected. Our success depends, in part...

  • Page 26
    ... to control our expense structure. Failure to manage our cost of product, labor and benefit rates, advertising and marketing expenses, operating lease costs, other store expenses or indirect spending could delay or prevent us from achieving increased profitability or otherwise adversely affect...

  • Page 27
    ... of our management information systems to perform as we anticipate, or to meet the continuously evolving needs of our business, could disrupt our business and may adversely affect our operating results. The Company plans to implement a new point-of-sale system in our salons during fiscal year 2012...

  • Page 28
    ...in the accounting method for convertible debt securities that may be settled in cash require us to include both the current period's amortization of the debt discount and the instrument's coupon interest as interest expense, which will decrease our financial results, Our ability to pay principal and...

  • Page 29
    ...more additional five year periods. Salons operating within department stores in Canada and Europe operate under license agreements, while freestanding or shopping center locations in those countries have real property leases comparable to the Company's domestic locations. The Company also leases the...

  • Page 30
    ... Corp., Service Corporation International, and Starbucks Corp. The Peer Group is a self-constructed peer group of companies that have comparable annual revenues, the customer service element is a critical component to the business, and a target of moderate customers in terms of income and style...

  • Page 31
    ... dividends, if any, were reinvested. Comparison of 5 Year Cumulative Total Return Assumes Initial Investment of $100 June 2011 2006 2007 2008 2009 2010 2011 Regis S & P 500 S & P 400 Midcap Dow Jones Consumer Service Index Peer Group (b) Share Repurchase Program $ 100.00 $ 107.86 $ 74.71...

  • Page 32
    ...2,235,871 2,132,114 Long-term debt and capital lease obligations, including current portion 313,411 440,029 634,307 764,747 709,231 Dividends declared $ 0.20 $ 0.16 $ 0.16 $ 0.16 $ 0.16 (a) Revenues from salons, schools or hair restorations centers acquired each year were $25.6, $17.8, $82.1, $110...

  • Page 33
    ... course of business. During fiscal year 2011, the Company settled a legal claim with the former owner of Hair Club for $1.7 million. Fiscal year 2010 included a $5.2 million charge related to the settlement of two legal claims regarding certain customer and employee matters. Operating loss from...

  • Page 34
    ... Our salon real estate strategy is to add new units in convenient locations with good visibility and customer traffic, as well as appropriate trade demographics. Our various salon and product concepts operate in a wide range of retailing environments, including regional shopping malls, strip centers...

  • Page 35
    ... of new locations in untapped markets domestically and internationally. However, the success of our hair restoration business is not dependent on the same real estate criteria used for salon expansion. In an effort to provide confidentiality for our customers, our hair restoration centers operate...

  • Page 36
    ... as a percent of total company-owned salons. The Company calculates the estimated fair value of the reporting units based on discounted future cash flows that utilize estimates in annual revenue, gross margins, fixed expense rates, allocated corporate overhead, and long-term growth for determining...

  • Page 37
    ... operating, and allocated general and administrative corporate overhead. Allocated corporate overhead. Corporate overhead incurred by the home office based on the number of Promenade companyowned salons as a percent of total company-owned salons. Long-term growth. conditions. A long-term growth rate...

  • Page 38
    ... expenses consisted of rent, site operating, and allocated general and administrative corporate overhead. Allocated corporate overhead. Corporate overhead incurred by the home office is not allocated as the Hair Restoration Centers reporting unit incurs its own overhead. Long-term growth. conditions...

  • Page 39
    .... Corporate overhead incurred by the home office based on the number of Regis salons as a percent A long-term growth rate of 2.5 percent was applied to terminal cash flow based on anticipated economic Discount rate. A discount rate of 12.0 percent based on the weighted average cost of capital that...

  • Page 40
    ...'s goodwill balance as of June 30, 2011 by reporting unit is as follows: Reporting Unit As of June 30, As of June 30, 2011 2010 (Dollars in thousands) Regis MasterCuts SmartStyle Supercuts Promenade Total North America Salons Hair Restoration Centers Consolidated Goodwill $ $ 103,761 $ 4,652 48...

  • Page 41
    ... asset under current accounting guidance and the limited value of the acquired leased site and customer preference associated with the acquired hair salon brand. Residual goodwill further represents our opportunity to strategically combine the acquired business with our existing structure to serve...

  • Page 42
    ... consider new claims and developments associated with existing claims for each open policy period. As certain claims can take years to settle, the Company has multiple policy periods open at any point in time. Income Taxes In determining income for financial statement purposes, management must...

  • Page 43
    ... offset by an increase in average ticket price, resulting in a decrease in consolidated same-store sales of 1.7 percent. Fiscal year 2010 revenues included a one-time sale of $20.0 million of product to the purchaser of Trade Secret. The Company recorded a goodwill impairment charge of $74.1 million...

  • Page 44
    ... as noted. Results of Operations as a Percent of Revenues For the Years Ended June 30, 2011 2010 2009 Service revenues Product revenues Royalties and fees Operating expenses: Cost of service(1) Cost of product(2) Site operating expenses General and administrative Rent Depreciation and amortization...

