10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2007

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to                

Commission file number 1-12725

Regis Corporation
(Exact name of registrant as specified in its charter)

Minnesota	41-0749934
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7201 Metro Boulevard, Edina, Minnesota	55439
(Address of principal executive offices)	(Zip Code)

(952) 947-7777
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes  o  No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of February 5, 2008:

Common Stock, $0.05 par value	42,884,215
Class	Number of Shares

REGIS CORPORATION

INDEX

Part I.	Financial Information UNAUDITED
	Item 1.	Condensed Consolidated Financial Information:
		Condensed Consolidated Balance Sheet as of December 31, 2007 and June 30, 2007	3
		Condensed Consolidated Statement of Operations for the three months ended December 31, 2007 and 2006	4
		Condensed Consolidated Statement of Operations for the six months ended December 31, 2007 and 2006	5
		Condensed Consolidated Statement of Cash Flows for the six months ended December 31, 2007 and 2006	6
		Notes to Condensed Consolidated Financial Information	7
		Review Report of Independent Registered Public Accounting Firm	20
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
	Item 4.	Controls and Procedures	39
Part II.	Other Information
	Item 1.	Legal Proceedings	39
	Item 1A.	Risk Factors	39
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
	Item 4.	Submission of Matters to a Vote of Security Holders	41
	Item 6.	Exhibits and Reports on Form 8-K	42
	Signatures		43

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PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Information

REGIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
as of December 31, 2007 and June 30, 2007
(In thousands, except per share data)

	December 31, 2007		June 30, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	172,855	$	184,785
Receivables, net	51,153		67,773
Inventories	208,107		196,582
Deferred income taxes	9,699		18,775
Other current assets	65,346		57,149
Total current assets	507,160		525,064
Property and equipment, net	484,499		494,085
Goodwill	829,446		812,383
Other intangibles, net	191,182		213,452
Investment in affiliates	89,086		20,213
Other assets	82,606		66,917
Total assets	$	2,183,979	$	2,132,114
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Long-term debt, current portion	$	244,041	$	223,352
Accounts payable	69,573		74,532
Accrued expenses	212,660		240,748
Total current liabilities	526,274		538,632
Long-term debt and capital lease obligations	523,265		485,879
Other noncurrent liabilities	203,646		194,295
Total liabilities	1,253,185		1,218,806
Shareholders’ equity:
Common stock, $0.05 par value; issued and outstanding 42,881,965 and 44,164,645 common shares at December 31, 2007 and June 30, 2007, respectively	2,144		2,209
Additional paid-in capital	141,321		178,029
Accumulated other comprehensive income	97,174		78,278
Retained earnings	690,155		654,792
Total shareholders’ equity	930,794		913,308
Total liabilities and shareholders’ equity	$	2,183,979	$	2,132,114

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

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REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
for the three months ended December 31, 2007 and 2006
(In thousands, except per share data)

	2007			2006
Revenues:
Service	$	457,868		$	440,345
Product	202,696			196,752
Royalties and fees	21,677			19,893
	682,241			656,990
Operating expenses:
Cost of service	265,977			249,613
Cost of product	105,045			100,164
Site operating expenses	48,844			54,967
General and administrative	86,144			81,411
Rent	99,768			93,163
Depreciation and amortization	31,604			30,412
Total operating expenses	637,382			609,730
Operating income	44,859			47,260
Other income (expense):
Interest expense	(11,760		)	(10,671		)
Interest income and other, net	2,092			1,582
Income before income taxes and equity in income of affiliated companies	35,191			38,171
Income taxes	(13,021		)	(11,297		)
Equity in income of affiliated companies, net of income taxes	386			—
Net income	$	22,556		$	26,874
Net income per share:
Basic	$	0.52		$	0.60
Diluted	$	0.51		$	0.59
Weighted average common and common equivalent shares outstanding:
Basic	43,369			44,673
Diluted	43,915			45,596
Cash dividends declared per common share	$	0.04		$	0.04

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

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REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
for the six months ended December 31, 2007 and 2006
(In thousands, except per share data)

	2007			2006
Revenues:
Service	$	917,586		$	874,897
Product	389,478			381,677
Royalties and fees	42,702			39,659
	1,349,766			1,296,233
Operating expenses:
Cost of service	529,037			495,138
Cost of product	199,122			194,393
Site operating expenses	102,529			110,773
General and administrative	172,496			159,364
Rent	197,531			185,335
Depreciation and amortization	63,186			59,954
Total operating expenses	1,263,901			1,204,957
Operating income	85,865			91,276
Other income (expense):
Interest expense	(22,338		)	(20,509		)
Interest income and other, net	4,247			2,393
Income before income taxes and equity in income of affiliated companies	67,774			73,160
Income taxes	(24,671		)	(23,193		)
Equity in income of affiliated companies, net of income taxes	52			—
Net income	$	43,155		$	49,967
Net income per share:
Basic	$	0.99		$	1.11
Diluted	$	0.98		$	1.09
Weighted average common and common equivalent shares outstanding:
Basic	43,559			44,858
Diluted	44,172			45,847
Cash dividends declared per common share	$	0.08		$	0.08

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

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REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
for the six months ended December 31, 2007 and 2006
(In thousands)

	2007			2006
Cash flows from operating activities:
Net income	$	43,155		$	49,967
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	57,271			53,915
Amortization	5,915			6,039
Equity in income of affiliated companies	(52		)	-
Deferred income taxes	(1,202		)	3,550
Excess tax benefits from stock-based compensation plans	(1,295		)	(2,892		)
Stock-based compensation	3,303			2,291
Other noncash items affecting earnings	707			1,497
Changes in operating assets and liabilities:
Receivables	(4,217		)	(9,278		)
Inventories	(9,686		)	(11,141		)
Other current assets	(8,062		)	(21,935		)
Other assets	(2,270		)	(3,729		)
Accounts payable	(8,572		)	14,947
Accrued expenses	2,287			9,975
Other noncurrent liabilities	14,987			8,075
Net cash provided by operating activities	92,269			101,281
Cash flows from investing activities:
Capital expenditures	(44,399		)	(46,281		)
Proceeds from sale of assets	16			133
Asset acquisitions, net of cash acquired and certain obligations assumed	(53,297		)	(25,343		)
Proceeds from loans and investments	10,000			5,250
Disbursements for loans and investments	(22,500		)	(20,063		)
Cash portion of beauty school assets contributed	(7,254		)	—
Net investment hedge settlement	—			(8,897		)
Net cash used in investing activities	(117,434		)	(95,201		)
Cash flows from financing activities:
Borrowings on revolving credit facilities	4,773,800			3,336,506
Payments on revolving credit facilities	(4,711,600		)	(3,287,500		)
Proceeds from issuance of long-term debt	50,000			25,000
Repayments of long-term debt and capital lease obligations	(63,612		)	(28,889		)
Excess tax benefits from stock-based compensation plans	1,295			2,892
Other, primarily decrease in negative book cash balances	(653		)	(2,727		)
Repurchase of common stock	(49,957		)	(37,481		)
Proceeds from issuance of common stock	7,372			8,970
Dividends paid	(3,530		)	(3,643		)
Net cash provided by financing activities	3,115			13,128
Effect of exchange rate changes on cash and cash equivalents	10,120			1,525
(Decrease) increase in cash and cash equivalents	(11,930		)	20,733
Cash and cash equivalents:
Beginning of period	184,785			135,397
End of period	$	172,855		$	156,130

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

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REGIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)

1.BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The unaudited interim Condensed Consolidated Financial Information of Regis Corporation (the Company) as of December 31, 2007 and for the three and six months ended December 31, 2007 and 2006, reflect, in the opinion of management, all adjustments necessary to fairly state the consolidated financial position of the Company as of December 31, 2007 and the consolidated results of its operations 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 Consolidated Balance Sheet data for June 30, 2007 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 Information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2007 and other documents filed or furnished with the Securities and Exchange Commission (SEC) during the current fiscal year.

The unaudited condensed financial information of the Company as of December 31, 2007 and for the three and six month periods ended December 31, 2007 and 2006 included in this Form 10-Q, has been reviewed by PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm. Their separate report dated February 7, 2008 appearing herein, states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied.  PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited financial information because that report is not a “report” or a “part” of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.

Inventories:

Inventories consist principally of hair care products held either for use in services or for sale. Cost of product used in salon services is determined by applying estimated gross profit margins to service revenues, which are based on historical factors including product pricing trends and estimated shrinkage. In addition, the estimated gross profit margin is adjusted based on the results of physical inventory counts performed at least semi-annually and the monthly monitoring of factors that could impact the Company’s usage rate estimates. These factors include mix of service sales, discounting, and special promotions. Cost of product sold to salon customers is determined based on the weighted average cost of product to the Company, adjusted for an estimated shrinkage factor. Product and service inventories are adjusted based on the results of physical inventory counts performed at least semi-annually.

Stock-Based Employee Compensation:

Stock-based awards are granted under the terms of the 2004 Long Term Incentive Plan (2004 Plan) and the 2000 Stock Option Plan. Additionally, the Company has outstanding stock options under its 1991 Stock Option Plan, although the Plan terminated in 2001. Under these plans, four types of stock-based compensation awards are granted: stock options, equity-based stock appreciation rights (SARS), restricted stock and restricted stock units (RSUs). The stock-based awards, other than the RSUs, expire within ten years from the grant date. The Company utilizes an option-pricing model to estimate the fair value of options at their grant date. Compensation expense for its stock-based compensation awards, other than RSUs, is generally recognized on a straight-line basis over the five-year vesting period. The RSUs cliff vest after five years, and payment of the RSUs is deferred until January 31 of the year following vesting. Awards granted do not contain acceleration of vesting terms for retirement eligible recipients. The Company’s primary employee stock-based compensation grant occurs during the fourth fiscal quarter.

Total compensation expense related to share-based compensation plans was $3.3 million and $2.3 million for the six months ended December 31, 2007 and 2006, respectively. A summary of outstanding and exercisable options as of December 31, 2007, and changes during the three and six months ended December 31, 2007 is presented below:

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Summary of Options	Shares		Weighted- Average Exercise  Price
	(In thousands)
Outstanding at July 1, 2007	2,193		$	22.97
Granted	—		—
Exercised	(29	)	24.42
Forfeited or expired	(39	)	33.02
Outstanding at September 30, 2007	2,125		$	22.65
Granted	—		—
Exercised	(410	)	16.24
Forfeited or expired	(14	)	35.41
Outstanding at December 31, 2007	1,701		$	24.08
Exercisable at December 31, 2007	1,329		$	20.61

An additional 356,332 shares are expected to vest with a $36.45 weighted average exercise price and a weighted average remaining contractual life of 7.9 years. The total intrinsic value of options exercised during the three and six months ended December 31, 2007 was $6.1 and $6.3 million, respectively, and $6.6 and $11.2 million for the three and six months ended December 31, 2006, respectively.

A summary of the nonvested restricted stock shares, RSUs and SARs outstanding as of December 31, 2007 and changes during the three and six months ended December 31, 2007 is presented below:

	Nonvested				SARs Outstanding
	Restricted Stock Outstanding Shares/Units		Weighted Average Grant Date Fair Value		Shares		Weighted Average Exercise Price
Balance, June 30, 2007	473,700		$	38.36	400,300		$	37.53
Granted	—		—		—		—
Vested/Exercised	(301	)	36.20		—		—
Forfeited or expired	(11,150	)	37.73		(9,950	)	38.61
Balance, September 30, 2007	462,249		$	37.83	390,350		$	38.24
Granted	—		—		—		—
Vested/Exercised	—		—		—		—
Forfeited or expired	—		—		(1,500	)	39.11
Balance, December 31, 2007	462,249		$	37.83	388,850		$	38.24

The total unrecognized compensation cost related to unvested stock-based compensation arrangements was $21.6 million at December 31, 2007 and the related weighted average period over which it is expected to be recognized is approximately 3.5 years.

Recent Accounting Pronouncements:

In September 2006, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measures (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 (i.e., the Company’s first quarter of fiscal year 2009). On November 14, 2007, the FASB proposed deferral of SFAS No. 157’s effective date for all non-financial assets and liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until years beginning after November 15, 2008. The Company is currently evaluating the impact of SFAS No. 157 on its Consolidated Financial Statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Companies are not allowed to adopt SFAS No. 159 on a retrospective basis unless they choose early adoption. If the Company chooses to adopt SFAS No. 159, the Company will adopt at the beginning of fiscal year 2009. The Company is currently evaluating the impact of SFAS No. 159 on its Consolidated Financial Statements.

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In September 2006, the Emerging Issues Task Force (EITF) ratified Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. EITF No. 06-4 addresses whether or not an employer needs to recognize a liability for future benefits based on the agreement with the employee under the endorsement split-dollar life insurance arrangement. It focuses exclusively on endorsement split-dollar life insurance arrangements that provide a benefit to an employee that extends to postretirement periods. The Issue does not apply to a split-dollar life insurance arrangement that provides a specified benefit to an employee that is limited to the employee’s active service period with an employer. The EITF will be effective for fiscal years beginning after December 15, 2007 (i.e., fiscal year 2009). The Company is currently evaluating the impact of EITF No. 06-4 on its Consolidated Financial Statements and does not expect its application to have a material impact on the Company’s Consolidated Financial Statements.

In December 2007, the FASB issued Statement of Financial Accounting Standard No. 141(R), Business Combinations (SFAS No. 141(R)). SFAS No. 141(R) changes the accounting for business combinations in a number of areas including the treatment of contingent consideration, preacquisition contingencies, transactions costs, in-process research and development, and restructuring costs. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is required to adopt SFAS No. 141(R) at the beginning of fiscal year 2010. The Company is currently evaluating the impact of SFAS No. 141(R) on its Consolidated Financial Statements.

2.      SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME:

Additional Paid-In Capital

The decrease in additional paid-in capital during the six months ended December 31, 2007 was due to the following:

	(Dollars in thousands)
Balance, June 30, 2007	$	178,029
Exercise of stock options	7,351
Franchise stock incentive plan	416
Tax benefit realized upon exercise of stock options	2,330
Stock-based compensation	3,303
FIN 48 adjustment	(237		)
Stock repurchase	(49,871		)
Balance, December 31, 2007	$	141,321

Comprehensive Income

Components of comprehensive income for the Company include net income, changes in fair market value of financial instruments designated as hedges of interest rate or foreign currency exposure and foreign currency translation charged or credited to the cumulative translation account within shareholders’ equity. Comprehensive income for the three and six months ended December 31, 2007 and 2006 was as follows:

	For the Periods Ended December 31,
	Three Months					Six Months
	2007			2006		2007			2006
				(Dollars in thousands)
Net income	$	22,556		$	26,874	$	43,155		$	49,967
Other comprehensive income (loss):
Changes in fair market value of financial instruments designated as cash flow hedges of interest rate exposure, net of taxes	(1,101		)	359		(2,841		)	(687		)
Change in cumulative foreign currency translation, net of taxes	9,543			3,141		21,737			7,409
Total comprehensive income	$	30,998		$	30,374	$	62,051		$	56,689

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3.NET INCOME PER SHARE:

The following table sets forth a reconciliation of shares used in the computation of basic and diluted earnings per share:

	For the Periods Ended December 31,
	Three Months		Six Months
	2007	2006	2007	2006
		(Shares in thousands)
Weighted average shares for basic earnings per share	43,369	44,673	43,559	44,858
Effect of dilutive securities:
Dilutive effect of stock-based compensation	442	872	509	938
Contingent shares issuable under contingent stock agreements (see Note 5).	104	51	104	51
Weighted average shares for diluted earnings per share	43,915	45,596	44,172	45,847
Anti-dilutive stock-based compensation shares excluded from the above computations:
Stock options, SARs, restricted stock and RSUs	1,209	603	1,193	622

Restricted stock awards, including restricted stock units, of 462,249 shares for the three and six months ended December 31, 2007, and 186,750 shares for the three and six months ended December 31, 2006, were excluded from the computation of basic weighted average shares outstanding as such shares were not yet vested at these dates.

4.      GOODWILL AND OTHER INTANGIBLES:

The tables below contain detail related to the Company’s recorded goodwill as of December 31, 2007 and June 30, 2007.

	Salons				Beauty			Hair Restoration
	North America		International		Schools(1)			Centers		Consolidated
	(Dollars in thousands)
Balance at June 30, 2007	$	570,161	$	46,487	$	60,934		$	134,801	$	812,383
Goodwill acquired	20,524		6,039		—			15,073		41,636
Impact of contribution of certain beauty schools(1)	13,829		13,071		(60,960		)	—		(34,060		)
Adjustment related to FIN 48	—		—		—			3,859		3,859
Translation rate adjustments	3,860		1,742		26			—		5,628
Balance at December 31, 2007	$	608,374	$	67,339	$	—		$	153,733	$	829,446

(1) On August 1, 2007, the Company contributed its accredited cosmetology schools to Empire Education Group, Inc. The Company retained ownership of its one North America and four United Kingdom Vidal Sassoon schools. Subsequent to August 1, 2007 results of operations and assets for the Vidal Sassoon schools are included in the respective North American and international salon segments.

