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, 2015 and for the three and six months ended December 31, 2015 and 2014, reflect, in the opinion of management, all adjustments necessary to fairly state the consolidated financial position of the Company as of December 31, 2015 and the consolidated results of its operations, comprehensive loss and its cash flows for the interim periods. Adjustments consist only of normal recurring items, except for any discussed in the notes below. The results of operations and cash flows for any interim period are not necessarily indicative of results of operations and cash flows for the full year.

The Condensed Consolidated Balance Sheet data for June 30, 2015 was derived from audited Consolidated Financial Statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP). The unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2015 and other documents filed or furnished with the Securities and Exchange Commission (SEC) during the current fiscal year.

Stock-Based Employee Compensation:

During the three and six months ended December 31, 2015, the Company granted various equity awards including restricted stock units (RSUs), equity-based stock appreciation rights (SARs) and performance share units (PSUs). During the six months ended December 31, 2015, the volatility assumption was updated from 38% to 30%. Otherwise there were no significant changes to the assumptions or methodology used in calculating the fair value of SARs. All grants relate to stock incentive plans that have been approved by the shareholders of the Company.

A summary of equity awards granted is as follows:



	For the Periods Ended December 31, 2015
	Three Months	Six Months
Restricted stock units	47,965	308,055
Equity-based stock appreciation rights	—	690,461
Performance share units (1)	—	410,153

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(1)	Includes 118,967 incremental performance share units earned in connection with the achievement of fiscal year 2015 performance metrics.

Total compensation cost for stock-based payment arrangements totaled $2.5 and $2.3 million for the three months ended December 31, 2015 and 2014, respectively, and $5.0 and $4.0 million for the six months ended December 31, 2015 and 2014, respectively, recorded within general and administrative expense on the unaudited Condensed Consolidated Statement of Operations.

Long-Lived Asset Impairment Assessments, Excluding Goodwill:

The Company assesses impairment of long-lived 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 our use of the assets. Impairment is evaluated based on the sum of undiscounted estimated future cash flows expected to result from use of the long-lived 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 estimated fair value of the assets. The fair value of the long-lived assets is estimated using a discounted cash flow model based on the best information available, including salon level revenues and expenses. Long-lived asset impairment charges of $5.0 and $7.0 million have been recorded within depreciation and amortization in the Consolidated Statement of Operations for the six months ended December 31, 2015 and 2014, respectively.

Revisions:

As disclosed in Note 1 of the Form 10-K for the fiscal year ended June 30, 2015, the Company revised certain prior year amounts. The following is a summary of the impact the revisions had on net loss:



	For the Periods Ended December 31, 2014
	Three Months			Six Months
	(Dollars in thousands)
Net loss, as reported	$	(19,071	)	$	(28,123	)
Revisions:
Deferred rent, pre-tax (1)	38			(189		)
Previous out of period items, pre-tax (2)	1,506			1,586
Tax impact	864			220
Total revision impact	2,408			1,617

Net loss, as revised	$	(16,663	)	$	(26,506	)

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(1)

The Company recognizes rental expense on a straight-line basis at the time the leased space becomes available to the Company. During the fourth quarter of fiscal year 2015, the Company determined its deferred rent balance was understated. Accordingly, the unaudited Condensed Consolidated Financial Statements have been revised to correctly state its deferred rent balances and rent expense. This revision had no impact on cash provided by operations or cash and cash equivalents for the quarter.


(2)	Also, in the fourth quarter of fiscal year 2015, the Company revised certain prior year amounts to correctly recognize understatements of self-insurance accruals. This revision had no impact on cash provided by operations or cash and cash equivalents for the quarter.

The Company assessed the materiality of these misstatements on prior periods' financial statements in accordance with SEC Staff Accounting Bulletin ("SAB") No. 99, Materiality, codified in ASC 250 ("ASC 250"), Presentation of Financial Statements, and concluded these misstatements were not material to any prior annual or interim periods. Accordingly, in accordance with ASC 250 (SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), the unaudited Condensed Consolidated Financial Statements as of December 31, 2014, which are presented herein, have been revised. The following are selected line items from the Company's unaudited Condensed Consolidated Financial Statements illustrating the effect of these revisions:



	CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
	(Dollars in thousands, except per share data)
	For the Periods Ended December 31, 2014
	Three Months									Six Months
	As Previously Reported			Revision			As Revised			As Previously Reported			Revision			As Revised
Site operating expenses	$	46,875		$	(1,506	)	$	45,369		$	98,527		$	(1,586	)	$	96,941
Rent	76,928			(38		)	76,890			154,397			189			154,586
Loss before income taxes and equity in loss of affiliated companies	(3,643		)	1,544			(2,099		)	(7,475		)	1,397			(6,078		)
Income taxes	(3,456		)	864			(2,592		)	(9,068		)	220			(8,848		)
Net loss	$	(19,071	)	$	2,408		$	(16,663	)	$	(28,123	)	$	1,617		$	(26,506	)

Net loss per share:
Basic and diluted earnings per share (1)	$	(0.35	)	$	0.04		$	(0.30	)	$	(0.51	)	$	0.03		$	(0.48	)

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



	CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
	(Dollars in thousands)
	For the Periods Ended December 31, 2014
	Three Months								Six Months
	As Previously Reported			Revision		As Revised			As Previously Reported			Revision		As Revised
Net loss	$	(19,071	)	$	2,408	$	(16,663	)	$	(28,123	)	$	1,617	$	(26,506	)
Comprehensive loss	$	(23,294	)	$	2,408	$	(20,886	)	$	(36,968	)	$	1,617	$	(35,351	)



	CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
	(Dollars in thousands)
	Six Months Ended December 31, 2014
	As Previously Reported			Revision			As Revised
Cash flows from operating activities:
Net loss	$	(28,123	)	$	1,617		$	(26,506	)
Deferred income taxes	6,542			(183		)	6,359
Changes in operating assets and liabilities, excluding the effects of acquisitions	633			(1,434		)	(801		)

Recent Accounting Standards Adopted by the Company:

Balance Sheet Classification of Deferred Taxes

In November 2015, the FASB issued updated guidance requiring all deferred tax assets and liabilities be presented as noncurrent. This guidance is effective for the Company in the first quarter of fiscal year 2018, with early adoption permitted. The Company early adopted this guidance in the second quarter of fiscal 2016, prospectively. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Accounting Standards Recently Issued But Not Yet Adopted by the Company:

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board ("FASB") issued updated guidance for revenue recognition. The updated accounting guidance provides a comprehensive new revenue recognition model that requires a Company to recognize revenue to depict the exchange for goods or services to a customer at an amount that reflects the consideration it expects to receive for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The guidance was effective for the Company beginning in the first quarter of fiscal year 2018. In July 2015, the FASB deferred the effective date one year and the guidance is now effective for the Company in the first quarter of fiscal year 2019. Early adoption as of the original effective date will be permitted. The standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements. The Company does not expect the adoption of this update to have a material impact on the Company's consolidated financial statements and is evaluating the effect this guidance will have on its related disclosures.

Simplifying the Presentation of Debt Issuance Costs

In April 2015, the FASB issued updated guidance requiring debt issuance costs related to a recognized debt liability to be presented in the consolidated balance sheet as a direct reduction from the carrying amount of the debt liability. The guidance is effective for the Company in the first quarter of fiscal year 2017. The Company does not expect the adoption of this guidance to have a material impact on the Company's consolidated financial statements.