  • Page 45
    ... All service revenues, product revenues (which include product and equipment sales to franchisees), and franchise royalties and fees are included within their respective concept within the table. For the Years Ended June 30, 2010 (Dollars in thousands) 2011 2009 North American salons: Regis $ 434...

  • Page 46
    ... Franchise revenues Closed salons 1.1% (1.4) 0.4 0.0 (1.5) (1.4)% 0.8% (3.0) 0.2 0.0 (0.9) (2.9)% 3.4% (1.4) (2.2) (1.1) (0.8) (2.1)% We acquired 105 company-owned salons (including 78 franchise buybacks), and bought back four hair restoration centers from franchisees during fiscal year 2011...

  • Page 47
    ... same-store customer visits. Partially offsetting the decrease was growth due to new and acquired salons during the twelve months ended June 30, 2011, price increases, sales mix as the company continues to increase hair color and waxing services, and the weakening of the United States dollar against...

  • Page 48
    ... franchise salon operations with Franck Provost Salon Group on January 31, 2008. Gross Margin (Excluding Depreciation) Our cost of revenues primarily includes labor costs related to salon employees and hair restoration center employees, the cost of product used in providing services and the cost...

  • Page 49
    ...control initiatives and new leveraged salon pay plans. Product Margin (Excluding Depreciation). Product margin was as follows: Increase (Decrease) Over Prior Fiscal Year Product Margin Margin as % of Product Dollar Percentage Revenues (Dollars in thousands) Basis Point(1) Years Ended June 30, 2011...

  • Page 50
    ...lower-profit margin appliances in our International segment and an increase in the cost of hair systems in our Hair Restoration Centers segment, partially offset by reduced commissions paid to new employees on retail product sales in our North American segment. The basis point improvement in product...

  • Page 51
    ... fees), including costs incurred to support franchise and hair restoration center operations. G&A expenses were as follows: Increase (Decrease) Over Prior Fiscal Year Expense as % of Consolidated Years Ended June 30, G&A Dollar Percentage Revenues (Dollars in thousands) Basis Point (1) 2011...

  • Page 52
    ...area maintenance expenses. The basis point increase in rent expense as a percent of consolidated revenues during fiscal year 2010 was primarily due to negative leverage in this fixed cost category, partially offset by a reduction in our percentage rent payments, both due to negative same-store sales...

  • Page 53
    ...The Company recorded a $74.1 million goodwill impairment charge related to the Promenade salon concept during fiscal year 2011. Due to lower than expected earnings and same-store sales, the estimated fair value of the Promenade salon operations was less than the carrying value of this concept's net...

  • Page 54
    ... Note 11 of the Consolidated Financial Statements. Interest Expense Interest expense was as follows: (Decrease) Increase Over Prior Fiscal Year Expense as % of Consolidated Revenues Dollar Percentage (Dollars in thousands) Basis Point (1) Years Ended June 30, Interest 2011 2010 2009 $ 34,388 54...

  • Page 55
    ...continuing operations before income taxes in fiscal year 2010. The annual effective tax rate was favorably impacted by the employment credits related to the Small Business and Work Opportunity Tax Act of 2007. Based upon current legislation, these credits are scheduled to expire on December 31, 2011...

  • Page 56
    ... Companies, Net of Income Taxes Equity in income (loss) of affiliates, representing the income or loss generated by our equity investment in Empire Education Group, Inc., Provalliance, and other equity method investments was as follows: (Decrease) Increase Over Prior Fiscal Year Dollar Percentage...

  • Page 57
    ... of company-owned salon revenues to remain relatively constant. Accordingly, this provides us certain protection against inflationary increases, as payroll expense and related benefits (our major expense components) are variable costs of sales. In addition, we may increase pricing in our salons to...

  • Page 58
    ... internal management structure, we report three segments: North American salons, International salons and Hair Restoration Centers. Significant results of operations are discussed below with respect to each of these segments. North American Salons North American Salon Revenues. Total North American...

  • Page 59
    ... in same-store customer visits, partially offset by an increase in average ticket. Contributing to the organic sales decline during the twelve months ended June 30, 2011 was the completion of an agreement to supply the purchaser of Trade Secret product at cost. The Company generated revenues of $20...

  • Page 60
    ...plan to close underperforming company-owned salons. In addition, the basis point decrease was due to an increase in North American revenues of $32.2 million related to product sales to the purchaser of Trade Secret at cost. International Salons International Salon Revenues. Total International salon...

  • Page 61
    ... weakening of the United States dollar against the British Pound. We closed 15 company-owned salons during the twelve months ended June 30, 2011. We did not acquire any International salons during the twelve months ended June 30, 2010. The organic sales increase was primarily due to the rebranding...

  • Page 62
    ... Company's expense control and payroll management contributed to the basis point improvement during fiscal year 2010. The basis point decrease in International salon operating income as a percent of International salon revenues during fiscal year 2009 was primarily due to negative same-store sales...