Goodwill acquired includes adjustments to prior year acquisitions, including the finalization of purchase price allocations.

Goodwill is tested for impairment annually or at the time of a triggering event in accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. Fair values are estimated based on the Company’s best estimate of the expected present value of future cash flows and compared with the corresponding carrying value of the reporting unit, including goodwill. Where available and as appropriate, comparative market multiples are used to corroborate the results of the present value method. The Company considers its various concepts to be reporting units when it tests for goodwill impairment because that is where the Company believes goodwill resides. The Company’s policy is to perform

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its annual goodwill impairment test during its fiscal third quarter of each fiscal year ending June 30.

Related to FIN 48 the Company recorded a $3.9 million adjustment to goodwill to account for preacquisition tax positions at the Company’s hair restoration centers segment.

The table below presents other intangible assets as of December 31, 2007 and June 30, 2007:

	December 31, 2007							June 30, 2007
			Accumulated							Accumulated
	Cost		Amortization (1)			Net		Cost		Amortization (1)			Net
	(Dollars in thousands)
Amortized intangible assets:
Brand assets and trade names	$	110,987	$	(11,485	)	$	99,502	$	112,999	$	(10,193	)	$	102,806
Customer lists	51,317		(14,845		)	36,472		48,744		(9,970		)	38,774
Franchise agreements	33,012		(8,680		)	24,332		27,149		(7,538		)	19,611
Product license agreements	18,523		(3,524		)	14,999		16,946		(2,944		)	14,002
School-related licenses	—		—			—		25,428		(1,247		)	24,181
Non-compete agreements	739		(614		)	125		691		(644		)	47
Other	21,741		(5,989		)	15,752		21,661		(7,630		)	14,031
	$	236,319	$	(45,137	)	$	191,182	$	253,618	$	(40,166	)	$	213,452

(1)Balance sheet accounts are converted at the applicable exchange rates effective as of the reported balance sheet dates, while income statement accounts are converted at the average exchange rates for the year-to-date periods presented.

All intangible assets have been assigned an estimated finite useful life and are amortized over the number of years that approximate their respective useful lives (ranging from one to 40 years). The cost of intangible assets is amortized to earnings in proportion to the amount of economic benefits obtained by the 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)
Amortized intangible assets:
Brand assets and trade names	39
Customer lists	10
Franchise agreements	21
Product license agreements	30
Non-compete agreements	6
Other	19
Total	28

Total amortization expense related to amortizable intangible assets was approximately $2.9 million during the three months ended December 31, 2007 and 2006, and $5.8 million during the six months ended December 31, 2007 and 2006. As of December 31, 2007, future estimated amortization expense related to amortizable intangible assets is estimated to be:

Fiscal Year	(Dollars in thousands)
2008 (Remainder: six-month period)	$	6,008
2009	12,348
2010	12,086
2011	11,876
2012	11,659

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5.      ACQUISITIONS, LOANS AND INVESTMENTS:

Acquisitions

During the six months ended December 31, 2007 and 2006, the Company made numerous salon and hair restoration center acquisitions and the purchase prices have been allocated to assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. Operations of the acquired companies have been included in the operations of the Company since the date of the respective acquisition.

The components of the aggregate purchase prices of the acquisitions made during the six months ended December 31, 2007 and 2006 and the allocation of the purchase prices were as follows:

	For the Six Months Ended  December 31,
Allocation of Purchase Prices	2007			2006
	(Dollars in thousands)
Components of aggregate purchase prices:
Cash	$	53,297		$	25,343
Liabilities assumed	2,602			844
	$	55,899		$	26,187
Allocation of the purchase price:
Current assets	$	2,022		$	1,964
Property and equipment	5,664			3,774
Deferred income tax asset	—			1,043
Other noncurrent assets	1,210			9
Goodwill	41,636			17,873
Identifiable intangible assets	7,978			2,044
Accounts payable and accrued expenses	(2,611		)	(84		)
Deferred income tax liability	—			(436		)
	$	55,899		$	26,187

In a limited number of acquisitions, the Company guarantees that the stock issued in conjunction with the acquisition will reach a certain market price. If the stock should not reach this price during an agreed upon time frame (typically three years from the date of acquisition), the Company is obligated to issue additional consideration to the sellers. Once the agreed upon stock price is met or exceeded for a period of five consecutive days, the contingency is met and the Company is no longer liable. At December 31, 2007, one contingency of this type exists, which expires in March of 2008. Based on the December 31, 2007 market price, the Company would be required to provide an additional 103,650 shares with an aggregate market value on that date of $2.9 million related to this acquisition contingency if the agreed upon time frame was assumed to have expired December 31, 2007. These contingently issuable shares have been included in the calculation of diluted earnings per share.

The majority of the purchase price in salon acquisitions is accounted for as residual goodwill rather than identifiable intangible assets. This stems from the value associated with the walk-in customer base of the acquired salons, which is not recorded as an identifiable intangible asset under current accounting guidance, as well as the limited value and customer preference associated with the acquired hair salon brand. Key factors considered by consumers of hair salon services include personal relationships with individual stylists, service quality and price point competitiveness. These attributes represent the “going concern” value of the salon.

Residual goodwill 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 primarily represents the growth prospects that are not captured as part of acquired tangible or identified intangible assets. Generally, the goodwill recognized in the North American salon transactions is expected to be fully deductible for tax purposes and the goodwill recognized in the international salon transactions is non-deductible for tax purposes. Goodwill generated in certain acquisitions, such as Hair Club, is not deductible for tax purposes due to the acquisition structure of the transaction.

During the six months ended December 31, 2007 and 2006, the Company purchased certain salon operations from its franchisees. The Company evaluated the effective settlement of the preexisting franchise contracts and associated rights afforded by those contracts in accordance with Emerging Issues Task Force (EITF) No. 04-1, Accounting for Preexisting Relationships Between the Parties to a Business Combination. The Company determined that the effective settlement of the preexisting franchise contracts at the date of the acquisition did not result in a gain or loss, as the agreements were neither favorable nor unfavorable when compared to similar current market transactions, and no settlement provisions exist in the preexisting contracts. Therefore, no settlement gain or loss was recognized with respect to the Company’s franchise buybacks.

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Loans and Investments

On August 1, 2007, the Company contributed its 51 wholly-owned accredited cosmetology schools to Empire Education Group, Inc., in exchange for a 49.0 percent minority interest in Empire Education Group, Inc. The carrying value of the contributed schools approximated the estimated fair value of the Company’s interest in Empire Education Group, Inc., resulting in no gain or loss on the date of contribution. The Company’s investment in Empire Education Group, Inc. is accounted for under the equity method of accounting. Subsequent to August 1, 2007, the Company completed $22.5 million of loans and advances to Empire Education Group, Inc., of which $12.5 million was outstanding at December 31, 2007. The Company recorded $0.4 million of interest income related to these loans and advances during the six months ended December 31, 2007. During the six months ended December 31, 2007, the Company recorded $0.7 million of equity earnings related to its investment in Empire Education Group, Inc. In January 2008, the Company’s effective ownership interest increased to 55.1 percent related to the buyout of Empire’s minority interest shareholder. In connection with the buyout, the Company advanced Empire Education Group, Inc., an additional $21.4 million. The Company will continue to account for the investment in Empire Education Group, Inc., under the equity method of accounting as Empire retains majority voting interest.

The Company holds exchangeable notes issued by Yamano Holding Corporation and a loan obligation of a Yamano Holdings subsidiary, Beauty Plaza Co. Ltd., for an aggregate amount of $11.0 million. A portion of the notes are exchangeable for approximately 14.8 percent of the outstanding shares of Beauty Takashi Co. Ltd., a subsidiary of Yamano Holdings. The exchangeable portion of the notes is accounted for as a cost method investment. The Company recorded less than $0.1 million in income related to the exchangeable notes and loan obligation during the six months ended December 31, 2007. In connection with the purchase of the exchangeable notes and loan obligation, the parties also entered into a business collaboration agreement with respect to their joint pursuit of opportunities relating to retail hair salons in Asia.

The Company holds a 50.0 percent interest in Intelligent Nutrients, LLC. The Company is accounting for this investment under the equity method. Intelligent Nutrients, LLC currently carries a wide variety of organic, harmonically grown™ products, including dietary supplements, coffees, teas and aromatics. Additionally, a full line of professional hair care and personal care products is in development and is expected to be available in the spring of calendar year 2008. These products will be offered at the Company’s corporate and franchise salons, and eventually in other independently owned salons. During the six months ended December 31, 2007 the Company recorded a loss of $0.9 million net of $0.4 million of tax benefit related to this equity investment.

The Company holds a 19.9 percent interest in the voting common stock of Cameron Capital I, Inc. (CCI). CCI owns and operates PureBeauty and BeautyFirst salons. The investment is accounted for under the equity method. As of December 31, 2007 and June 30, 2007 the Company also had $10.0 million of long-term notes receivable under a credit agreement with the majority corporate investor in this privately held entity. During the six months ended December 31, 2007, the Company recorded a loss of less than $0.1 million related to this equity investment. See Note 10 for subsequent event related to this investment.

The Company holds an interest of less than 20 percent in the preferred stock of a privately held entity, Cool Cuts 4 Kids, Inc. This investment is accounted for under the cost method. During fiscal year 2006, the Company determined that its investment was impaired and recognized an impairment loss within interest income and other, net in the Consolidated Statement of Operations for the full carrying value. The Company’s securities purchase agreement contains a call provision, giving the Company the right of first refusal should the privately held entity receive a bona fide offer from another company, as well as the right to purchase all of the assets of the privately held entity during the period from April 1, 2008 to January 31, 2009 for a multiple of cash flow.

6.      LITIGATION:

The Company is a defendant in various lawsuits and claims arising out of the normal course of business. Like certain other large retail employers, the Company has been faced with allegations of purported class-wide wage and hour violations. Litigation is inherently unpredictable and the outcome of these matters cannot presently be determined. Although company counsel believes that the Company has valid defenses in these matters, it could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations in any particular period.

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7.DERIVATIVE FINANCIAL INSTRUMENTS:

The primary market risk exposure of the Company relates to changes in interest rates in connection with its debt, some of which bears interest at variable rates based on LIBOR plus an applicable borrowing margin. Additionally, the Company is exposed to foreign currency translation risk related to its net investments in its foreign subsidiaries and, to a lesser extent, foreign currency denominated transactions. 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 does not enter into such contracts for the purpose of speculation.

In September 2007 the Company entered into several forward foreign currency contracts to hedge the U.S. Dollar value of future Chinese Yuan denominated payments to Chinese vendors. The foreign currency contracts totaled approximately 6.0 million Chinese Yuan or $0.8 million U.S. dollars and have maturation dates between April 2008 and September 2008. The purpose of the forward contracts is to protect against adverse movements in the Chinese Yuan exchange rate. The contracts were designated and are effective as cash flow hedges of Chinese Yuan denominated foreign currency firm commitments. These cash flow hedges were recorded at fair value within other current assets in the Condensed Consolidated Balance Sheet, with a corresponding offset in other comprehensive income within shareholders’ equity.

8.INCOME TAXES:

The reported effective tax rate was 37.0 percent and 29.6 percent for the three months ended December 31, 2007 and 2006, respectively, and 36.4 percent and 31.7 percent for the six months ended December 31, 2007 and 2006, respectively. The provision for income taxes differs from the amount of income tax determined by applying the applicable United States (U.S.) statutory rate to earnings before income taxes, as a result of the following:

	For the Periods Ended December 31,
	Three Months				Six Months
Tax Rate Reconciliation	2007		2006		2007		2006
U.S. statutory tax rate	35.0	%	35.0	%	35.0	%	35.0	%
Adjustments resulting from:
State income taxes, net of federal income tax benefit	4.3		2.2		4.0		2.5
Foreign income taxes at other than U.S. rates	(3.0	)	(2.7	)	(2.9	)	(2.7	)
Work Opportunity Tax Credits and jobs tax credits, net	(2.1	)	(6.8	)	(1.8	)	(3.4	)
Other, net	2.8		1.9		2.1		0.3
Effective income tax rate	37.0	%	29.6	%	36.4	%	31.7	%

The Company adopted the provisions of FIN 48 effective July 1, 2007.  As a result of adoption, the Company recognized a $20.7 million increase in the liability for unrecognized income tax benefits, including interest and penalties, which was accounted for through the following accounts (dollars in thousands):

Deferred income taxes	$	10,128
Goodwill	6,094
Additional paid-in capital	237
Retained earnings	4,201
Total increase	$	20,660

On July 1, 2007, the Company had gross unrecognized tax benefits of $22.5 million, of which $6.5 million would affect the effective tax rate if recognized.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense in its financial statements.  As of the adoption date, the Company had accrued interest and penalties related to unrecognized tax benefits of $7.2 million.  This amount is not included in the gross unrecognized tax benefits noted above.

The Company files tax returns and pays tax primarily in the United States, Canada, the United Kingdom, and a number of countries in continental Europe as well as states, cities, and provinces within these jurisdictions. With few exceptions,

14

tax years prior to June 30, 2004 are closed to audit. The Company, or its subsidiaries, is currently under audit by a number of states as well as Canada and the United Kingdom, and it is reasonably certain that some or all of these audits might be resolved within the next twelve months. Resolution of these audits could result in offsets to other balance sheet accounts, cash payments, and/or adjustments to the annual effective rate. The Company does not expect a significant increase or decrease in unrecognized tax benefits over the next 12 months. Between July 1, 2007 and December 31 2007, there were no material changes to the Company’s gross liability for unrecognized tax benefits.

9.SEGMENT INFORMATION:

As of December 31, 2007, the company owned, franchised or held ownership interests in over 12,600 worldwide locations. The Company’s locations consisted of 9,967 North American salons (located in the United States, Canada and Puerto Rico), 2,103 international salons, 90 hair restoration centers and approximately 475 locations in which the Company maintains an ownership interest. The Company operates its North American salon operations through five primary concepts: Regis Salons, MasterCuts, Trade Secret, SmartStyle and Strip Center salons. The concepts offer similar products and services, concentrate on the mass market consumer marketplace and have consistent distribution channels. All of the company-owned and franchise salons within the North American salon concepts are located in high traffic, retail shopping locations that attract mass market consumers, and the individual salons generally display similar economic characteristics. The salons share interdependencies and a common support base. The Company’s international salon operations, which are primarily in Europe, are located in malls, leading department stores, mass merchants and high-street locations. The Company’s hair restoration centers are located in the United States and Canada.

On August 1, 2007, the Company contributed its accredited cosmetology schools to Empire Education Group, Inc. The results of operations for the month ended July 31, 2007 for the accredited cosmetology schools are reported in the North American salons segment. The Company retained ownership of its one North America and four United Kingdom Vidal Sassoon schools. Subsequent to August 1, 2007 results of operations for the Vidal Sassoon schools are included in the respective North American and international salon segments.

Based on the way the Company manages its business, it has reported its North American salons, international salons and hair restoration centers as three separate reportable operating segments.

Financial information for the Company’s reporting segments is shown in the following tables:

Assets by Segment	December 31, 2007		June 30, 2007
	(Dollars in thousands)
North American salons	$	1,261,605	$	1,070,776
International salons	251,969		210,629
Beauty schools	—		163,818
Hair restoration centers	277,480		262,295
Unallocated corporate	392,925		424,596
Consolidated	$	2,183,979	$	2,132,114

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	For the Three Months Ended December 31, 2007(1)
	Salons				Hair Restoration		Unallocated
	North America		International		Centers		Corporate			Consolidated
	(Dollars in thousands)
Revenues:
Service	$	399,377	$	43,224	$	15,267	$	—		$	457,868
Product	166,803		19,133		16,760		—			202,696
Royalties and fees	9,900		10,699		1,078		—			21,677
	576,080		73,056		33,105		—			682,241
Operating expenses:
Cost of service	233,667		24,091		8,219		—			265,977
Cost of product	90,002		10,117		4,926		—			105,045
Site operating expenses	43,829		3,708		1,307		—			48,844
General and administrative	33,394		11,786		7,357		33,607			86,144
Rent	83,324		14,284		1,728		432			99,768
Depreciation and amortization	21,690		2,589		2,552		4,773			31,604
Total operating expenses	505,906		66,575		26,089		38,812			637,382
Operating income (loss)	70,174		6,481		7,016		(38,812		)	44,859
Other income (expense):
Interest	—		—		—		(11,760		)	(11,760		)
Other, net	—		—		—		2,092			2,092
Income (loss) before income taxes and equity in income of affiliated companies	$	70,174	$	6,481	$	7,016	$	(48,480	)	$	35,191

(1) On August 1, 2007, the Company contributed its accredited cosmetology schools to Empire Education Group, Inc. The Company retained ownership of its one North America and four United Kingdom Vidal Sassoon schools. Results of operations for the Vidal Sassoon schools are included in the respective North American and international salon segments.