  • Page 63
    ... acquired centers and negative leverage in fixed cost categories due to negative same-store sales. Unallocated Corporate Unallocated Corporate Operating Loss. Unallocated corporate operating expenses include salaries, stock-based compensation, professional fees, rent, depreciation and other expenses...

  • Page 64
    ... fiscal year 2010. Our principal on-going cash requirements are to finance construction of new stores, remodel certain existing stores, acquire salons and purchase inventory. Customers pay for salon services and merchandise in cash at the time of sale, which reduces our working capital requirements...

  • Page 65
    ... for the decrease in total assets as of June 30, 2011 compared to June 30, 2010. Cash flows from operations, partially offset by the $35.3 million goodwill impairment charge related to the Regis salon concept were the primary factors for the increase in total assets as of June 30, 2010 compared to...

  • Page 66
    ...consistent with fiscal year 2009 cash provided by operating activities. During fiscal year 2009, cash provided by operating activities was lower than in the twelve months ended June 30, 2008 primarily due to a decrease in working capital cash flow, primarily related to a current year receivable from...

  • Page 67
    ... year 2011, we constructed 146 company-owned salons and three hair restoration centers, and acquired 105 company-owned salons (78 of which were franchise buybacks) and four hair restoration centers (all of which were franchise buybacks). Cash used by investing activities was lower during fiscal year...

  • Page 68
    ... franchise buybacks) consisted of the following number of locations in each concept: Years Ended June 30, 2010 Constructed Acquired 2011 Constructed Acquired 2009 Constructed Acquired Regis MasterCuts Trade Secret(1) SmartStyle Supercuts Promenade International Hair restoration centers 12...

  • Page 69
    ... an initial conversion price of approximately $15.46 per share of the Company's common stock), subject to adjustment in certain circumstances, see further discussion within Note 8 to the Consolidated Financial Statements. The net proceeds to the Company from the offerings of convertible senior notes...

  • Page 70
    .... The term loan includes customary financial covenants including a leverage ratio, fixed charge ratio and minimum net equity test. We used the proceeds from the term loan to pay down our revolving line of credit facility. Other Financing Arrangements Private Shelf Agreement At June 30, 2011 and 2010...

  • Page 71
    ...next fiscal year. See Note 13 to the Consolidated Financial Statements for more information on our uncertain tax positions. On-Balance Sheet Obligations Our long-term obligations are composed primarily of senior term notes, convertible debt and a revolving credit facility. Interest payments on long...

  • Page 72
    ... relate to our commercial contracts, operating leases and other real estate contracts, financial agreements, credit facility of EEG, agreements to provide services, and agreements to indemnify officers, directors and employees in the performance of their work. While our aggregate indemnification...

  • Page 73
    ... record on September 8, 2011. Share Repurchase Program In May 2000, the Company's Board of Directors (BOD) approved a stock repurchase program. Originally, the program authorized up to $50.0 million to be expended for the repurchase of the Company's stock. The BOD elected to increase this maximum to...

  • Page 74
    ... net investments in its foreign subsidiaries and, to a lesser extent, changes in the Canadian dollar exchange rate. The Company has established policies and procedures that govern the management of these exposures through the use of derivative financial instrument contracts. By policy, the Company...

  • Page 75
    ... of the $85.0 million term loan. The contracts were settled for an aggregate loss of $0.1 million recorded within interest expense in the Consolidated Statement of Operations during fiscal year 2011. Prior to the termination of the contracts, the Company paid fixed rates of interest of approximately...

  • Page 76
    ... the Company is required to translate the financial statements of its foreign subsidiaries from the currency in which they keep their accounting records, generally the local currency, into United States dollars. Different exchange rates from period to period impact the amounts of reported income and...

  • Page 77
    74

  • Page 78
    ...effect of changes in foreign currency exchange rates on net income and cash flows. During fiscal year 2011, the Company entered into several forward foreign currency contracts to sell Canadian dollars and buy an aggregate of $8.7 million U.S. dollars, respectively, with maturation dates between July...

  • Page 79
    ... Financial Statements: Management's Statement of Responsibility for Financial Statements and Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Balance Sheet as of June 30, 2011 and 2010 Consolidated Statement of Operations...

  • Page 80
    ... annual report on Form 10-K. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, incorporating management's reasonable estimates and judgments, where applicable. Management's Report on Internal Control...

  • Page 81
    ... material respects, the financial position of Regis Corporation and its subsidiaries at June 30, 2011 and June 30, 2010, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2011 in conformity with accounting principles generally accepted...

  • Page 82
    ...(Dollars in thousands, except per share data) June 30, 2011 2010 ASSETS Current assets: Cash and cash equivalents Receivables, net Inventories Deferred income taxes Income tax receivable Other current assets Total current assets Property and equipment, net Goodwill Other intangibles, net Investment...

  • Page 83
    ... of Contents REGIS CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share data) Years Ended June 30, 2010 2011 2009 Revenues: Service Product Royalties and fees Operating expenses: Cost of service Cost of product Site operating expenses General and administrative Rent...

  • Page 84
    ... adjustments Changes in fair market value of financial instruments designated as cash flow hedges, net of taxes Proceeds from exercise of stock options Stock-based compensation Shares issued through franchise stock incentive program Recognition of deferred compensation and other, net of taxes (Note...

  • Page 85
    ... adjustments Changes in fair market value of financial instruments designated as cash flow hedges, net of taxes Proceeds from exercise of stock options Stock-based compensation Shares issued through franchise stock incentive program Recognition of deferred compensation and other, net of taxes (Note...

  • Page 86
    ... Income tax receivable Other current assets Other assets Accounts payable Accrued expenses Other noncurrent liabilities Net cash provided by operating activities Cash flows from investing activities: Capital expenditures Proceeds from sale of assets Asset acquisitions, net of cash acquired...

  • Page 87
    ... FINANCIAL STATEMENTS 1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Description: Regis Corporation (the Company) owns, operates and franchises hairstyling and hair care salons throughout the United States (U.S.), the United Kingdom (U.K.), Canada, Puerto Rico...

  • Page 88
    ... Company's investment in MY Style within Notes 2 and 6, respectively, to the Consolidated Financial Statements. Inventories: Inventories consist principally of hair care products for retail product sales. A portion of inventories are also used for salon services consisting of hair color, hair care...

  • Page 89
    ... Costs incurred to develop internal-use software during the application development stage are capitalized, while data conversion, training and maintenance costs associated with internal-use software are expensed as incurred. At June 30, 2011 and 2010, the net book value of capitalized software costs...

  • Page 90
    ... year 2011, the Company recorded an increase in expense from changes in estimates related to prior year open policy periods related to continuing operations of $1.4 million. For fiscal years 2010 and 2009, the Company recorded decreases in expense from changes in estimates related to prior year open...

  • Page 91
    ... as a percent of total company-owned salons. The Company calculates the estimated fair value of the reporting units based on discounted future cash flows that utilize estimates in annual revenue, gross margins, fixed expense rates, allocated corporate overhead, and long-term growth for determining...

  • Page 92
    ... values of Promenade, Hair Restoration Centers, and Regis to be appropriate based on the historical level of revenue growth, operating income and cash flows, it is reasonably likely that Promenade, Hair Restoration Centers, and Regis may become impaired in future periods. The term "reasonably likely...

  • Page 93
    ... ACCOUNTING POLICIES (Continued) A summary of the Company's goodwill balance as of June 30, 2011 and 2010 by reporting unit is as follows: Reporting Unit As of June 30, As of June 30, 2011 2010 (Dollars in thousands) Regis MasterCuts SmartStyle Supercuts Promenade Total North America Salons Hair...

  • Page 94
    ... achieving the specified levels during the fiscal year is probable. Revenue Recognition and Deferred Revenue: Company-owned salon revenues and related cost of sales are recognized at the time of sale, as this is when the services have been provided or, in the case of product revenues, delivery has...

  • Page 95
    ... is performed. Product revenues, including sales of hair systems, are recognized at the time of application, as this is when delivery occurs and payment is probable. Franchise revenues primarily include royalties, initial franchise fees and net rental income (see Note 10). Royalties are recognized...

  • Page 96
    ... terms of the franchise operating and other agreements. Each Supercuts salon contributes 5.0 percent of service revenues to the fund (contributions for other concepts range between 1.5 and 5.0 percent). The majority of the advertising funds are spent to support media placement and local marketing...

  • Page 97
    ... such as payroll, training costs and promotion incurred prior to the opening of a new location are expensed as incurred. Sales Taxes: Sales taxes are recorded on a net basis (rather than as both revenue and an expense) within the Company's Consolidated Statement of Operations. Income Taxes: Deferred...

  • Page 98
    ... purposes. The Company currently has or has had interest rate swaps designated as both cash flow and fair value hedges, treasury locks designated as cash flow hedges, a hedge of its net investment in its European operations and forward foreign currency contracts designated as cash flow hedges of...

  • Page 99
    ... cost for stock-based payment arrangements totaled $9.6, $9.3, and $7.5 million for the fiscal years ended June 30, 2011, 2010 and 2009, respectively. Guidance adopted by the Company for share-based payments requires that the cash retained as a result of the tax deductibility of increases...

  • Page 100
    ...the separate units of accounting based on the deliverables' relative selling price. The adoption of the new guidance on July 1, 2010, for multiple-deliverable revenue arrangements, did not have a material effect on the Company's financial position, results of operations, or cash flows. Amendments to...

  • Page 101
    ...-owned salons and 57 franchise salons, all of which had historically been reported within the Company's North America reportable segment. The sale of Trade Secret included Cameron Capital I, Inc. (CCI). CCI owned and operated PureBeauty and BeautyFirst salons which were acquired by the Company on...