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	For the Three Months Ended December 31, 2006
	Salons				Beauty		Hair Restoration		Unallocated
	North America		International		Schools		Centers		Corporate			Consolidated
	(Dollars in thousands)
Revenues:
Service	$	372,161	$	35,234	$	20,142	$	12,808	$	—		$	440,345
Product	163,256		15,919		1,834		15,743		—			196,752
Royalties and fees	9,496		9,216		—		1,181		—			19,893
	544,913		60,369		21,976		29,732		—			656,990
Operating expenses:
Cost of service	215,863		18,618		8,184		6,948		—			249,613
Cost of product	84,591		9,883		1,126		4,564		—			100,164
Site operating expenses	46,739		2,721		4,216		1,291		—			54,967
General and administrative	30,345		11,556		2,796		6,542		30,172			81,411
Rent	77,690		11,111		2,241		1,608		513			93,163
Depreciation and amortization	20,631		2,193		829		2,390		4,369			30,412
Total operating expenses	475,859		56,082		19,392		23,343		35,054			609,730
Operating income (loss)	69,054		4,287		2,584		6,389		(35,054		)	47,260
Other income (expense):
Interest	—		—		—		—		(10,671		)	(10,671		)
Other, net	—		—		—		—		1,582			1,582
Income (loss) before income taxes	$	69,054	$	4,287	$	2,584	$	6,389	$	(44,143	)	$	38,171

17

	For the Six Months Ended December 31, 2007(1)
	Salons				Hair Restoration		Unallocated
	North America		International		Centers		Corporate			Consolidated
	(Dollars in thousands)
Revenues:
Service	$	806,516	$	81,653	$	29,417	$	—		$	917,586
Product	321,636		34,426		33,416		—			389,478
Royalties and fees	20,049		20,258		2,395		—			42,702
	1,148,201		136,337		65,228		—			1,349,766
Operating expenses:
Cost of service	468,555		44,512		15,970		—			529,037
Cost of product	170,635		18,728		9,759		—			199,122
Site operating expenses	93,037		6,915		2,577		—			102,529
General and administrative	66,388		23,600		14,516		67,992			172,496
Rent	166,320		26,913		3,385		913			197,531
Depreciation and amortization	43,585		5,048		5,049		9,504			63,186
Total operating expenses	1,008,520		125,716		51,256		78,409			1,263,901
Operating income (loss)	139,681		10,621		13,972		(78,409		)	85,865
Other income (expense):
Interest	—		—		—		(22,338		)	(22,338		)
Other, net	—		—		—		4,247			4,247
Income (loss) before income taxes and equity in income of affiliated companies	$	139,681	$	10,621	$	13,972	$	(96,500	)	$	67,774

(1) On August 1, 2007, the Company contributed its accredited cosmetology schools to Empire Education Group, Inc. For the six months ended December 31, 2007, the results of operations for the month ended July 31, 2007 for the accredited cosmetology schools are reported in the North American salons segment. The Company retained ownership of its one North America and four United Kingdom Vidal Sassoon schools. Subsequent to August 1, 2007 results of operations for the Vidal Sassoon schools are included in the respective North American and international salon segments.

18

	For the Six Months Ended December 31, 2006
	Salons				Beauty		Hair Restoration		Unallocated
	North America		International		Schools		Centers		Corporate			Consolidated
	(Dollars in thousands)
Revenues:
Service	$	743,360	$	68,924	$	37,106	$	25,507	$	—		$	874,897
Product	317,164		29,360		4,235		30,918		—			381,677
Royalties and fees	19,295		17,960		—		2,404		—			39,659
	1,079,819		116,244		41,341		58,829		—			1,296,233
Operating expenses:
Cost of service	428,235		36,596		16,220		14,087		—			495,138
Cost of product	164,295		17,875		2,928		9,295		—			194,393
Site operating expenses	94,844		5,075		8,546		2,308		—			110,773
General and administrative	59,390		21,726		5,163		12,819		60,266			159,364
Rent	154,585		22,106		4,477		3,272		895			185,335
Depreciation and amortization	40,770		4,065		1,641		4,724		8,754			59,954
Total operating expenses	942,119		107,443		38,975		46,505		69,915			1,204,957
Operating income (loss)	137,700		8,801		2,366		12,324		(69,915		)	91,276
Other income (expense):
Interest	—		—		—		—		(20,509		)	(20,509		)
Other, net	—		—		—		—		2,393			2,393
Income (loss) before income taxes	$	137,700	$	8,801	$	2,366	$	12,324	$	(88,031	)	$	73,160

10.SUBSEQUENT EVENTS:

On January 18, 2008, the Company entered into a stock purchase agreement with Cameron Capital Investments Inc. to purchase all Capital Stock of Cameron Capital I, Inc. Prior to the agreement, the Company held a 19.9 percent interest in the voting common stock of Cameron Capital I, Inc., a wholly-owned subsidiary of Cameron Capital Investments, Inc.  The 19.9 percent interest was accounted for under the equity method of accounting.

On January 18, 2008, the Company increased its effective ownership interest in Empire Education Group, Inc. from 49.0 to 55.1 percent related to the buyout of Empire’s minority interest shareholder. In connection with the buyout, the Company advanced Empire Education Group, Inc., an additional $21.4 million. The Company will continue to account for the investment in Empire Education Group, Inc., under the equity method of accounting as Empire retains majority voting interest.

On January 31, 2008, the Company closed on its transaction with the Franck Provost group pursuant to a business combination agreement dated October 12, 2007. The Company holds a 30.0 percent interest in the combined business and individual members of the Franck Provost family and related legal entities and Artal Services N.V. collectively hold the remaining 70.0 percent interest. The Company’s investment in the business will be accounted for under the equity method. The Company contributed to the combined business the shares of each of its European operating subsidiaries, excluding the Company’s operating subsidiaries in the United Kingdom and Germany. The salons contributed represented approximately 22.9 percent of the international salon revenues for the six months ended December 31, 2007.  The contributed subsidiaries operate retail hair salons in France, Italy, Spain, Switzerland and several other European countries primarily under the Jean Louis David^TM and Saint Algue^TM brands.

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REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Directors of Regis Corporation:

We have reviewed the accompanying condensed consolidated balance sheet of Regis Corporation as of December 31, 2007 and the related condensed consolidated statements of operations for the three and six month periods ended December 31, 2007 and 2006 and of cash flows for the six month periods ended December 31, 2007 and 2006.  This interim financial information is the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of June 30, 2007, and the related consolidated statements of operations, of changes in shareholders’ equity and comprehensive income and of cash flows for the year then ended (not presented herein), and in our report dated August 29, 2007, we expressed an unqualified opinion on those financial statements (our opinion contained an explanatory paragraph stating that the Company changed the manner in which it accounts for defined benefit arrangements effective June 30, 2007). In our opinion, the accompanying consolidated balance sheet information as of June 30, 2007, is fairly stated, in all material respects in relation to the consolidated balance sheet from which it has been derived.

As discussed in Note 8 to the Condensed Consolidated financial statements, Regis Corporation changed the manner in which it accounts for unrecognized income tax benefits effective July 1, 2007.

/s/ PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP

Minneapolis, Minnesota
February 7, 2008

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of our financial information with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.  Our MD&A is presented in five sections:

·Management’s Overview

·Critical Accounting Policies

·Overview of Results

·Results of Operations

·Liquidity and Capital Resources

MANAGEMENT’S OVERVIEW

Regis Corporation (RGS) owns or franchises beauty salons, hair restoration centers and educational establishments. As of December 31, 2007, we owned, franchised or held ownership interests in over 12,600 worldwide locations. Our locations consisted of 12,070 system wide North American and international salons, 90 hair restoration centers and approximately 475 locations in which we maintain an ownership interest. Our salon concepts offer generally similar products and services and serve mass market consumers. Our salon operations are organized to be managed based on geographical location. Our North American salon operations include 9,967 salons, including 2,179 franchise salons, operating in the United States, Canada and Puerto Rico primarily under the trade names of Regis Salons, MasterCuts, Trade Secret, SmartStyle, Supercuts and Cost Cutters. Our international salon operations include 2,103 salons, including 1,588 franchise salons located throughout Europe, primarily in the United Kingdom, France, Italy and Spain. Hair Club for Men and Women includes 90 North American locations, including 35 franchise locations. During the six months ended December 31, 2007, we had approximately 62,700 corporate employees worldwide.

Our growth strategy consists of two primary, but flexible, components. Through a combination of organic and acquisition growth, we seek to achieve our long-term objective of six to ten percent annual revenue growth. We anticipate that going forward, the mix of organic and acquisition growth will be roughly equal. However, depending on several factors, including the ability of our salon development program to keep pace with the availability of real estate for new construction, hair restoration lead generation, the availability of attractive acquisition candidates and same-store sales trends, this mix will vary from year to year. We believe achieving revenue growth of eight to ten percent, including same-store sales increases in excess of two percent, will allow us to increase annual earnings at a low-double-digit growth rate. We anticipate expanding our presence in North America. In April 2007, the Company entered the Asian market through an investment in a privately held Japanese company.

Maintaining financial flexibility is a key element in continuing our successful growth. With strong operating cash flow and balance sheet, we are confident that we will be able to financially support our long-term growth objectives.

Salon Business

The strength of our salon business is in the fundamental similarity and broad appeal of our salon concepts that allow flexibility and multiple salon concept placements in shopping centers and neighborhoods. Each concept generally targets the middle market customer, however, each attracts a different demographic. We anticipate expanding all of our salon concepts. When commercial opportunities arise, we anticipate testing and developing new salon concepts to complement our existing concepts.

We execute our salon growth strategy by focusing on real estate. 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 and Wal-Mart Supercenters. We believe that the availability of real estate will augment our ability to achieve the aforementioned long-term growth objectives. In fiscal year 2008, our outlook for constructed salons is approximately 350 units, and we expect to add between 500 and 700 net locations through a combination of organic, acquisition and franchise growth. Capital Expenditures in fiscal year 2008, excluding acquisition expenditures, are projected to be approximately $100 million, which includes approximately $50 million for salon maintenance.

Organic salon revenue growth is achieved through the combination of new salon construction and salon same-store sales increases. Each fiscal year, we anticipate building several hundred company-owned salons. We anticipate our franchisees will open several hundred salons as well. Older, unprofitable salons will be closed or relocated. Our long-term outlook for our salon business is for annual consolidated low single digit same-store sales increases. Based on current fashion and economic cycles (i.e., longer hairstyles and lengthening of customer visitation patterns), we project our annual fiscal year 2008 consolidated same-store sales increase to be 0.25 to 1.25 percent.

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Historically, our salon acquisitions have varied in size from as small as one salon to over one thousand salons. The median acquisition size is approximately ten salons. From fiscal year 1994 to December 31, 2007, we acquired 7,676 salons, net of franchise buybacks. We anticipate adding several hundred company-owned salons each year from acquisitions. Some of these acquisitions may include buying salons from our franchisees.

Hair Restoration Business

In December 2004, we acquired Hair Club for Men and Women. Hair Club for Men and Women is a provider of hair loss solutions with an estimated five percent share of the $4 billion domestic market. This industry is comprised of numerous locations domestically and is highly fragmented. As a result, we believe there is an opportunity to consolidate this industry through acquisition. Expanding the hair loss business organically and through acquisition would allow us to add incremental revenue which is neither dependent upon, nor dilutive to, our existing salon and school businesses.

Our organic growth plans for hair restoration include the construction of a modest number 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, hair restoration centers operate primarily in professional or medical office buildings. Further, the hair restoration business is more marketing intensive. As a result, organic growth at our hair restoration centers will be dependent on successfully generating new leads and converting them into hair restoration customers. Our growth expectations for our hair restoration business are not dependent on referral business from, or cross marketing with, our hair salon business, but these concepts will be evaluated closely for additional growth opportunities.

Beauty School Business

On August 1, 2007, we contributed our 51 accredited cosmetology schools to Empire Education Group, Inc., creating the largest beauty school operator in North America. As of December 31, 2007, we own a 49.0 percent minority interest in Empire Education Group, Inc. (Empire). In January 2008, our ownership interest increased to 55.1 percent related to the buyout of Empire’s minority interest shareholder. Our investment in Empire is accounted for under the equity method. This transaction leverages Empire’s management expertise, while enabling us to maintain a vested interest in the beauty school industry. Once the integration of the Regis schools is complete, we expect to share in significant synergies and operating improvements. The combined Empire Education Group, Inc. includes 87 accredited cosmetology schools with annual revenues of approximately $130 million. Results of operations of the accredited beauty schools for the month ended July 31, 2007 are reported in the North American salons segment. The Company retained ownership of its one North America and four United Kingdom Vidal Sassoon schools. Subsequent to August 1, 2007 results of operations for the Vidal Sassoon schools are included in the respective North American and international salon segments.

CRITICAL ACCOUNTING POLICIES

The Condensed Consolidated Financial Information is prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the Condensed Consolidated Financial Information, we are required to make various judgments, estimates and assumptions that could have a significant impact on the results reported in the Condensed Consolidated Financial Information. We base these estimates on historical experience and other assumptions believed to be reasonable under the circumstances. Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made, and (2) other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from period to period. Changes in these estimates could have a material effect on our Condensed Consolidated Financial Information.

Our significant accounting policies can be found in Note 1 to the Consolidated Financial Statements contained in Part II, Item 8 of the June 30, 2007 Annual Report on Form 10-K, as well as Note 1 to the Condensed Consolidated Financial Information contained within this Quarterly Report on Form 10-Q. We believe the accounting policies related to the valuation of goodwill, the valuation and estimated useful lives of long-lived assets, purchase price allocations, the cost of product used and sold, self-insurance accruals, stock-based compensation expense, legal contingencies and estimates used in relation to tax liabilities and deferred taxes are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations. Discussion of each of these policies is contained under “Critical Accounting Policies” in Part II, Item 7 of our June 30, 2007 Annual Report on Form 10-K. There were no significant changes in or application of our critical accounting policies during the three months ended December 31, 2007.

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OVERVIEW OF RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2007

·Revenues increased 3.8 percent to $682 million and consolidated same-store sales decreased 0.8 percent during the three months ended December 31, 2007.

·The decrease in operating income as a percentage of consolidated revenues during the three months ended December 31, 2007 was primarily due to a quarter same-store sales decrease of 0.8 percent compared to the comparable prior quarter increase of 0.5 percent.

·During the three months ended December 31, 2007, we acquired 19 corporate locations, including 18 franchise location buybacks, five of which were hair restoration centers. We built 74 corporate locations and closed, converted or relocated 50 locations, for a net increase of 43 locations. Our franchisees constructed 69 salons, and closed, sold back to us, converted or relocated 60 locations, including five hair restoration centers, for a net increase of nine franchise locations during the three months ended December 31, 2007. As of December 31, 2007, we had 8,303 company-owned locations, 3,767 franchise locations and 90 hair restoration centers (55 company-owned and 35 franchise locations).

·Site operating expenses were positively impacted by a $4.8 million reduction in self insurance accruals, primarily workers’ compensation, due to the continual improvement of our safety and return-to-work programs over recent years as well as changes in state laws.

·The effective income tax rate of 37.0 percent was adversely affected by the impact of state income taxes and the impact of certain non-deductible professional fees.  The tax rate for the three months ended December 31, 2006 was favorably impacted by the retroactive reinstatement of the Work Opportunity and Welfare-to-Work Tax Credits.

RESULTS OF OPERATIONS

Consolidated Results of Operations

The following table sets forth, for the periods indicated, certain information derived from our Condensed Consolidated Statement of Operations, expressed as a percent of revenues. The percentages are computed as a percent of consolidated revenues, except as noted.

	For the Periods Ended December 31,
	Three Months				Six Months
Results of Operations as a Percent of Revenues	2007		2006		2007		2006
Service revenues	67.1	%	67.0	%	68.0	%	67.5	%
Product revenues	29.7		30.0		28.8		29.4
Franchise royalties and fees	3.2		3.0		3.2		3.1
Operating expenses:
Cost of service (1)	58.1		56.7		57.7		56.6
Cost of product (2)	51.8		50.9		51.1		50.9
Site operating expenses	7.2		8.4		7.6		8.5
General and administrative	12.6		12.4		12.8		12.3
Rent	14.6		14.2		14.6		14.3
Depreciation and amortization	4.6		4.6		4.7		4.6
Operating income	6.6		7.2		6.4		7.0
Income before income taxes and equity in income of affiliated companies	5.2		5.8		5.0		5.6
Net income	3.3		4.1		3.2		3.9

(1)   Computed as a percent of service revenues and excludes depreciation expense.

(2)   Computed as a percent of product revenues and excludes depreciation expense.