  • Page 102
    ... FINANCIAL STATEMENTS (Continued) 2. DISCONTINUED OPERATIONS (Continued) The following table provides the amounts due to the Company from the purchaser of Trade Secret: Classification June 30, June 30, 2011 2010 (Dollars in thousands) Carrying value: Warehouse services Note receivable, current...

  • Page 103
    ... Financial Statements for further information on the guaranteed leases. The income (loss) from discontinued operations is summarized below: For the Years Ended June 30, 2011 2010 2009 (Dollars in thousands) Revenues Income (loss) from discontinued operations, before income taxes Income tax benefit...

  • Page 104
    ...Equity-method investments Noncurrent loans to affiliates Other assets: Notes receivable, net Other noncurrent assets Accrued expenses: Payroll and payroll related costs Insurance Deferred revenues Taxes payable Other Other noncurrent liabilities: Deferred income taxes Deferred rent Deferred benefits...

  • Page 105
    ...Company in that reporting period. The weighted average amortization periods, in total and by major intangible asset class, are as follows: Weighted Average Amortization Period (In years) June 30, 2011 2010 Amortized intangible assets: Brand assets and trade names Customer lists Franchise agreements...

  • Page 106
    ...: 2011 2010 2009 (Dollars in thousands) Components of aggregate purchase prices: Cash Liabilities assumed or payable Allocation of the purchase prices: Current assets Property and equipment Deferred income tax asset Goodwill Identifiable intangible assets Accounts payable and accrued expenses Other...

  • Page 107
    ... further represents the Company's opportunity to strategically combine the acquired business with the Company's existing structure to serve a greater number of customers through its expansion strategies. In the acquisitions of international salons and hair restoration centers, the residual goodwill...

  • Page 108
    ... of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. GOODWILL The table below contains details related to the Company's recorded goodwill for the years ended June 30, 2011 and 2010: Salons Hair Restoration North America International Centers (Dollars in thousands) Consolidated...

  • Page 109
    ... as of June 30, 2011 and 2010: Empire Hair Club Education for Group, Inc. MY Style Men, Ltd. (Dollars in thousands) Provalliance Total Balance at June 30, 2009 Payment of loans by affiliates Equity in income of affiliated companies, net of income taxes (1) Cash dividends received Other, primarily...

  • Page 110
    ... Percent Owned 2011 2010 2009 2011 2010 2009 (Dollars in thousands) Summarized Balance Sheet Information: Current assets Noncurrent assets Current liabilities Noncurrent liabilities Summarized Statement of Operations Information: Gross revenue Gross profit Operating income Net income Investment in...

  • Page 111
    ... based on a formula that may or may not be at market when exercised, therefore, it could provide the Company with the characteristic of a controlling financial interest or could prevent the Franck Provost Salon Group from absorbing its share of expected losses by transferring such obligation to the...

  • Page 112
    ... companies, net of income taxes $ - $ - $ (25,732) Equity in income (loss) of affiliated companies, net of income taxes 7,752 4,134 1,979 Impact on Consolidated Statement of Cash Flows For the Twelve Months Ended June 30, 2011 2010 2009 (Dollars in thousands) Classification Equity in income, net...

  • Page 113
    ...a proxy to vote such number of the Company's shares such that the other shareholder would have voting control of 51.0 percent of the common stock of EEG. The Company accounts for EEG as an equity investment under the voting interest model. During fiscal years ended June 30, 2011, 2010, and 2009, the...

  • Page 114
    ... not be treated as an extinguishment. The preferred shares will be accounted for as an available for sale debt security. Due to the natural disasters in Japan that occurred in March 2011, the Company was required to assess the preferred shares and premium for other than temporary impairment. The...

  • Page 115
    .... The Company acquired a 50.0 percent interest in Hair Club for Men, Ltd. through its acquisition of Hair Club in fiscal year 2005. The Company accounts for its investment in Hair Club for Men, Ltd. under the equity method of accounting. Hair Club for Men, Ltd. operates Hair Club centers in Illinois...

  • Page 116
    ... entirety requires judgment, including the consideration of inputs specific to the asset or liability. The following tables sets forth by level within the fair value hierarchy, the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis at June 30, 2011...

  • Page 117
    ... and reconciliation to the balance sheet line item that each contract is classified within Note 9 of the Consolidated Financial Statements. Equity put option. The Company's merger of the European franchise salon operations with the operations of the Franck Provost Salon Group on January 31, 2008...

  • Page 118

  • Page 119
    ... rating. The preferred shares are classified within investment in and loans to affiliates on the Consolidated Balance Sheet. The fair value of the preferred shares is based on the financial health of Yamano Holding Corporation and terms within the preferred share agreement which allow the Company...

  • Page 120
    ... on the Regis salon concept goodwill balance. 8. FINANCING ARRANGEMENTS The Company's long-term debt as of June 30, 2011 and 2010 consists of the following: Maturity Dates (fiscal year) Interest rate % 2011 2010 Amounts outstanding 2011 2010 (Dollars in thousands) Senior term notes Convertible...

  • Page 121
    ...-term debt at June 30, 2011 and 2010, respectively. The notes require quarterly payments, and final maturity dates range from June 2013 through December 2017. The Private Shelf Agreement includes financial covenants including debt to EBITDA ratios, fixed charge coverage ratios and minimum net equity...

  • Page 122
    ... in make-whole payments and other fees along with $5.2 million in interest rate swap settlements, as discussed in Note 9 of the Consolidated Financial Statements, totaling $18.0 million that was recorded as interest expense within the Consolidated Statement of Operations. Convertible Senior Notes In...

  • Page 123
    ... with the convertible senior note offering, the Company issued 13,225,000 shares of common stock resulting in net proceeds of $163.5 million. Term Loan The Company had a term loan with monthly interest payments based on a one-month LIBOR plus 2.25 percent. In June 2011, the Company repaid the...

  • Page 124
    ... FINANCIAL STATEMENTS (Continued) 9. DERIVATIVE FINANCIAL INSTRUMENTS The Company's primary market risk exposures in the normal course of business are changes in interest rates and foreign currency exchange rates. The Company has established policies and procedures that govern the management...

  • Page 125
    ... of the interest rate swaps was recorded within interest expense in the Consolidated Statement of Operations as described in Note 8 to the Consolidated Financial Statements. The Company also had two outstanding treasury lock agreements with maturity dates between fiscal years 2013 and 2015...

  • Page 126
    ...Income (Loss) at June 30, Classification 2011 2010 2009 (In thousands) Type Designated as hedging instruments-Cash Flow Hedges: Interest rate swaps $ (636) Forward foreign currency contracts 456 Treasury lock contracts Total - $ (180) $ (2,967) 519 (146) $ (2,594) $ (2,732) - Cost of (495) sales...

  • Page 127
    ..., the Company is required to pay additional rent based on a percent of sales in excess of a predetermined amount and, in most cases, real estate taxes and other expenses. Rent expense for the Company's international department store salons is based primarily on a percent of sales. The Company also...

  • Page 128
    ... classified in the royalties and fees caption of the Consolidated Statement of Operations. Total rent expense, excluding rent expense on premises subleased to franchisees, includes the following: 2011 2010 (Dollars in thousands) 2009 Minimum rent Percentage rent based on sales Real estate taxes and...

  • Page 129
    ... Financial Statements in any particular period. During fiscal year 2011, the Company settled a legal claim with the former owner of Hair Club for $1.7 million. During fiscal year 2010, the Company settled two legal claims regarding certain customer and employee matters for an aggregate charge...

  • Page 130
    ...continuing operations before income taxes in fiscal year 2010. The annual effective tax rate was favorably impacted by the employment credits related to the Small Business and Work Opportunity Tax Act of 2007. Based upon current legislation, these credits are scheduled to expire on December 31, 2011...

  • Page 131
    ... income tax rate by 4.8 percent. The Company does not believe the adjustment is material to its fiscal 2009 results of operations or its financial position or results of operations of any prior periods. The components of the net deferred tax assets and liabilities are as follows: 2011 2010 (Dollars...

  • Page 132
    ... Canada), the statute of limitations for tax audits varies by jurisdiction, but generally ranges from three to five years. A rollforward of the unrecognized tax benefits is as follows: 2011 2010 2009 Balance at beginning of period Additions based on tax positions related to the current year...

  • Page 133
    ...time employees of the Company who have at least one year of eligible service, 1,000 hours of service during the Plan year, are employed by the Employer on the last day of the Plan year and are employed at the home office or distribution centers, or as area or regional supervisors, artistic directors...

  • Page 134
    ...deferred compensation contracts. Compensation associated with these agreements is charged to expense as services are provided. Associated costs included in general and administrative expenses on the Consolidated Statement of Operations totaled $4.3, $5.2, and $3.7 million for fiscal years 2011, 2010...

  • Page 135
    ... expenses and administration of the plans, for the three years ended June 30, 2011, 2010 and 2009, included the following: 2011 2010 2009 (Dollars in thousands) Profit sharing plan Executive Profit Sharing Plan ESPP FSPP Deferred compensation contracts 15. SHAREHOLDERS' EQUITY Net Income Per Share...

  • Page 136
    ... Net (loss) income from continuing operations for diluted earnings per share Stock-based Compensation Award Plans: $ (8,905) $ 39,579 $ 6,970 - 7,520 - $ (8,905) $ 47,099 $ 6,970 In May of 2004, the Company's Board of Directors approved the 2004 Long Term Incentive Plan (2004 Plan). The 2004 Plan...

  • Page 137
    ... outside directors for a term not to exceed ten years from the grant date. The 2000 Plan contains restrictions on transferability, time of exercise, exercise price and on disposition of any shares acquired through exercise of the options. Stock options were granted at not less than fair market value...

  • Page 138
    ... contractual term of 3.9 years. An additional 154,708 options are expected to vest with a $24.81 per share weighted average exercise price and a weighted average remaining contractual life of 7.7 years that have a total intrinsic value of zero. All options granted relate to stock option plans that...