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Consolidated Revenues

Consolidated revenues primarily include revenues of company-owned salons, product and equipment sales to franchisees, hair restoration center revenues and franchise royalties and fees. As compared to the respective prior fiscal year, consolidated revenues increased 3.8 percent to $682.2 million during the three months ended December 31, 2007 and 4.1 percent to$1,349.8 million during the six months ended December 31, 2007. The following table details our consolidated revenues by concept. 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 Periods Ended December 31,
	Three Months						Six Months
	2007			2006			2007			2006
				(Dollars in thousands)
North American salons:
Regis	$	128,862		$	125,461		$	256,348		$	247,736
MasterCuts	43,879			44,093			87,468			88,142
Trade Secret(1)	67,684			72,442			127,990			137,904
SmartStyle	122,179			112,513			244,282			223,802
Strip Center(1)	213,476			190,404			426,555			382,235
Other(3)	—			—			5,558			—
Total North American salons	576,080			544,913			1,148,201			1,079,819
International salons(1)	73,056			60,369			136,337			116,244
Beauty schools(3)	—			21,976			—			41,341
Hair restoration centers(1)	33,105			29,732			65,228			58,829
Consolidated revenues	$	682,241		$	656,990		$	1,349,766		$	1,296,233
Percent change from prior year	3.8		%	8.3		%	4.1		%	8.8		%
Salon same-store sales (decrease) increase(2)	(0.8		)%	0.5		%	0.0		%	0.2		%

The percent changes in consolidated revenues during the three and six months ended December 31, 2007 and 2006, respectively, were driven by the following:

	For the Periods Ended December 31,
	Three Months				Six Months
Percentage Increase (Decrease) in Revenues	2007		2006		2007		2006
Acquisitions (previous twelve months)	3.8	%	5.6	%	3.5	%	5.7	%
Organic growth	2.2		2.2		2.9		2.8
Foreign currency	1.6		1.0		1.3		0.8
Franchise revenues	0.1		—		0.1		—
Closed salons(3)	(3.9	)	(0.5	)	(3.7	)	(0.5	)
	3.8%		8.3	%	4.1	%	8.8	%

(1)Includes aggregate franchise royalties and fees of $21.7 and $19.9 million for the three months ended December 31, 2007 and 2006, respectively, and $42.7 and $39.7 million for the six months ended December 31, 2007 and 2006, respectively. North American salon franchise royalties and fees represented 45.7 and 47.7 percent of consolidated franchise revenues in the three months ended December 31, 2007 and 2006, respectively, and 47.0 and 48.7 percent of consolidated franchise revenues in the six months ended December 31, 2007 and 2006, respectively.

(2)Salon same-store sales increases or decreases are calculated on a daily basis as the total change in sales for company-owned salons which were open on a specific day of the week during the current period and the corresponding prior period. Quarterly and year-to-date salon same-store sales increases are the sum of the same-store sales increases computed on a daily basis. Relocated salons are included in same-store sales as they are considered to have been open in the corresponding prior period. International same-store sales are calculated in local currencies so that foreign currency fluctuations do not impact the calculation. Management believes that same-store sales, a component of organic growth, are useful in order to help determine the increase in salon revenues attributable to its organic growth (new salon construction and same-store sales growth) versus growth from acquisitions.

(3)On August 1, 2007, the Company contributed its accredited cosmetology schools to Empire Education Group, Inc. For the three and six months ended December 31, 2007, the results of operations for the month ended July 31, 2007 for the accredited cosmetology schools are reported in the North American salons segment. The Company retained ownership of its one North America and four United Kingdom Vidal Sassoon schools. Subsequent to August 1, 2007 results of operations for the Vidal Sassoon schools are included in the respective North American and international salon segments.

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We acquired 360 salons (including 119 franchise salon buybacks) and eight hair restoration centers during the twelve months ended December 31, 2007. The organic growth was due to the construction of 364 company-owned salons during the twelve months ended December 31, 2007. We closed 321 salons (including 171 franchise salons) during the twelve months ended December 31, 2007.

During the three and six months ended December 31, 2007 and 2006, the foreign currency impact was driven by the weakening of the United States dollar against the Canadian dollar, British pound and Euro as compared to the exchange rates for the comparable prior period. The impact of foreign currency was calculated by multiplying current year revenues in local currencies by the change in the foreign currency exchange rate between the current fiscal year and the prior fiscal year.

During the twelve months ended December 31, 2006, we acquired 326 salons (including 137 franchise salon buybacks) and 30 beauty schools. The organic growth stemmed from the construction of 482 company-owned salons during the twelve months ended December 31, 2006. We closed 366 salons (including 188 franchise salons) during the twelve months ended December 31, 2006.

On August 1, 2007 we deconsolidated the results of operations of our 51 accredited cosmetology schools. Accordingly, revenue growth was negatively impacted as a result of the deconsolidation. For the three and six months ended December 31, 2006 the accredited cosmetology schools generated revenue of $17.2 million and $32.8 million, respectively, which represented 2.6 percent and 2.5 percent of consolidated revenues in the respective periods.

Consolidated revenues are primarily comprised of service and product revenues, as well as franchise royalties and fees.  Fluctuations in these three major revenue categories were as follows:

Service Revenues.  Service revenues include revenues generated from company-owned salons and service revenues generated by hair restoration centers. Consolidated service revenues for the three and six months ended December 31, 2007 and 2006 were as follows:

			Increase Over Prior Fiscal Year
Periods Ended December 31,	Revenues		Dollar		Percentage
	(Dollars in thousands)
Three Months
2007	$	457,868	$	17,523	4.0	%
2006	440,345		41,067		10.3
Six Months
2007	$	917,586	$	42,599	4.9	%
2006	874,987		84,650		10.7

The growth in service revenues in the three and six months ended December 31, 2007 was driven by acquisitions and new salon construction (a component of organic growth). Growth was negatively impacted as a result of the deconsolidation of our 51 accredited cosmetology schools to Empire Education Group, Inc. on August 1, 2007. Consolidated same-store service sales decreased 0.2 percent during the three months ended December 31, 2007 and increased 1.1 percent during the six months ended December 31, 2007, as compared to an increase of 1.3 percent and 0.8 percent during the comparable prior periods.

The growth in service revenues in the three and six months ended December 31, 2006 was driven primarily by acquisitions and new salon construction (a component of organic growth). Consolidated same-store service sales increased 1.3 percent for the three months ended December 31, 2006. Additionally, hair restoration service revenues contributed to the increases in consolidated service revenues for the three and six months ended December 31, 2006 due to price increases and strong recurring customer revenues. Same-store service sales continue to be modest due to the current customer visitation patterns stemming from a fashion trend towards longer hairstyles.

Product Revenues.  Product revenues are primarily sales at company-owned salons, hair restoration centers and sales of product and equipment to franchisees. Consolidated product revenues for the three and six months ended December 31, 2007 and 2006 were as follows:

			Increase Over Prior Fiscal Year
Periods Ended December 31,	Revenues		Dollar		Percentage
	(Dollars in thousands)
Three Months
2007	$	202,696	$	5,944	3.0	%
2006	196,752		8,644		4.6
Six Months
2007	$	389,478	$	7,801	2.0	%
2006	381,677		19,817		5.5

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Growth during the three and six months ended December 31, 2007 was not as robust as compared to the comparable prior periods due to a slower than expected holiday selling season, product diversion and increased appeal of mass hair care lines to the consumer. Consolidated same-store product sales decreased 2.3 and 2.4 percent during the three and six months ended December 31, 2007 as compared to decreases of 1.2 and 1.3 percent during the comparable prior periods.

The growth in product revenues for the three and six months ended December 31, 2006 was primarily due to acquisitions.  Growth during the six months ended December 31, 2006 was not as robust as the corresponding period of the prior fiscal year due to same-store product sales decreases of 1.2 percent and 1.3 percent during the three and six months ended December 31, 2006, respectively. The Company’s decision to stop carrying the Nexxus product line beginning in January 2006 as the result of the manufacturer’s decision to sell these products to discount retailers contributed to the same-store product sales decrease.

Royalties and Fees.  Consolidated franchise revenues, which include royalties and fees, for the three and six months ended December 31, 2007 and 2006 were as follows:

			Increase Over Prior Fiscal Year
Periods Ended December 31,	Revenues		Dollar		Percentage
	(Dollars in thousands)
Three Months
2007	$	21,677	$	1,784	9.0	%
2006	19,893		656		3.4
Six Months
2007	$	42,702	$	3,043	7.7	%
2006	39,659		914		2.4

Total franchise locations open at December 31, 2007 were 3,802, including 35 franchise hair restoration centers, as compared to 3,827, including 41 franchise hair restoration centers, at December 31, 2006. We purchased 119 of our franchise salons during the twelve months ended December 31, 2007, and acquired a franchisor of product-focused salons which operates 42 franchise locations, which drove the overall decrease in the number of franchise salons between periods. The increase in consolidated franchise revenues during the three and six months ended December 31, 2007 and 2006 was primarily due to the weakening of the United States dollar against the Canadian dollar, British pound and Euro as compared to the exchange rates for the comparable prior period, partially offset by a decreased number of franchise salons, as discussed above.

Total franchise locations open at December 31, 2006 were 3,827, including 41 franchise hair restoration centers, as compared to 3,913, including 44 franchise hair restoration centers, at December 31, 2005. We purchased 137 of our franchise salons during the twelve months ended December 31, 2006, which drove the overall decrease in the number of franchise salons between periods.

Gross Margin (Excluding Depreciation)

Our cost of revenues primarily includes labor costs related to salon and hair restoration center employees, the cost of product used in providing services and the cost of products sold to customers and franchisees. The resulting gross margin for the three and six months ended December 31, 2007 and 2006 was as follows:

	Gross		Margin as % of Service and Product		(Decrease) Increase Over Prior Fiscal Year
Periods Ended December 31,	Margin		Revenues		Dollar		Percentage		Basis Point(1)
			(Dollars in thousands)
Three Months
2007	$	289,542	43.8	%	$	2,222	0.8	%	(130	)
2006	287,320		45.1		22,731		8.6		10
Six Months
2007	$	578,905	44.3	%	$	11,862	2.1	%	(80	)
2006	567,043		45.1		48,128		9.3		10

(1)   Represents the basis point change in gross margin as a percent of service and product revenues as compared to the  corresponding periods of the prior fiscal year.

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Service Margin (Excluding Depreciation).  Service margin for the three and six months ended December 31, 2007 and 2006 was as follows:

	Service		Margin as % of Service		(Decrease) Increase Over Prior Fiscal Year
Periods Ended December 31,	Margin		Revenues		Dollar		Percentage		Basis Point(1)
			(Dollars in thousands)
Three Months
2007	$	191,891	41.9	%	$	1,159	0.6	%	(140	)
2006	190,732		43.3		18,392		10.7		10
Six Months
2007	$	388,549	42.3	%	$	8,790	2.3	%	(110	)
2006	379,759		43.4		38,309		11.2		20

(1)Represents the basis point change in service margin as a percent of service revenues as compared to the corresponding periods of the prior fiscal year.

The basis point deterioration in service margin as a percent of service revenues during the three and six months ended December 31, 2007 was primarily due to the absence of the beauty school segment service revenue from consolidated service revenues, which accounted for 60 of the total 140 basis point deterioration. The deterioration was also due to a change made during the first fiscal quarter as a result of refinements made to our inventory tracking systems. The refinements resulted in better tracking and accounting for retail products that our salon stylists transfer from retail shelves to the back bar for use in servicing customers. The cost of these products had historically been included as a component of our product gross margin, whereas they are now more appropriately included in our service margin. These retail-to-shop transfers amount to approximately $1.0 million each quarter. For the three and six months ended December 31, 2007, reclassification accounted for approximately 30 basis points of the total 140 and 110 basis point deterioration, respectively, and had no impact on total gross margin. Also contributing to the basis point deterioration was a planned increase in North America service payroll costs related to recent salon acquisitions and negative payroll leverage due to negative same-store sales in our international salon segment.

The basis point improvement in service margins during the three and six months ended December 31, 2006 compared to the corresponding period of the prior fiscal quarter was primarily due to improved fiscal year 2007 second quarter same-store service sales and continued focus on management of salon payroll costs, as well as the unfavorable impact of compensation paid to employees impacted by the hurricanes in the prior fiscal period’s service margin.

Product Margin (Excluding Depreciation).  Product margin for the three and six months ended December 31, 2007 and 2006 was as follows:

	Product		Margin as % of Product		(Decrease) Increase Over Prior Fiscal Year
Periods Ended December 31,	Margin		Revenues		Dollar		Percentage		Basis Point(1)
			(Dollars in thousands)
Three Months
2007	$	97,651	48.2	%	$	1,063	1.1	%	(90	)
2006	96,588		49.1		4,339		4.7		10
Six Months
2007	$	190,356	48.9	%	$	3,072	1.6	%	(20	)
2006	187,284		49.1		9,819		5.5		10

(1)Represents the basis point change in product margin as a percent of product revenues as compared to the corresponding periods of the prior fiscal year.

The basis point deterioration in product margins as a percent of product revenues during the three and six months ended December 31, 2007 was primarily due to discounting on our retail holiday merchandise. The deterioration was also due to negative payroll leverage at our Trade Secret salons, representing 50 basis points, and a mix play related to products sold to franchisees, representing 30 basis points. The deterioration was partially offset by improvements to our inventory tracking systems as mentioned above, which represented a 70 basis point improvement for the three and six month periods.

The slight improvement in product margins as a percent of product revenues for the three and six months ended December 31, 2006 was due to a reduction in retail promotional discounting as compared to the corresponding prior fiscal periods.

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Site Operating Expenses

This expense category includes direct costs incurred by our salons and hair restoration centers such as on-site advertising, workers’ compensation, insurance, utilities and janitorial costs.  Site operating expenses for the three and six months ended December 31, 2007 and 2006 were as follows:

	Site		Expense as % of Consolidated		(Decrease) Increase Over Prior Fiscal Year
Periods Ended December 31,	Operating		Revenues		Dollar			Percentage		Basis Point(1)
			(Dollars in thousands)
Three Months
2007	$	48,844	7.2	%	$	(6,123	)	(11.1	)%	(120	)
2006	54,967		8.4		4,855			9.7		10
Six Months
2007	$	102,529	7.6	%	$	(8,244	)	(7.4	)%	(90	)
2006	110,773		8.5		10,945			11.0		10

(1)Represents the basis point change in site operating expenses as a percent of consolidated revenues as compared to the corresponding periods of the prior fiscal year.

The basis point improvement in site operating expenses as a percent of consolidated revenues during the three and six months ended December 31, 2007 was primarily due to a reduction of $4.8 million in self insurance accruals, primarily workers’ compensation, as a result of successful safety and return-to-work programs implemented over the past few years. In addition, the absence of the beauty school segment site operating expenses from consolidated site operating expenses and decreased janitorial and advertising expense contributed to the basis point improvement.

For the three and six months ended December 31, 2006, site operating expenses as a percent of consolidated revenues increased slightly as compared to the corresponding periods of the prior fiscal year primarily due to the timing of when certain direct salon expenses were incurred.

General and Administrative

General and administrative (G&A) includes costs associated with our field supervision, salon training and promotions, product distribution centers and corporate offices (such as salaries and professional fees), including costs incurred to support franchise and hair restoration center operations. G&A expenses for the three and six months ended December 31, 2007 and 2006 were as follows:

			Expense as % of Consolidated		Increase Over Prior Fiscal Year
Periods Ended December 31,	G&A		Revenues		Dollar		Percentage		Basis Point(1)
			(Dollars in thousands)
Three Months
2007	$	86,144	12.6	%	$	4,733	5.8	%	20
2006	81,411		12.4		10,236		14.4		70
Six Months
2007	$	172,496	12.8	%	$	13,132	8.2	%	50
2006	159,364		12.3		14,122		9.7		10

(1)Represents the basis point change in G&A as a percent of consolidated revenues as compared to the corresponding periods of the prior fiscal year.

The basis point deterioration in G&A costs as a percent of consolidated revenues during the three and six months ended December 31, 2007 was primarily due increased professional fees of $2.3 million related to investment transactions.

The planned deterioration in G&A costs as a percent of total revenues during the three months ended December 31, 2006 was primarily due to increased marketing costs related to salon and hair restoration advertising, as well as increased professional fees and reductions in consolidated same-store sales. The slight increase in G&A costs as a percent of total revenues during the six months ended December 31, 2006 was due to the items stated above, offset by decreased international severance expenses.

Rent

Rent expense, which includes base and percentage rent, common area maintenance, and real estate taxes, for the three and six months ended December 31, 2007 and 2006, was as follows:

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			Expense as % of Consolidated		Increase Over Prior Fiscal Year
Periods Ended December 31,	Rent		Revenues		Dollar		Percentage		Basis Point(1)
			(Dollars in thousands)
Three Months
2007	$	99,768	14.6	%	$	6,605	7.1	%	40
2006	93,163		14.2		8,117		9.5		20
Six Months
2007	$	197,531	14.6	%	$	12,196	6.6	%	30
2006	185,335		14.3		17,454		10.4		20

(1)Represents the basis point change in rent expense as a percent of consolidated revenues as compared to the corresponding periods of the prior fiscal year.

The basis point deterioration in rent expense as a percent of consolidated revenues during the three and six months ended December 31, 2007 and 2006 was primarily due to negative leverage in this fixed cost category, as salon rents are increasing at a slightly faster rate than our overall same-store sales.

Depreciation and Amortization

Depreciation and amortization expense (D&A) for the three and six months ended December 31, 2007 and 2006 was as follows:

			Expense as %
			of Consolidated		Increase Over Prior Fiscal Year
Periods Ended December 31,	D&A		Revenues		Dollar		Percentage		Basis Point(1)
			(Dollars in thousands)
Three Months
2007	$	31,604	4.6	%	$	1,192	3.9	%	—
2006	30,412		4.6		3,153		11.6		10
Six Months
2007	$	63,186	4.7	%	$	3,232	5.4	%	10
2006	59,954		4.6		6,799		12.8		10

(1)Represents the basis point change in depreciation and amortization as a percent of consolidated revenues as compared to the corresponding periods of the prior fiscal year.

D&A as a percent of consolidated revenues during the three and six months ended December 31, 2007 was consistent with prior year D&A as a percent of total revenues.

The increase in D&A as a percent of total revenues during the three and six months ended December 31, 2006 was primarily due to a lower same-store sales increase of 0.5 and 0.2 percent in our salon business as compared to the three and six months ended December 31, 2005.

Interest

Interest expense for the three and six months ended December 31, 2007 and 2006 was as follows:

			Expense as % of Consolidated		Increase Over Prior Fiscal Year
Periods Ended December 31,	Interest		Revenues		Dollar		Percentage		Basis Point(1)
			(Dollars in thousands)
Three Months
2007	$	11,760	1.7	%	$	1,089	10.2	%	10
2006	10,671		1.6		2,011		23.2		20
Six Months
2007	$	22,338	1.7	%	$	1,829	8.9	%	10
2006	20,509		1.6		3,585		21.2		20

(1)Represents the basis point change in interest expense as a percent of consolidated revenues as compared to the corresponding periods of the prior fiscal year.

The basis point deterioration in interest expense as a percent of consolidated revenues during the three and six months ended December 31, 2007 and was primarily due to increased debt levels used to fund customary acquisitions and investments and the repurchase of $50.0 million of our outstanding common stock.

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The increase in interest expense as a percent of total revenues during the three and six months ended December 31, 2006 was primarily due to increased debt levels due to the Company’s repurchase of $37.5 million of our outstanding common stock and the timing of income tax payments during the six months ended December 31, 2006.

Equity in Income of Affiliates

Equity in income of affiliates, represents the income or loss generated by our equity investment in Empire Education Group, Inc., and other equity method investments, for the three and six months ended December 31, 2007 and 2006, was as follows:

	Equity in		Earnings as % of Consolidated		Increase Over Prior Fiscal Year
Periods Ended December 31,	Earnings		Revenues		Dollar		Percentage		Basis Point(1)
			(Dollars in thousands)
Three Months
2007	$	386	0.1	%	$	386	100.0	%	10
2006	—		—		—		—		—
Six Months
2007	$	52	0.0	%	$	52	100.0	%	—
2006	—		—		—		—		—

(1)Represents the basis point change in equity in income of affiliates as a percent of consolidated revenues as compared to the corresponding periods of the prior fiscal year.

On August 1, 2007, we contributed all of our accredited cosmetology schools to Empire Education Group, Inc. The results of operations for the month ended July 31, 2007 for the accredited cosmetology schools are reported in the North American salons segment. The Company retained ownership of its one North America and four United Kingdom Vidal Sassoon schools. Subsequent to August 1, 2007 results of operations for the Vidal Sassoon schools are included in the respective North American and international salon segments. This income relates to our equity investments as detailed in Note 5 to the Condensed Consolidated Financial Information.

Income Taxes

Our reported effective tax rate for the three and six months ended December 31, 2007 and 2006 was as follows:

			Basis Point(1)
Periods Ended December 31,	Effective Rate		Increase
Three Months
2007	37.0	%	740
2006	29.6		560
Six Months
2007	36.4	%	470
2006	31.7		320

(1)Represents the basis point change in income tax expense as a percent of consolidated revenues as compared to the corresponding periods of the prior fiscal year.

The deterioration in our overall effective tax rate for the three and six months ended December 31, 2007 was due to the impact of state income taxes and the impact of certain non-deductible professional fees. The prior year rates were favorably impacted by the retroactive reinstatement of the Work Opportunity and Welfare-to-Work Tax Credits. The adoption of FIN 48 at the beginning of fiscal year 2008 caused the Company’s second quarter tax rate of 37.0 percent to be higher than the estimated annual rate of approximately 35.5 percent. The increase in the second quarter tax rate over the estimated annual rate is a timing issue as the Company expects to have a lower tax rate of 34.0 percent to 35.0 percent in the last six months of fiscal year 2008.

The improvement in our overall effective tax rate for the three months ended December 31, 2006 was due to the retroactive reinstatement of the Work Opportunity and Welfare-to-Work Tax Credits which provided a tax benefit of $2.2 million. The improvement in our overall effective tax rate for the six months ended December 31, 2006 was due to the tax benefit of these credits and the favorable ruling we received from the IRS which provided an additional tax benefit of $0.8 million.

Recent Accounting Pronouncements

Recent accounting pronouncements are discussed in Note 1 to the Condensed Consolidated Financial Information.

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Effects of Inflation

We compensate some of our salon employees with percentage commissions based on sales they generate, thereby enabling salon payroll expense as a percent 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 offset any significant increases in wages. Therefore, we do not believe inflation has had a significant impact on the results of our operations.

Constant Currency Presentation

The presentation below demonstrates the effect of foreign currency exchange rate fluctuations from year to year. To present this information, current period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the average exchange rates in effect during the corresponding period of the prior fiscal year, rather than the actual average exchange rates in effect during the current fiscal year. Therefore, the foreign currency impact is equal to current year results in local currencies multiplied by the change in the average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year. During the three and six months ended December 31, 2007 and 2006, foreign currency translation had a favorable impact on consolidated revenues due to the strengthening of the Canadian dollar, British pound and Euro as compared to the comparable prior periods.

	Impact on Revenues				Impact on Income Before Income Taxes
Favorable Impact of Foreign Currency  Exchange Rate Fluctuations	December 31, 2007		December 31, 2006		December 31, 2007		December 31, 2006
	(Dollars in thousands)
Three Months
Canadian dollar	$	4,684	$	1,009	$	757	$	177
British pound	3,615		3,619		164		214
Euro	1,962		1,318		426		218
Total	$	10,261	$	5,946	$	1,347	$	609
Six Months
Canadian dollar	$	6,767	$	3,004	$	1,125	$	523
British pound	7,091		5,372		309		248
Euro	3,179		1,984		597		346
Total	$	17,037	$	10,360	$	2,031	$	1,117

Results of Operations by Segment

Based on our 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.  North American salon revenues for the three and six months ended December 31, 2007 and 2006 were as follows:

			Increase Over Prior Fiscal Year				Same-Store Sales Increase
Periods Ended December 31,	Revenues		Dollar		Percentage		(Decrease)
	(Dollars in thousands)
Three Months
2007	$	576,080	$	31,167	5.7	%	(0.8	)%
2006	544,913		33,330		6.5		0.6
Six Months
2007	$	1,148,201	$	68,382	6.3	%	0.0	%
2006	1,079,819		74,693		7.4		0.2

The percentage increases (decreases) in revenue during the three and six months ended December 31, 2007 and 2006 were due to the following factors:

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	For the Periods Ended December 31,
	Three Months				Six Months
Percentage Increase (Decrease) in Revenues	2007		2006		2007		2006
Acquisitions (previous twelve months)	3.6	%	4.7	%	3.6	%	4.8	%
Organic growth	1.6		2.2		2.5		2.8
Foreign currency	0.9		0.2		0.6		0.3
Franchise revenues	—		(0.1	)	—		—
Closed salons	(0.4	)	(0.5	)	(0.4	)	(0.5	)
	5.7%		6.5	%	6.3	%	7.4	%

We acquired 333 North American salons during the twelve months ended December 31, 2007, including 117 franchise buybacks. The organic growth was due primarily to the construction of 341 company-owned salons in North America during the twelve months ended December 31, 2007. The foreign currency impact during the six months ended December 31, 2007 was driven by the weakening of the United States dollar against the Canadian dollar as compared to the prior period’s exchange rate.

We acquired 306 North American salons during the twelve months ended December 31, 2006, including 134 franchise buybacks. The organic growth was due primarily to the construction of 453 company-owned salons in North America during the twelve months ended December 31, 2006 and same-store sales increases.  The foreign currency impact during the six months ended December 31, 2006 was driven by the weakening of the United States dollar against the Canadian dollar as compared to the prior period’s exchange rate.

North American Salon Operating Income.  Operating income for the North American salons for the three and six months ended December 31, 2007 and 2006 was as follows:

	Operating		Operating Income as % of Consolidated		Increase (Decrease) Over Prior Fiscal Year
Periods Ended December 31,	Income		Revenues		Dollar			Percentage		Basis Point(1)
	(Dollars in thousands)
Three Months
2007	$	70,174	12.2	%	$	1,120		1.6	%	(50	)
2006	69,054		12.7		(1,445		)	(2.0	)	(110	)
Six Months
2007	$	139,681	12.2	%	$	1,981		1.4	%	(60	)
2006	137,700		12.8		4,924			3.7		(40	)

(1)Represents the basis point change in North American salon operating income as a percent of North American salon revenues as compared to the corresponding periods of the prior fiscal year.

The basis point deterioration in North American salon operating income as a percent of North American salon revenues for the three and six months ended December 31, 2007 was primarily due to deterioration in gross margins as a result of discounting of holiday merchandise and planned increases in salon payroll costs and related benefits. The basis point deterioration was partially offset by a reduction in workers’ compensation costs as a result of continued improvement of our safety and return-to-work programs over the recent years.

For the three and six months ended December 31, 2006, the deterioration in North American salon operating income as a percent of North American salon revenues was primarily due to an increase in G&A and rent as a percent of revenues. These increases were attributable to lower same-store sales for the three and six months ended December 31, 2006 as compared to the corresponding periods of the prior fiscal year, as well as increased salon advertising and promotions and minimum rental expense.

International Salons

On January 31, 2008 the Company contributed its European operating subsidiaries, excluding the Company’s subsidiaries in the United Kingdom and Germany, to a combined business in which the Company holds a 30.0 percent interest.  The Company’s investment in the combined business will be accounted for under the equity method of accounting and the results of operations of our European operating subsidiaries will be deconsolidated.  As a result of the deconsolidation, international salon revenue and international salon operating income for the remainder of fiscal year 2008 will be negatively impacted.  The Company’s 30.0 percent interest in the combined interest will be recorded in the equity of income of affiliates.

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International Salon Revenues.  International salon revenues for the three and six months ended December 31, 2007 and 2006 were as follows:

			Increase Over Prior Fiscal Year				Same-Store Sales
Periods Ended December 31,	Revenues		Dollar		Percentage		(Decrease)
	(Dollars in thousands)
Three Months
2007	$	73,056	$	12,687	21.0	%	(4.7	)%
2006	60,369		7,283		13.7		(0.6	)
Six Months
2007	$	136,337	$	20,093	17.3	%	(4.3	)%
2006	116,244		11,677		11.2		(0.9	)

The percentage increases (decreases) during the three and six months ended December 31, 2007 and 2006 were due to the following factors:

	For the Periods Ended December 31,
	Three Months				Six Months
Percentage Increase (Decrease) in Revenues	2007		2006		2007		2006
Acquisitions (previous twelve months)	5.4	%	2.6	%	3.2	%	2.5	%
Organic growth	7.1		2.7		6.1		2.7
Foreign currency	9.2		8.7		8.8		6.7
Franchise revenues	0.6		0.6		0.4		0.2
Closed salons	(1.3	)	(0.9	)	(1.2	)	(0.9	)
	21.0	%	13.7	%	17.3	%	11.2	%

We acquired 27 international salons during the twelve months ended December 31, 2007, including two franchise buybacks. The organic growth was due primarily to the construction of 23 company-owned international salons during the twelve months ended December 31, 2007 and the inclusion of the four United Kingdom Vidal Sassoon schools, partially offset by a same-store sales decrease of 4.3 percent during the six months ended December 31, 2007. The foreign currency impact during the three and six months ended December 31, 2007 was driven by the weakening of the United States dollar against the British pound and the Euro as compared to the exchange rates for the comparable prior period.

We acquired 20 international salons during the twelve months ended December 31, 2006, including three franchise buybacks.  The organic growth was due to the construction of 29 company-owned international salons during the twelve months ended December 31, 2006, partially offset by international consolidated same-store sales decreases.  The foreign currency impact during the three and six months ended December 31, 2006 was driven by the weakening of the United States dollar against the British pound and the Euro as compared to the prior period’s exchange rates.

International Salon Operating Income.  Operating income for the international salons for the three and six months ended December 31, 2007 and 2006 was as follows:

	Operating		Operating Income as % of Consolidated		Increase Over Prior Fiscal Year
Periods Ended December 31,	Income		Revenues		Dollar		Percentage		Basis Point(1)
	(Dollars in thousands)
Three Months
2007	$	6,481	8.9	%	$	2,194	51.2	%	180
2006	4,287		7.1		669		18.5		30
Six Months
2007	$	10,621	7.8	%	$	1,820	20.7	%	20
2006	8,801		7.6		1,940		28.3		100

(1)Represents the basis point change in international salon operating income as a percent of international salon revenues as compared to the corresponding periods of the prior fiscal year.

The basis point improvement in international salon operating income as a percent of international salon revenues during the three and six months ended December 31, 2007 was primarily due to the migration to a new, lower-cost product distribution model in the United Kingdom which includes shipping product from our United States distribution centers to the United Kingdom, a favorable inventory adjustment following our most recent physical inventory count, a reduction in franchise advertising expense, and the inclusion of the Vidal Sassoon academies, partially offset by negative payroll leverage and a retroactive rent increase assessment for one of our London Vidal Sassoon salons following a rent review.

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The improvement in international salon operating income as a percent of international salon revenues during the three and six months ended December 31, 2006 was primarily due to a decrease in severance expenses partially offset by a slight deterioration in product margins, the result of an increasing mix of hair appliance sales which have slightly lower gross margins.  Same-store product sales increases of 5.2 and 4.9 percent for the three and six months ended December 31, 2006 also contributed to the improvement.

Hair Restoration Centers

Hair Restoration Revenues.  Hair restoration revenues for the three and six months ended December 31, 2007 and 2006 were as follows:

			Increase Over Prior Fiscal Year				Same- Store Sales
Periods Ended December 31,	Revenues		Dollar		Percentage		Increase
	(Dollars in thousands)
Three Months
2007	$	33,105	$	3,373	11.3	%	6.8	%
2006 (1)	29,732		2,785		10.3		—
Six Months
2007	$	65,228	$	6,399	10.9	%	7.5	%
2006 (1)	58,829		5,899		11.1		—

(1)We began calculating hair restoration center same-store sales in the third quarter of fiscal year 2007.

The percentage increases (decreases) during the three and six months ended December 31, 2007 and 2006 was due to the following factors:

	For the Periods Ended December 31,
	Three Months				Six Months
Percentage Increase (Decrease) in Revenues	2007		2006		2007		2006
Acquisitions (previous twelve months)	6.6	%	8.2	%	5.2	%	8.4	%
Organic growth	5.0		2.3		5.7		2.9
Franchise revenues	(0.3	)	(0.2	)	—		(0.2	)
	11.3	%	10.3	%	10.9	%	11.1	%

We acquired seven hair restoration centers during the twelve months ended December 31, 2007, including six franchise buybacks. Hair restoration revenue from acquisitions increased over six percent primarily due to these franchise buybacks. Organic hair restoration revenue increased five percent due to strong recurring and new customer revenue and surgical hair transplant management fees. Franchise revenues decreased slightly due to the reduction in franchise centers.

During the twelve months ended December 31, 2006, we acquired eight hair restoration centers, seven of which were franchise buybacks. These franchise buybacks drove the decrease in franchise revenues.  The increase in total hair restoration revenues was due to an increase in average revenue per client and improving attrition rates.

Hair Restoration Operating Income.  Operating income for our hair restoration centers for the three and six months ended December 31, 2007 and 2006 was as follows:

	Operating		Operating Income as % of Consolidated		Increase (Decrease) Over Prior Fiscal Year
Periods Ended December 31,	Income		Revenues		Dollar		Percentage		Basis Point(1)
	(Dollars in thousands)
Three Months
2007	$	7,016	21.2	%	$	627	9.8	%	(30	)
2006	6,389		21.5		857		15.5		100
Six Months
2007	$	13,972	21.4	%	$	1,648	13.4	%	50
2006	12,324		20.9		1,502		13.9		50

(1)Represents the basis point change in hair restoration operating income as a percent of hair restoration revenues as compared to the corresponding periods of the prior fiscal year.