  • Page 139
    ... their last days of employment, which is expected to be February 8, 2012 and June 30, 2012, respectively. As a result of the modifications, the Company recognized an incremental compensation cost of less than $0.1 million during fiscal year 2011. Total cash received from the exercise of share-based...

  • Page 140
    ...Compensation expense included in income before income taxes related to stock- based compensation was $9.6, $9.3, and $7.5 million for the three years ended June 30, 2011, 2010, and 2009, respectively. Authorized Shares and Designation of Preferred Class: The Company has 100 million shares of capital...

  • Page 141
    ...As of June 30, 2011, the Company owned, franchised or held ownership interests in approximately 12,700 worldwide locations. The Company's locations consisted of 9,419 North American salons (located in the U.S., Canada and Puerto Rico), 400 international salons, 96 hair restoration centers, and 2,786...

  • Page 142
    ...targeted at the mass market consumer. Hair restoration centers are located primarily in office and professional buildings within larger metropolitan areas. Based on the way the Company manages its business, it has reported its North American salons, International salons, and Hair Restoration Centers...

  • Page 143
    ... June 30, 2011 Salons North America Hair Unallocated Restoration International Centers Corporate (Dollars in thousands) Consolidated Revenues: Service Product Royalties and fees Operating expenses: Cost of service Cost of product Site operating expenses General and administrative Rent Depreciation...

  • Page 144
    ... FINANCIAL STATEMENTS (Continued) 16. SEGMENT INFORMATION (Continued) For the Year Ended June 30, 2010 Salons North America Hair Restoration Unallocated International Centers Corporate (Dollars in thousands) Consolidated Revenues: Service Product Royalties and fees Operating expenses: Cost...

  • Page 145
    ... FINANCIAL STATEMENTS (Continued) 16. SEGMENT INFORMATION (Continued) For the Year Ended June 30, 2009(1) Salons North America Hair Restoration Unallocated International Centers Corporate (Dollars in thousands) Consolidated Revenues: Service Product Royalties and fees Operating expenses: Cost...

  • Page 146
    ...0.06 1,023,321 3,948 (8,905) (8,905) (0.16) (0.16) (0.16) (0.16) 0.20 Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 6 in this Form 10-K for explanations of items which impacted fiscal year 2011 revenues, operating and net income. 141

  • Page 147
    ...75 0.16 Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 6 in this Form 10-K for explanations of items which impacted fiscal year 2010 revenues, operating and net income. (a) Operating income and net income decreased $31.2 million ($19...

  • Page 148
    ... period ended June 30, 2011. Based upon this evaluation, the president and chief financial officer concluded that the Company's disclosure controls and procedures were effective. Management's Report on Internal Control over Financial Reporting In Part II, Item 8 above, management provided a report...

  • Page 149
    ... Company's 2011 Proxy Statement, and is incorporated herein by reference. The Company has adopted a code of ethics, known as the Code of Business Conduct & Ethics that applies to all employees, including the Company's chief executive officer, chief financial officer, directors and executive officers...

  • Page 150
    ... Company and Hair Club Group Inc. (Incorporated by reference to Exhibit 2 of the Company's Report on Form 10-Q filed on February 9, 2005, for the quarter ended December 31, 2004.) Stock Purchase Agreement dated as of January 26, 2009 between Regis Corporation, Trade Secret, Inc. and Premier Salons...

  • Page 151
    ... the Company and Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(dd) of the Company's Report on Form 10-K filed on September 17, 2003, for the year ended June 30, 2003.) Promissory Note dated November 26, 2003, between the Company and Information Leasing Corporation...

  • Page 152
    ... Company's Report on Form 8-K filed July 6, 2009.) Amendment No.6 to Amend and Restated Private Shelf Agreement between Regis Corporation and Prudential Investment Management, Inc., The Prudential Insurance Company of America, Pruco Life Insurance Company, Pruco Life Insurance Company of New Jersey...

  • Page 153
    ... the Company's Report on Form DEF14A filed September 14, 2010.) Separation Agreement and Release between Bruce Johnson, former EVP, Real Estate Design & Construction effective July 1, 2011. Separation Agreement and Release between Mark Kartarik, former EVP and President, Franchise division effective...

  • Page 154
    ...DEF(**) XBRL Taxonomy Extension Definition Linkbase (*) (**) Management contract, compensatory plan or arrangement required to be filed as an exhibit to the Company's Report on Form 10-K. The XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed "filed" for...

  • Page 155
    ... report to be signed on its behalf by the undersigned, thereunto duly authorized. REGIS CORPORATION By /s/ RANDY L. PEARCE Randy L. Pearce, President By /s/ BRENT A. MOEN Brent A. Moen, Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) DATE: August 26, 2011...

  • Page 156
    Table of Contents /s/ STEPHEN E. WATSON Date: August 26, 2011 Stephen E. Watson, Director /s/ JOSEPH L. CONNER Date: August 26, 2011 Joseph L. Conner, Director 151

  • Page 157

  • Page 158
    ... you sign this agreement, Regis will pay you: 1) 2) 3) All compensation you have earned through and including the last day of your employment; Any accrued but unused PTO benefit; and Vested profit sharing and deferred compensation benefits in accordance with the terms and conditions of those plans...