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The slight basis point reduction in hair restoration operating income as a percent of hair restoration revenues during the three months ended December 31, 2007 resulted from decreased gross margins due to sales mix and increases in bonus and commissions and advertising expense, partially offset by reduced workers’ compensation insurance costs.  The basis point improvement in hair restoration operating income as a percent of hair restoration revenues during the six months ended December 31, 2007 was due to strong recurring and new customer revenues and the acquisition of franchise centers over the past year, partially offset by an increase in bonus and commissions.

During the three and six months ended December 31, 2006, operating income of the hair restoration centers increased as a percent of total revenues due to an increase in average revenue per client and improving attrition rates, partially offset by an increase in advertising and marketing expenses due to new commercial shoots.

LIQUIDITY AND CAPITAL RESOURCES

Overview

We continue to maintain a strong balance sheet to support system growth and financial flexibility. Our debt to capitalization ratio, calculated as total debt as a percentage of total debt and shareholders’ equity at fiscal quarter end, was as follows:

	Debt to	Basis Point
Periods Ended	Capitalization	(Decrease) (1)
December 31, 2007	45.2	(150	)
June 30, 2007	43.7	(200	)

(1)Represents the basis point change in total debt as a percent of total debt and shareholders’ equity as compared to prior fiscal year end (June 30).

The slight deterioration in the debt to capitalization ratio during the six months ended December 31, 2007 was primarily due to increased debt levels stemming from acquisitions and share repurchases made during the six months ended December 31, 2007. The basis point deterioration in the debt to capitalization ratio during the twelve months ended June 30, 2007 was primarily due to increased debt levels stemming from share repurchases, acquisitions and timing of customary income tax payments made during the twelve months ended June 30, 2007.

Total assets at December 31, 2007 and June 30, 2007 were as follows:

	December 31,		June 30,		$ Increase Over		% Increase Over
	2007		2007		Prior Period(1)		Prior Period(1)
	(Dollars in thousands)
Total Assets	$	2,183,979	$	2,132,114	$	51,865	2.4	%

(1)Change as compared to prior fiscal year end (June 30).

Acquisitions, new salon construction (a component of organic growth), and increases in inventory levels due to the seasonal build of inventory were the primary uses of our earnings and borrowings which caused the increase in total assets as of December 31, 2007 compared to June 30, 2007.

Total shareholders’ equity at December 31, 2007 and June 30, 2007 was as follows:

	December 31,		June 30,		$ Increase Over		% Increase Over
	2007		2007		Prior Period(1)		Prior Period(1)
	(Dollars in thousands)
Shareholders’ Equity	$	930,794	$	913,308	$	17,486	1.9	%

(1)Change as compared to prior fiscal year end (June 30).

During the three months ended December 31, 2007, equity increased primarily as a result of earnings during the six months ended December 30, 2007 and increased accumulated other comprehensive income related to foreign currency translation, partially offset by lower common stock and additional paid-in capital balances stemming from share repurchases.

Cash Flows

Operating Activities

Net cash provided by operating activities was $92.3 and $101.3 million during the six months ended December 31, 2007 and 2006, respectively, and was the result of the following:

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	For the Six Months Ended December 31,
Operating Cash Flows	2007			2006
	(Dollars in thousands)
Net income	$	43,155		$	49,967
Depreciation and amortization	63,186			59,954
Deferred income taxes	(1,202		)	3,550
Receivables	(4,217		)	(9,278		)
Inventories	(9,686		)	(11,141		)
Other current assets	(8,062		)	(21,935		)
Accounts payable and accrued expenses	(6,285		)	24,922
Other	15,380			5,242
	$	92,269		$	101,281

Investing Activities

Net cash used in investing activities was $117.4 and $95.2 million during the six months ended December 31, 2007 and 2006, respectively, and was the result of the following:

	For the Six Months Ended December 31,
Investing Cash Flows	2007			2006
	(Dollars in thousands)
Capital expenditures for remodels or other additions	$	(16,969	)	$	(21,784	)
Capital expenditures for the corporate office (including all technology-related expenditures)	(5,680		)	(12,243		)
Capital expenditures for new salon construction	(21,750		)	(12,254		)
Proceeds from sale of assets	16			133
Business and salon acquisitions	(53,297		)	(25,343		)
Proceeds from loans and investments	10,000			5,250
Disbursements for loans and investments	(22,500		)	(20,063		)
Cash portion of beauty school assets contributed	(7,254		)	—
Net investment hedge settlement	—			(8,897		)
	$	(117,434)		$	(95,201	)

Acquisitions were primarily funded by a combination of operating cash flows and debt.  Additionally, we completed 49 major remodeling projects during the six months ended December 31, 2007, compared to 110 during the six months ended December 31, 2006. We constructed 159 company-owned salons, including one hair restoration center, and acquired 110 company-owned salons (77 of which were franchise buybacks) during the six months ended December 31, 2007.  We constructed 214 company-owned salons and acquired 98 company-owned salons (49 of which were franchise buybacks) and one beauty school during the six months ended December 31, 2006. Investing activities also included a $12.5 million loan to Empire Education Group, Inc. In addition, we transferred $7.3 million of cash to Empire Education Group, Inc. as part of the August 1, 2007 transaction with Empire Education Group, Inc.

The company-owned constructed and acquired locations (excluding franchise buybacks) consisted of the following number of locations in each concept:

	For the Six Months Ended December 31, 2007		For the Six Months Ended December 31, 2006
	Constructed	Acquired	Constructed	Acquired
Regis Salons	9	—	8	34
MasterCuts	5	—	6	—
Trade Secret	8	2	12	3
SmartStyle	84	—	118	—
Strip Center	39	6	55	—
International	13	25	15	12
	158	33	214	49

Financing Activities

Net cash provided by financing activities was $3.1 and $13.1 million during the six months ended December 31, 2007 and 2006, respectively, and was the result of the following:

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	For the Six Months Ended December 31,
Financing Cash Flows	2007			2006
	(Dollars in thousands)
Net borrowings on revolving credit facilities	$	62,200		$	49,006
Net repayments of long-term debt	(13,612		)	(3,889		)
Proceeds from the issuance of common stock	7,372			8,970
Repurchase of common stock	(49,957		)	(37,481		)
Excess tax benefits from stock-based compensation plans	1,295			2,892
Dividends paid	(3,530		)	(3,643		)
Other	(653		)	(2,727		)
	$	3,115		$	13,128

The net borrowings on revolving credit facilities were primarily used to fund loans and acquisitions and share repurchases made during the six months ended December 31, 2007. Acquisitions funded are discussed in the paragraph below and in Note 5 to the Condensed  Consolidated Financial Information. The proceeds from the issuance of common stock were related to the exercise of stock options.

Acquisitions

The acquisitions during the six months ended December 31, 2007 consisted of 77 franchise buybacks and 33 acquired corporate salons. The acquisitions during the six months ended December 31, 2006 consisted of 49 franchise buybacks, 49 acquired corporate salons, and one acquired beauty school. The acquisitions were funded primarily from operating cash flow and debt.

Contractual Obligations and Commercial Commitments

In a limited number of acquisitions, the Company has guaranteed that its common stock issued in conjunction with the acquisition will reach a certain market price.  If the stock should not reach this price during an agreed upon time frame (typically three years from the date of acquisition), the Company is obligated to issue additional shares to the sellers.  Once the agreed upon stock price is met or exceeded for a period of five consecutive days, the contingency is met and the Company is no longer liable. Based on the December 31, 2007 market price, the Company would be required to provide an additional 103,650 shares with an aggregate market value on that date of $2.9 million related to an acquisition contingency if the agreed upon time frame was assumed to have expired December 31, 2007.

As a part of our salon development program, we continue to negotiate and enter into leases and commitments for the acquisition of equipment and leasehold improvements related to future salon locations, and continue to enter into transactions to acquire established hair care salons and businesses.

As disclosed in Note 8 to the Condensed Consolidated Financial Information contained within this Quarterly Report on Form 10-Q, we have recorded liabilities associated with uncertain tax positions of $22.5 million, which excludes interest and penalties of $7.2 million, at July 1, 2007. This liability may result in cash payments to tax authorities; however, we are not able to make reasonably reliable estimates of the period or amounts of cash settlements.

Financing

Financing activities are discussed above and derivative activities are discussed in Item 3, “Quantitative and Qualitative Disclosures about Market Risk.”  There were no other significant financing activities during the three and six months ended December 31, 2007.

We believe that cash generated from operations and amounts available under our existing debt facilities will be sufficient to fund anticipated capital expenditures, acquisitions and required debt repayments for the foreseeable future.

Dividends

We paid dividends of $0.08 per share during the six months ended December 31, 2007 and 2006, respectively. On January 22, 2008, our Board of Directors declared a $0.04 per share quarterly dividend payable February 19, 2008 to shareholders of record on February 5, 2008.

Share Repurchase Program

In May 2000, our Board of Directors (BOD) approved a stock repurchase program. Originally, the program allowed up to $50.0 million to be expended for the repurchase of our outstanding common stock. The BOD elected to increase this maximum to $100.0 million in August 2003, and then to $200.0 million on May 3, 2005. On April 26, 2007 the BOD approved an increase in the share repurchase program authorization of $100.0 million, increasing the total authorization from $200.0 to $300.0 million. The timing and amounts of any repurchases will depend on many factors, including the market price of the common stock and overall market conditions. As of December 31, 2007, a total accumulated 6.8 million shares have been repurchased for $226.5 million. All repurchased shares are immediately retired. This repurchase program has no stated expiration date and at December 31, 2007, $73.5 million remains to be spent on share repurchases under this program.

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SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Quarterly Report on Form 10-Q, as well as information included in, or incorporated by reference from, future filings by the Company with the Securities and Exchange Commission and information contained in written material, press releases and oral statements issued by or on behalf of the Company contains or may contain “forward-looking statements” within the meaning of the federal securities laws, including statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward—looking statements in this document reflect management’s best judgment at the time they are made, but all such statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied by the statements herein. Such forward-looking statements are often identified herein by use of words including, but not limited to, “may,” “believe,” “project,” “forecast,” “expect,” “estimate,” “anticipate” and “plan.” In addition, the following factors could affect the Company’s actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include competition within the personal hair care industry, which remains strong, both domestically and internationally, and price sensitivity; changes in economic condition; changes in consumer tastes and fashion trends; labor and benefit costs; legal claims; risk inherent to international development (including currency fluctuations); the continued ability of the Company and its franchisees to obtain suitable locations for new salon development; governmental initiatives such as minimum wage rates, taxes and possible franchise legislation; the ability of the Company to successfully identify, acquire and integrate salons that support its growth objectives; the ability to integrate the acquired business; the ability of the company to maintain satisfactory relationships with suppliers; or other factors not listed above. The ability of the Company to meet its expected revenue growth is dependent on salon acquisitions, new salon construction and same-store sales increases, all of which are affected by many of the aforementioned risks. Additional information concerning potential factors that could affect future financial results is set forth in the Company’s Annual Report on Form 10-K for the year ended June 30, 2007. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual and periodic reports filed or furnished with the SEC on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

The primary market risk exposure of the Company relates to changes in interest rates in connection with its debt, some of which bears interest at variable rates based on LIBOR plus an applicable borrowing margin. Additionally, the Company is exposed to foreign currency translation risk related to its 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 does not enter into such contracts for the purpose of speculation.

The Company has established an interest rate management policy that attempts to minimize its overall cost of debt, while taking into consideration the earnings implications associated with the volatility of short-term interest rates. As part of this policy, the Company has elected to maintain a combination of variable and fixed rate debt. Considering the effect of interest rate swaps and including $0.6 and $0.9 million related to the fair value swaps at December 31, 2007 and June 30, 2007, respectively, the Company had the following outstanding debt balances:

	December 31,		June 30,
	2007		2007
	(Dollars in thousands)
Fixed rate debt	$	501,673	$	496,568
Floating rate debt	265,633		212,663
	$	767,306	$	709,231

The Company manages its interest rate risk by continually assessing the amount of fixed and variable rate debt. On occasion, the Company uses interest rate swaps to further mitigate the risk associated with changing interest rates and to maintain its desired balances of fixed and floating rate debt.

In September 2007 the Company entered into several forward foreign currency contracts to hedge the U.S. Dollar value of future Chinese Yuan denominated payments to Chinese vendors. The foreign currency contracts totaled approximately 6.0 million Chinese Yuan or $0.8 million U.S. dollars and have maturation dates between April 2008 and September 2008. The purpose of the forward contracts is to protect against adverse movements in the Chinese Yuan exchange rate. The contracts were designated and are effective as cash flow hedges of Chinese Yuan denominated foreign currency firm commitments. These cash flow hedges were recorded at fair value within other current assets in the Condensed Consolidated Balance Sheet, with a corresponding offset in other comprehensive income within shareholders’ equity.

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For additional information, including a tabular presentation of the Company’s debt obligations and derivative financial instruments, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in the Company’s June 30, 2007 Annual Report on Form 10-K. Other than the information included above, there have been no material changes to the Company’s market risk and hedging activities during the three months ended December 31, 2007.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

With the participation of management, the Company’s chief executive officer and chief financial officer evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures at the conclusion of the period ended December 31, 2007. Based upon this evaluation, the chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective.

Changes in Internal Controls

There were no changes in the Company’s internal controls or, to the knowledge of management of the Company, in other factors that could significantly affect internal controls over financial reporting that occurred during the Company’s most recent fiscal quarter based on the Company’s most recent evaluation of its disclosure controls and procedures utilized to compile information included in this filing.

PART II — OTHER INFORMATION

Item 1.  Legal Proceedings

The Company is a defendant in various lawsuits and claims arising out of the normal course of business. Like certain other large retail employers, the Company has been faced with allegations of purported class-wide wage and hour violations. Litigation is inherently unpredictable and the outcome of these matters cannot presently be determined. Although company counsel believes that the Company has valid defenses in these matters, it could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations in any particular period.

Item 1A.  Risk Factors

If we are not able to increase our number of salons, we may not be able to grow our revenue and earnings.

The key driver of our revenue and earnings growth is the number of salons we and our franchisees acquire or construct. Acquiring and constructing new salons is subject to the ability of our company and our franchisees to identify suitable sites and obtain financing for development. While we believe that substantial future acquisition and organic growth opportunities exist, any inability to identify and successfully complete future acquisitions or increase our same-store sales would have a material adverse effect on our revenue and earnings growth.

Changes in the general economic environment may impact our business and results of operations.

Changes to the United States, Canadian, United Kingdom and other European economies have an impact on our business. As a result of our recent entrance into the Asian market, changes in the Asian economies may also impact our business. General economic factors that are beyond our control, such as interest rates, recession, inflation, deflation, tax rates and policy, energy costs, unemployment trends, and other matters that influence consumer confidence and spending, may impact our business. In particular, visitation patterns to our salons and hair restoration centers can be adversely impacted by changes in unemployment rates and discretionary income levels.

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Changes in our key relationships may adversely affect our operating results.

We maintain key relationships with certain companies, including Wal-Mart. Termination or modification of any of these relationships could significantly reduce our revenues and have an adverse impact on our ability to grow or future operating results.

Changes in fashion trends may impact our revenue.

Changes in consumer tastes and fashion trends can have an impact on our financial performance. For example, trends in wearing longer hair may reduce the number of visits to, and therefore, sales at our salons.

Changes in regulatory and statutory laws may result in increased costs to our business.

With 12,600 locations and approximately 62,700 employees worldwide, our financial results can be adversely impacted by regulatory or statutory changes in laws. Due to the number of people we employ, laws that increase minimum wage rates or increase costs to provide employee benefits may result in additional costs to our company. Compliance with new, complex and changing laws may cause our expenses to increase. In addition, any non-compliance with these laws could result in fines, product recalls and enforcement actions or otherwise restrict our ability to market certain products, which could adversely affect our business, financial condition and results of operations. We are also subject to laws that affect the franchisor-franchisee relationship.

If we are not able to successfully compete in our business segments, our financial results may be affected.

Competition on a market by market basis remains strong. Therefore, our ability to raise prices in certain markets can be adversely impacted by this competition. If we are not able to raise prices, our ability to grow same-store sales and increase our revenue and earnings may be impaired.

If our joint ventures are unsuccessful our financial results may be affected.

We have entered into joint venture arrangements with other companies in the retail hair salon and beauty school businesses in order to maintain and expand our operations in the United States, Asia and continental Europe. If our joint venture partners are unwilling or unable to devote their financial resources or marketing and operational capabilities to our joint venture businesses, or if any of our joint ventures are terminated, we may not be able to realize anticipated revenues and profits in the countries where our joint ventures operate and our business could be materially adversely affected. If our joint venture arrangements are not successful, we may have a limited ability to terminate or modify these arrangements. If any of our joint ventures are terminated, there can be no assurance that we will be able to attract new joint venture partners to continue the activities of the terminated joint venture or to operate independently in the countries in which the terminated joint venture conducted business.

Changes in manufacturers’ choice of distribution channels may negatively affect our revenues.

The retail products that we sell are licensed to be carried exclusively by professional salons. The products we purchase for sale in our salons are purchased pursuant to purchase orders, as opposed to long-term contracts and generally can be terminated by the producer without much advance notice. Should the various product manufacturers decide to utilize other distribution channels, such as large discount retailers, it could negatively impact the revenue earned from product sales.

Changes to interest rates and foreign currency exchange rates may impact our results from operations.

Changes in interest rates will have an impact on our expected results from operations. Currently, we manage the risk related to fluctuations in interest rates through the use of variable rate debt instruments and other financial instruments. See discussion in Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in the Company’s June 30, 2007 Annual Report on Form 10-K for additional information.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

(e)  Share Repurchase Program

In May 2000, our Board of Directors (BOD) approved a stock repurchase program. Originally, the program allowed up to $50.0 million to be expended for the repurchase of our outstanding common stock. The BOD elected to increase this maximum to $100.0 million in August 2003, and then to $200.0 million on May 3, 2005. On April 26, 2007 the BOD approved an increase in the share repurchase program authorization of $100.0 million, increasing the total authorization from $200.0 to $300.0 million. The timing and amounts of any repurchases will depend on many factors, including the market price of the common stock and overall market conditions. As of December 31, 2007, a total accumulated 6.8 million shares have been repurchased for $226.5 million. All repurchased shares are immediately retired. This repurchase program has no stated expiration date and at December 31, 2007, $73.5 million remains to be spent on share repurchases under this program.

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The following table shows the stock repurchase activity for the three months ended December 31, 2007 by month:

				Total Number of	Approximate Dollar
				Shares Purchased	Value of Shares that
				As Part of Publicly	May Yet Be Purchased
	Total Number of	Average Price		Announced Plans	under the Plans or
Period	Shares Purchased	Paid per Share		or Programs	Programs (in thousands)
10/1/07 – 10/31/07	215,400	$	33.46	215,400	$	116,275
11/1/07 – 11/30/07	1,162,802	28.86		1,162,802	82,714
12/1/07 – 12/31/07	322,887	28.46		322,887	73,524
Total	1,701,089	$	29.37	1,701,089	$	73,524

Item 4.  Submission of Matters to a Vote of Security Holders

On October 23, 2007, at the annual meeting of the shareholders of the Company, a vote on the election of the Company’s directors and the ratification of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm took place with the following results:

Election of Directors:

AUTHORITY	FOR	WITHHOLD
Rolf F. Bjelland	34,170,308	6,939,663
Paul D. Finkelstein	33,844,252	7,265,719
Thomas L. Gregory	34,162,143	6,947,828
Van Zandt Hawn	34,171,160	6,938,811
Susan S. Hoyt	34,159,932	6,950,039
David B. Kunin	33,464,344	7,645,627
Myron Kunin	33,139,775	7,970,196

Ratification of PricewaterhouseCoopers LLP as independent registered public accounting firm:

For	39,856,874
Against	1,131,191
Abstain	121,906

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Item 6.  Exhibits and Reports on Form 8-K

(a)Exhibits:

Exhibit 10	Master Agreement Dated October 11, 2007 by in Between Mr. Yvon Provost, Mr. Fabien Provost, Mrs. Olivia Provost, Mrs. Monique La Rizza, Artal Services N.V., Mr. Jean Mouton, RHS Netherlands Holdings BV, RHS France SAS, Regis Corporation and Artal Group S.A.
Exhibit 15	Letter Re: Unaudited Interim Financial Information.
Exhibit 31.1	Chairman of the Board of Directors, President and Chief Executive Officer of Regis Corporation: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	Senior Executive Vice President, Chief Financial and Administrative Officer of Regis Corporation: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1	Chairman of the Board of Directors, President and Chief Executive Officer of Regis Corporation: Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2	Senior Executive Vice President, Chief Financial and Administrative Officer of Regis Corporation: Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)  Reports on Form 8-K:

The following reports on Form 8-K were furnished during the six months ended December 31, 2007:

Form 8-K dated July 12, 2007 related to the announcement of the Company’s consolidated revenues and consolidated same-store sales for the quarter and year ended June 30, 2007.

Form 8-K dated August 22, 2007 related to the announcement of the Company’s financial results for the quarter and year ended June 30, 2007.

Form 8-K dated September 28, 2007 related to the announcement that the Company is in discussion concerning a possible joint venture in Europe with the Franck Provost group.

Form 8-K dated October 10, 2007 related to the announcement of the Company’s consolidated revenues and consolidated same-store sales for the quarter ended September 30, 2007.

Form 8-K dated October 12, 2007 related to the announcement that the Company entered into a business combination agreement with the Franck Provost group.

Form 8-K dated October 22, 2007 related to the announcement of the Company’s financial results for the quarter ended September 30, 2007.

Form 8-K dated January 11, 2008 related to the announcement of the Company’s consolidated revenues and consolidated same-store sales for the quarter ended December 31, 2007.

Form 8-K dated January 18, 2008 related to the announcement that the Company entered into a stock purchase agreement with Cameron Capital Investments, Inc. to purchase all Capital Stock of Cameron Capital I, Inc.

Form 8-K dated January 22, 2008 related to the announcement of the Company’s financial results for the quarter ended December 31, 2007.

Form 8-K dated January 31, 2008 related to the announcement that the Company closed on its transaction with the Franck Provost group.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	REGIS CORPORATION
Date: February 7, 2008	By:	/s/ Randy L. Pearce
		Randy L. Pearce
		Senior Executive Vice President, Chief Financial and Administrative Officer
		Signing on behalf of the registrant and as principal accounting officer

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EX-10

Exhibit No. 10

MASTER AGREEMENT

Dated 11, October 2007

Between

Mr. Yvon Provost

Mr. Fabien Provost

Mrs Olivia Provost

Mrs Monique La Rizza

and

Artal Services N.V.

and

Mr. Jean Mouton

And

RHS Netherlands Holdings BV

and

RHS France SAS

and

Regis Corporation

and

Artal Group S.A.

Baker & McKenzie SCP

Paris

1 rue Paul Baudry

75008 Paris

France

Tel: +33 (0)1 44 17 53 00

Fax: +33 (0)1 44 17 75 45

MASTER AGREEMENT

By and between:

1.Mr. Yvon Provost, born in Le Lude (72810), France, on 12 December 1946, a French national, residing at 14, rue Ancelle, 92200 Neuilly-sur-Seine, France, married under the séparation de biens regime;

2.Mr. Fabien Provost, born in Suresnes (92150), France, on 16 August 1975, a French national, residing at 7, rue Berlioz, 75016 Paris, France, married under the séparation de biens regime;

3.Mrs Olivia Provost, born in Suresnes (92150), France, on 3 June 1973, a French national, residing at 20, rue Roger Bacon, 75017 Paris, France;

4.Mrs Monique La Rizza, born in La Tronche (38) on 15 March 1948, a French national, residing at 14, rue Ancelle, 92200 Neuilly-sur-Seine, France, married under the séparation de biens regime;

Yvon Provost, Fabien Provost, Olivia Provost and Monique La Rizza are collectively referred to as the “FP Group” and for all purpose under this Master Agreement, each member of the FP Group shall be deemed acting jointly and severally (solidairement) with all other members of the FP Group;

4.Artal Services N.V., a company incorporated under the laws of Belgium, with a share capital of 18,000,000 euros, having its registered office at 1932, Saint-Stevens-Woluwe, Woluwedal 28, Belgium, registered with the legal entity registry of Brussels under number 0405.680.724, represented by Mr. Paul Köhler (hereinafter referred to as “Artal”);

5.Mr. Jean Mouton, born in Versailles (78000), France, on 10 September 1956, a French national, residing at 3, rue de Luynes, 75007 Paris, France (hereinafter referred to as “Jean Mouton”);

6.RHS Netherlands Holdings BV, a limited liability company incorporated under the laws of Netherlands, having its registered office at Strawinskylaan 3105,  Atrium 7^th floor, PO Box 1469 – 1000 BL Amsterdam, Netherlands, registered in Amsterdam under number 3190108, represented by Andrew Cohen (hereinafter referred to as “Regis Netherlands”);

7.RHS France SAS, a French société par actions simplifiée (simplified joint stock company) with a share capital of 46,370,000 euros, having its registered offices 156 rue du Faubourg Saint Denis – 75010 Paris, France, registered with the Trade and Companies Registry of Paris, under number 439 966 185, represented hereto by its legal representative RHS Netherlands Holding BV, itself represented by Andrew Cohen, (hereinafter referred to as “RHS” or the “Combined Entity”);

The FP Group, Artal, Jean Mouton, Regis Netherlands and RHS are referred to collectively as the “Parties” and each of them as a “Party”;

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8.Regis Corporation, a company incorporated under the laws of the State of Minnesota, having its registered office at 7201 Metro Boulevard, Minneapolis, MN 55439 (USA), registered under number 41-0749934, represented by Mr. Eric Bakken (hereinafter referred to as « Regis Corporation »), duly authorized, which shall be deemed acting jointly and severally (solidairement) with Regis Netherlands with respect to the rights, obligations and, as the case maybe, the liabilities which result or may result of this Master Agreement;

9.Artal Group S.A., a company incorporated under the laws of Luxemburg, having its registered office at 105 Grand-Rue, L1661 Luxemburg (Luxemburg), registered under number 40470, represented by Mr. Paul Kolher, duly authorized (hereinafter referred to as “Artal Group”), which shall be deemed acting jointly and severally (solidairement) with Artal with respect to the rights, obligations and, as the case maybe, the liabilities which result or may result of this Master Agreement.

WITNESSETH:

Whereas Regis Netherlands holds 100% of the share capital of RHS and 100% of the share capital of RIF.

Whereas, after the completion of a certain number of pre closing actions described in Schedule 4.1(i) of this Master Agreement, on the Closing Date:

(i)Regis Netherlands will hold 100% of the share capital of a company to be incorporated (“Regis Holding”) which will hold directly 100% of the share capital of RHS and RISS ;

(ii)RHS will hold shareholding interests in various subsidiaries as described in Exhibit B;

(iii)RIF will hold shareholding interests in various subsidiaries as described in Exhibit C;

(iv)the FP Group, Artal and Mr. Jean Mouton will hold together 100% of the share capital of a company to be incorporated between them (“Provost Participations”);

(v)Provost Participations will hold 95% of the share capital of Franck Provost Coiffure SAS, a French société par actions simplifiée (simplified joint stock company) with a share capital of 24,300,000 euros, having its registered offices 53 avenue Franklin Roosevelt – 75008 Paris, France, registered with the Trade and Companies Registry of Paris, under number 303 324 552 (“FPC”); and

(vi)FPC will hold shareholding interests in various subsidiaries as described in Exhibit D.

Whereas Regis Netherlands, the FP Group and Artal agreed to combine the European retail hair salon operations of the Regis Netherlands’ subsidiaries listed in Exhibit B and Exhibit C, with the operations of Franck Provost Coiffure SAS and its subsidiaries listed in Exhibit D (the “Transaction”).

Whereas following the consummation of the Transaction, RHS is referred to in this Master Agreement as the “Combined Entity.”

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Whereas Regis Corporation, the FP Group and Artal agreed on the following allocation of the share capital of the Combined Entity after the completion of the Transaction:

·	Provost Participations	70	%
·	Regis Holding	30	%
	Total	100	%

Whereas the Parties have resolved to implement the Transaction as follows:

(i)Regis Holding shall contribute to the Combined Entity, 100% of the share capital of RIF.

(ii)Simultaneously, the FP Group, Artal and Jean Mouton shall contribute to Provost Participations all of their shares of FPC corresponding in the aggregate to 95% of the share capital of FPC. In addition, Artal shall contribute to Provost Participations 7,000,000 euros in cash.  Provost Participations shall then contribute to RHS 95% of the share capital of FPC and 7,000,000 euros in cash.

(iii)On completion of the contributions described above and of the related capital increase of the Combined Entity, Regis Holding, the FP Group, Artal, Jean Mouton and Provost Participations shall execute ancillary documents and in particular :

·two representations and warranties agreements substantially in the form of the documents attached as Schedule 4.3(i) and Schedule 4.3(ii) hereto;

·a shareholders’ agreement that will set forth, among other things, the respective rights and obligations of Regis Holdingand Provost Participations in their capacity as shareholders of the Combined Entity;

·the Put Option and the Call Option in the form of the documents respectively attached as Schedule 4.4.1 (x) and Schedule 4.4.1 (xi) hereto;

·the Mouton Call Option in the form of the document attached as Schedule 4.4.3 hereto; and

·a royalty free license agreement for the use by Regis Corporation, or Regis Corporation’s affiliates other than the Combined Entity itself and its subsidiaries, of the Jean-Louis David intellectual property in the New York metropolitan area in the form of Schedule 4.3(iv) hereto.

(iv)On the date hereof, Artal and CMP have entered into (i) a share purchase agreement according to which Artal will acquire on the Closing Date 45,958 shares of FPC and (ii) put and call options agreements pursuant to which CMP has undertaken to sell to Artal 126,875 shares of FPC for a price of Euro 6,850,000. A copy of these agreements is attached as Exhibit E. On completion of the contributions described above, Artal will assign to Provalliance its rights and obligations under the put and call option agreements referred to above and Provalliance will accept this assignment.

Whereas the final structure of the Combined Entity immediately after the Closing is attached as Exhibit F to this Master Agreement.

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Whereas the Parties have agreed to enter into this Master Agreement providing for their undertakings to implement the Transaction.

NOW IT HAS BEEN AGREED AS FOLLOWS:

1.DEFINITIONS

For the purposes of interpretation and performance of this Master Agreement, the terms and expressions used hereinafter, unless otherwise required by the context, shall have the following meanings:

“Affiliate”	shall mean, (i) for an individual, members of his family and the companies or other legal entities directly or indirectly controlled by such individual and (ii) for a legal entity, any person or other entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the said legal entity, or any other entity which is under the same control than the concerned legal entity. An individual or a legal entity shall be deemed to control a legal entity if it controls such legal entity within the meaning of Article L. 233-3 I of the French Code de commerce.
“Anti-trust Authorities”	shall mean any relevant governmental authority in charge of anti-trust control, in any jurisdiction where an Anti-trust Clearance shall need to be obtained or, in the opinion of the Parties, is desirable to obtain prior to the completion of the Transaction.
“Anti-trust Clearances”	shall have the meaning ascribed to it in Section 5.2 hereof.
“Artal Contribution”	shall mean the 664,202 shares of FPC which will be contributed by Artal to Provost Participations on the Closing Date.
“Artal Contribution Agreement”	shall mean the contribution agreement pursuant to which Artal shall contribute to Provost Participations 618,244 shares of FPC and a form of which is attached as Schedule 2.3 hereto.
“Calculation Period”	shall have the meaning ascribed to it in the Shareholders’ Agreement.
“Call Option”	shall mean the call option agreement (promesse unilaterale de vente) to be signed on the Closing Date, by and between Artal and Regis Holding, a form of which is attached as Schedule 4.4.1 (xi) hereto.

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“CMP”	shall mean Cherche Midi Participation, a société par actions simplifiée with a share capital of 7,600,000 euros, having its registered office on 17, rue Dupin, 75006 Paris, France, registered with the French trade and companies registry under number 440 857 548 RCS Paris.
“Closing”	shall mean the completion of the Transaction.
“Closing Date”	shall mean the date on which the Transaction contemplated in this Master Agreement shall be completed as set forth in Section 4.2 hereof.
“Combined Entity”	shall refer to RHS from and after the completion of the Transaction, as designated in the preamble hereof.
“Conditions Precedent”	shall mean the conditions to the Parties’ obligation to consummate the Transaction stipulated in Section 3 hereof.
“Disagreement Notice”	shall have the meaning ascribed to it in Section 2.1.3 hereof.
“Encumbrances”	shall mean any liens, claims, encumbrances, options, security interests, restrictions, pledges or other rights of third parties of any nature.
“Excluded Assets and Activities”	shall mean the shares of Regis Netherlands’ subsidiaries in the UK (including the related intellectual property rights) and Germany (salons located in Germany operating under the name of Vidal Sassoon) and the shares of Regis Netherlands’ financial subsidiaries located in the Netherlands, as well as the Jean Louis David salons activity in the United States that will not be contributed to the Combined Entity.
“Faure Acquisition”	shall mean the intended acquisition by RHS of a company which operates four locations in France and seven locations in Spain for a price amounting to around 6 million Euros.
“FP Group Contribution”	shall mean the 1,740,000 shares of FPC which will be contributed by the FP Group to Provost Participations on the Closing Date.
“FP Group Contribution Agreement”	shall mean the contribution agreement pursuant to which the FP Group shall contribute to Provost Participations 1,740,000 shares of FPC and a form of which is attached as Schedule 2.2 hereto.
“FP Group Representative”	shall mean Mr. Yvon Provost.
“Independent Accountant”	shall have the meaning ascribed to it in Section 2.1.3 hereof.