  • Page 159
    ... balance of Employee's Officer perquisites account for 2010-2011. This benefit is taxable and will be grossed up for the related taxes. Payment shall be made following receipt of the signed agreement and following the expiration of the rescission periods set forth in paragraphs 13 and 14. Regis will...

  • Page 160
    ... Separation Agreement. Benefits . The Employee is a participant in various employee benefit plans sponsored by Employer. Except as otherwise provided for herein, the payment of benefits, including the amounts and timing thereof, will be governed by the terms of the employee benefit plans. Employer...

  • Page 161
    ... not retained any copies, electronic or otherwise, of any Regis property. Notwithstanding this paragraph of this agreement, you may keep documents pertaining to your compensation and/or benefits. Compliance with the Age Discrimination in Employment Act ("ADEA") and Notice of Right to Consider and...

  • Page 162
    ... and that the only claims which he may hereafter assert against Regis will be derived only from an alleged breach of the terms of the agreement or of any employee benefit plan of which he is a participant. 18. Employee Representations . You represent that you: a. b. c. d. 19. 20. you have the right...

  • Page 163
    ... hereto have executed this Separation and Non-Disparagement Agreement and General Release as of the day and year first above written. Dated: July 7, 2011 /s/ BRUCE JOHNSON Employee (print name): Bruce Johnson REGIS CORPORATION: Dated: July 14, 2011 By: /s/ ERIC BAKKEN Eric Bakken Its: Executive Vice...

  • Page 164
    ... you sign this agreement, Regis will pay you: 1) 2) 3) All compensation you have earned through and including the last day of your employment; Any accrued but unused PTO benefit; and Vested profit sharing and deferred compensation benefits in accordance with the terms and conditions of those plans...

  • Page 165
    ..., directly or indirectly, own any interest in, render any services of any nature to, become employed by, or participate or engage in the licensed beauty salon business, except with the prior written consent of Regis. General Release . In exchange for the benefits promised you in this agreement, you...

  • Page 166
    ..., directors, agents, and/or employees. Binding Nature of Agreement . This agreement is binding on the parties and their heirs, administrators, representatives, executors, successors, and assigns. Return of Corporate Property . By signing below, you represent and warrant that all Regis property has...

  • Page 167
    ... and that the only claims which he may hereafter assert against Regis will be derived only from an alleged breach of the terms of the agreement or of any employee benefit plan of which he is a participant. Employee Representations . You represent that you: a. b. c. you have the right and we have...

  • Page 168
    ...hereto have executed this Separation and Non-Disparagement Agreement and General Release as of the day and year first above written. Dated: July 22, 2011 /s/ MARK KARTARIK Employee (print name): Mark Kartarik REGIS CORPORATION: Dated: July 22, 2011 By: /s/ ERIC BAKKEN Eric Bakken Its: Executive Vice...

  • Page 169
    ... Good Reason. (b) Duties . During the period of consulting under this Agreement, the Employee shall not serve as an officer, or continue as an employee, of the Corporation, but he shall continue to provide advice and assistance to the Corporation on certain training and education programs, including...

  • Page 170
    IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment this 30 day of June, 2011. REGIS CORPORATION By: /s/ ERIC A. BAKKEN Name: Eric A. Bakken Title: Executive Vice President /s/ GORDON NELSON Gordon Nelson 2

  • Page 171
    ... Dear Directors: We are providing this letter to you for inclusion as an exhibit to your Form 10-K filing pursuant to Item 601 of Regulation S-K. We have audited the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended June 30, 2011 and issued...

  • Page 172
    ... Services, Inc. Hair Club for Men, Ltd. 3115038 Canada, Inc. Hair Club for Men, Ltd. Hair Club for Men of Milwaukee, Ltd. TTEM, LLC* HCMA Staffing, LLC Salon Management Corporation Salon Management Corporation of New York* Regis Netherlands, Inc Roger Merger Subco LLC RGS International SNC Regis...

  • Page 173
    Company Name Country or State of Incorporation/Formation Regis Merger SARL Regis Netherlands Merger BV Provalliance, SAS Provost Participations SAS Mark Anthony, Inc. *Inactive Entities Luxemburg Netherlands France France North Carolina

  • Page 174
    ...33-44867 and 33-89882) of Regis Corporation of our report dated August 26, 2011 relating to the consolidated financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP Minneapolis...

  • Page 175
    ... financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; The Registrant's other certifying officer and...

  • Page 176
    ... financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; The Registrant's other certifying officer and...

  • Page 177
    ...with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and The information contained in the Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Registrant. August 26, 2011 /s/ RANDY L. PEARCE...

  • Page 178
    ... In connection with the Annual Report of Regis Corporation (the Registrant) on Form 10-K for the fiscal year ending June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof, I, Brent A. Moen, Senior Vice President and Chief Financial Officer of the Registrant, certify...