5

“License Agreement”	shall mean the license agreement to be signed on the Closing Date, by and between RIF and Regis Corporation, a form of which is attached as Schedule 4.3 (iv) hereto.
“Master Agreement”	shall mean this Master Agreement and all of its Exhibits and Schedules, which form an integral part thereof.
“Mouton Call Option”	Shall mean the call option agreement (promesse unilaterale de vente) to be signed on the Closing Date, by and between Artal and Jean Mouton, a form of which is attached as Schedule 4.4.3 hereto.
“Mouton Contribution”	shall mean the 6,423 shares of FPC which will be contributed by Jean Mouton to Provost Participations on the Closing Date.
“Mouton Contribution Agreement”	shall mean the contribution agreement pursuant to which Jean Mouton shall contribute to Provost Participations 6,423 shares of FPC and a form of which is attached as Schedule 2.4 hereto.
“Normalized EBITDA”	shall have the meaning ascribed to it in the Shareholders’ Agreement.
“Parties”	shall mean Regis Netherlands, the FP Group, Artal, Jean Mouton and RHS.
“Provost Representations and Warranties Agreement”	shall mean the representations and warranties agreement and its schedules and exhibits to be signed on the Closing Date, by and between Regis Holding, the FP Group and the Combined Entity, a form of which is attached as Schedule 4.3 (i) hereto.
“Provost Participations Contribution”	shall mean 95% of the share capital of FPC contributed by Provost Participations to the Combined Entity.
“Provost Participations Contribution Agreement”	shall mean the contribution agreement pursuant to which Provost Participations shall contribute to the Combined Entity 95% of the share capital of FPC and a form of which is attached as Schedule 2.5 hereto.
“Put Option”	shall mean the put option agreement (promesse unilaterale d’achat) to be signed on the Closing Date, by and between Artal and Regis Holding, a form of which is attached as Schedule 4.4.1(x) hereto.
“Regis Contribution”	shall mean a 100% of the share capital of RIF contributed by Regis Holding to the Combined Entity.
“Regis Contribution Agreement”	shall mean the contribution agreement pursuant to which Regis Holding shall contribute to the Combined Entity a 100% of the share capital of RIF and a form of which is attached as Schedule 2.1.1 hereto.

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“Regis Representations and Warranties Agreement”	shall mean the representations and warranties agreement and its schedules and exhibits to be signed on the Closing Date, by and between Regis Holding, Artal, the FP Group and the Combined Entity, a form of which is attached as Schedule 4.3 (ii) hereto.
“Remaining Cash Amount”	shall mean the sum of (i) cash, cash at hand, liquid money market investments minus (ii) any interest bearing indebtedness owed to banks and financial institutions, owned by the entities listed in Exhibits B and C as of the Closing Date.
“Remaining Cash Amount Statement”	shall have the meaning ascribed to it in Section 2.1 hereof.
“Representations and Warranties”	shall mean the representations and warranties set forth either in the Regis Representations and Warranties Agreement or in the Provost Representations and Warranties Agreement.
“RIF”	shall mean Regis International Franchising S.a.r.l, a company incorporated under the laws of Luxembourg, having its registered office at 18, avenue de la Liberté, 1930 Luxemburg, Luxemburg, registered under number 1999 24 07355.
“RISS”	shall mean Regis International Shared Services, a société par actions simplifiée incorporated under the laws of France, with a share capital of 500,000 Euros, registered with the French trade and companies registry under number 480 547 694 RCS Paris.
“Shareholders’ Agreement”	shall mean the shareholders agreement and its schedules and exhibits to be signed on the Closing Date, by and between the certain Parties, a form of which is attached as Schedule 4.3 (iii) hereto.
“Subsidiaries”	shall mean (i) for RHS (before Closing) the companies listed in Exhibit B, (ii) for RIF the companies listed in Exhibit C and (iii) for FPC the companies listed in Exhibit D and (iv) for the Combined Entity (after Closing) the companies listed in Exhibit E.
“Transaction”	shall mean the combination, under the ownership of the Combined Entity, of the European retail hair salon operations of the Regis Netherlands’ subsidiaries listed in Exhibit B and Exhibit C, with the operations of Franck Provost Coiffure SAS and its subsidiaries listed in Exhibit D.

2.CONTRIBUTIONS IN KIND – CAPITAL INCREASE OF THE COMBINED ENTITY

2.1Regis Contribution

2.1.1Under the terms and conditions set forth in this Master Agreement, on the Closing Date, Regis Holding shall contribute to the Combined Entity

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100% of the share capital of RIF pursuant to the terms and conditions of the Regis Contribution Agreement.  This contribution shall be governed by article L. 225-147 of the French Code de Commerce.

Such RIF shares shall be contributed in full and unrestricted ownership to the Combined Entity, free and clear of any Encumbrances and with the benefit of all rights attaching to them on the Closing Date (including the right to dividends for the fiscal year immediately ending before the Closing Date, provided that the dividends have not been decided or paid prior to the Closing Date).

The Combined Entity shall be subrogated in all rights and obligations of Regis Holding attached to the RIF shares as of the Closing Date.

Prior to the Regis Contribution, Regis Netherlands shall contribute to Regis Holding 100% of the share capital of RIF.

2.1.2The Excluded Assets and Activities will not be contributed to the Combined Entity.  Regis Corporation will be entitled to a royalty free license for the use of the Jean-Louis David intellectual property pursuant to the License Agreement.

2.1.3Regis Netherlands hereby undertakes to maintain, in the entities listed in Exhibits B and C, on the Closing Date, a Remaining Cash Amount equal, in the aggregate, to 2,500,000 euros. In the event that the Faure Acquisition is completed by the Combined Entity or any of its Subsidiaries prior to the Closing Date; the Remaining Cash Amount shall not be reduced by the acquisition price paid upon completion of the Faure Acquisition provided that the acquisition (i) was approved by the FP Group and Artal prior to its completion and (ii) was entirely financed through a credit line granted by a financial institution.

In the event the Remaining Cash Amount is less than to 2,500,000 euros, Regis Netherlands hereby agrees to indemnify the Combined Entity of an amount equal to the difference between the Remaining Cash Amount and 2,500,000 euros.  In the event the Remaining Cash Amount is in excess of 2,500,000 euros, the FP Group and Artal hereby agree to cause the Combined Entity to indemnify Regis Netherlands of an amount equal to the difference between the Remaining Cash Amount and 2,500,000 euros.

As soon as practicable after the Closing Date and in any event within 30 days after such date, the FP Group and Artal shall cause the Combined Entity to determine the Remaining Cash Amount and prepare and provide Regis Netherlands with a Remaining Cash Amount statement (the “Remaining Cash AmountStatement”).  Regis Netherlands agrees to reasonably cooperate with the FP Group and Artal, as the latter may request in order to determine the Remaining Cash Amount.  If Regis Netherlands does not, within 10 days of receipt of the Remaining Cash Amount Statement, give notice to the FP Group and Artal that it disagrees with the Remaining Cash Amount Statement, such notice stating exhaustively and in reasonable detail the specific items in the Remaining

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Cash Amount Statement with which Regis Netherlands disagrees and any adjustments proposed by Regis Netherlands to the Remaining Cash Amount Statement showing the amounts of any adjustment with an explanation in reasonable detail (the “Disagreement Notice”), the Remaining Cash Amount Statement prepared by the FP Group and Artal shall be final and binding upon the Parties hereto.  If Regis Netherlands serves a Disagreement Notice to the FP Group and Artal within the 10-day time period mentioned above, Regis Netherlands, the FP Group and Artal shall attempt in good faith to reach agreement in respect thereof.  If Regis Netherlands, the FP Group and Artal fail to reach an agreement within 10 days following the date of receipt of the Disagreement Notice, the item or items in dispute shall be referred to an internationally and independent chartered accountant or an independent firm of chartered accountants (the “Independent Accountant”) to fully and finally settle the dispute and determine the Remaining Cash Amount in accordance with this section 2.1.3 above and with article 1592 of the Civil Code.

The Independent Accountant shall be agreed upon in writing by the Parties within 10 days of the date on which the most diligent Party has submitted a written request that the matter be referred to the Independent Accountant, or in the absence of a written agreement in such 10-day time period, shall be finally appointed, on the application of either Party, by the Président of the Paris Commercial Court.

The Independent Accountant shall settle any dispute between the Parties on the Remaining Cash Amount Statement, correct the Remaining Cash Amount Statement, such corrected Remaining Cash Amount Statement established by the Independent Accountant being final and binding upon the Parties hereto.  If the Combined Entity fail to prepare or to provide the Remaining Cash Amount Statement within 30 days of the expiry of the initial 30-day time period provided for above, Regis Netherlands shall have the right to prepare or have their accountants prepare the Remaining Cash Amount Statement and the Parties shall follow the process for agreeing on the Remaining Cash Amount Statement as set out in the above and the foregoing provisions here under, as if references to the FP Group and Artal were references to Regis Netherlands and vice versa.  In such event, the FP Group and Artal shall reimburse all costs incurred by Regis Netherlands in preparing or having the Remaining Cash Amount Statement prepared (including, for the avoidance of doubt, the costs of Regis Netherlands’ accountants).  The Parties shall procure (so far as they are respectively able to do so) that all records and employees of RHS and RIF and the working papers of these companies and the companies’ accountants shall be made available to the Independent Accountant, together with access to the companies premises as may reasonably be required in relation to the tasks which this Master Agreement contemplates.

The Independent Accountant shall, at all times, abide by the principle of independent adversarial proceedings. Throughout the duration of its assignment, the Parties shall be entitled to submit any useful written comments, provided that these comments, including any attachments and

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documentary evidence, are sent simultaneously to the Independent Accountant and to the other Parties.

The Independent Accountant shall submit its draft decision in writing to the Parties for their review within a maximum timescale of ten (10) calendar days following its appointment, unless the Parties by the dispute agree jointly to extend the Independent Accountant’s mission at its request. The Parties shall have five (5) calendar days to provide their comments and the Independent Accountant shall then submit its final decision in writing to the Parties. The Independent Accountant’s decision shall be final and not subject to appeal; it shall be binding on the Parties and shall fully and finally settle any dispute over the Remaining Cash Amount.

All the costs and expenses which are incurred in connection with the Independent Accountant’s assignment shall be borne in equal shares by the Combined Entity.

2.2FP Group Contribution

Under the terms and conditions set forth in this Master Agreement, on the Closing Date, the FP Group shall contribute to Provost Participations the FP Group Contribution pursuant to the terms and conditions the FP Group Contribution Agreement.  This contribution shall be governed by article L. 225-147 of the French Code de Commerce.

Such FPC shares shall be contributed in full and unrestricted ownership to Provost Participations, free and clear of any Encumbrances and with the benefit of all rights attaching to them on the Closing Date (excluding the right to an amount of dividends of Euros 1,385,000 decided on 20 June 2007 for the fiscal year ending on December 31, 2006 which will be fully paid prior to the Closing Date but including the rights to dividends for the fiscal year ending on December 31, 2007).

Provost Participations shall be subrogated in all rights and obligations of FP Group attached to the FPC shares contributed by the FP Group as of the Closing Date.

Prior to the FP Group Contribution, the FP Group will acquire the minority interests held by the following shareholders in FPC: Mrs Monique La Rizza, Mr Pierre Lafont and Mr Jean-Louis Dejouis.

2.3Artal Contribution

In advance of the Artal Contribution, Artal shall contribute to FPC an amount of Euro 2,496,429.50 in cash.

Under the terms and conditions set forth in this Master Agreement, on the Closing Date, Artal shall contribute to Provost Participations the Artal Contribution pursuant to the terms and conditions of the Artal Contribution Agreement.  This contribution shall be governed by article L. 225-147 of the French Code de Commerce. In addition, Artal shall contribute to Provost Participations 7,000,000 euros in cash.

Such FPC shares shall be contributed in full and unrestricted ownership to Provost Participations, free and clear of any Encumbrances and with the benefit of all rights attaching

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to them on the Closing Date (excluding the right to an amount of dividends of Euros 1,385,000 decided on 20 June 2007 for the fiscal year ending on December 31, 2006 which will be fully paid prior to the Closing Date but including the rights to dividends for the fiscal year ending on December 31, 2007).

Provost Participations shall be subrogated in all rights and obligations of Artal attached to the FPC shares contributed by Artal as of the Closing Date.

Pursuant to the agreement attached hereto as Exhibit E, Artal shall acquire prior to the Artal Contribution 45.958 shares of FPC from CMP.

2.4Mouton Contribution

Under the terms and conditions set forth in this Master Agreement, on the Closing Date, Jean Mouton shall contribute to Provost Participations the Mouton Contribution pursuant to the terms and conditions of the Mouton Contribution Agreement.  This contribution shall be governed by article L. 225-147 of the French Code de Commerce.

Such FPC shares shall be contributed in full and unrestricted ownership to Provost Participations, free and clear of any Encumbrances and with the benefit of all rights attaching to them on the Closing Date (excluding the right to an amount of dividends of Euros 1,385,000 decided on 20 June 2007 for the fiscal year ending on December 31, 2006 which will be fully paid prior to the Closing Date but including the rights to dividends for the fiscal year ending on December 31, 2007).

Provost Participations shall be subrogated in all rights and obligations of Jean Mouton attached to the FPC shares contributed by Jean Mouton as of the Closing Date.

2.5Provost Participations Contribution

Under the terms and conditions set forth in this Master Agreement, on the Closing Date, Provost Participations shall contribute to the Combined Entity 95% of the share capital of FPC pursuant to the terms and conditions of the Provost Participations Contribution Agreement.  This contribution shall be governed by article L. 225-147 of the French Code de Commerce.

Such FPC shares shall be contributed in full and unrestricted ownership to the Combined Entity, free and clear of any Encumbrances and with the benefit of all rights attaching to them on the Closing Date (including the right to dividends for the fiscal year immediately ending before the Closing Date, provided that the dividends have not been decided or paid prior to the Closing Date).

The Combined Entity shall be subrogated in all rights and obligations of Provost Participations attached to the FPC shares contributed by Provost Participations as of the Closing Date.

In addition, Provost Participations shall contribute to the Combined Entity an amount of 7,000,000 euros in cash.

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2.6Valuation of the contributions

The Parties have agreed to value the respective contribution of Regis Holding, the FP Group, Artal and Jean Mouton as follows:

(i)30,000,000 euros for the Regis Contribution;

(ii)96,000,000 euros for the FP Group Contribution;

(iii)36,645,628 euros for the Artal Contribution;

(iv)354,372 euros for the Mouton Contribution; and

(v)133,000,000 euros for the Provost Participations Contribution.

2.7Capital increase of the Combined Entity

In consideration of the Regis Contribution and the Provost Participations contributions described above, RHS will issue:

(i)42,021,686 new shares, par value of Euro 0.7, to Regis Holding, with a total issuance premium of Euro 584,820 ; and

(ii)196,101,201 new shares, par value Euro 0.7, to Provost Participations, with a total issuance premium of Euro 2,729,160.

3.CONDITIONS PRECEDENT

3.1Conditions to the Parties’ obligation to consummate the Transaction

In the event the filing of the Transaction with the Anti-Trust Authorities shall prove to be legally required, the Parties’ obligation to consummate the Transaction is subject to (i) obtaining, without condition, all Anti-trust Clearances from the Anti-Trust Authorities, or (ii) the termination of the applicable waiting period under applicable laws and regulations without objection to the Transaction by the Anti-Trust Authorities.

3.2Conditions to Regis Netherlands’ obligation to consummate the Transaction

Regis Netherlands’ obligation to consummate the Transaction is subject to the absence of any event, fact or matter which gives rise to a material change in the financial conditions, assets and liabilities, or results of operations of FPC or any of its Subsidiaries, that, as a whole, is as substantial and adverse as to fundamentally impair the value of these companies in aggregate.

3.3Conditions to the FP Group and Artal’ obligation to consummate the Transaction

The FP Group and Artal obligation to consummate the Transaction is subject to the absence of any event, fact or matter which gives rise to a material change in the financial conditions, assets and liabilities, or results of operations of RIF and RHS or any of their respective Subsidiaries, that, as a whole, is as substantial and adverse as to fundamentally impair the value of these companies in aggregate.

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4.COMPLETION OF THE TRANSACTION — CLOSING

4.1Pre-Closing actions — Contributions process

The Parties undertake to take all steps as may be required under applicable laws and regulations to ensure that the FP Group Contribution and the Artal Contribution are contributed to Provost Participations and that the Regis Contribution and the Provost Participations Contribution are contributed to the Combined Entity and the related capital increases completed with effect on the Closing Date.

In this respect the Parties undertake to:

(i)carry out the pre-closing actions described respectively in Schedule 4.1(i) for Regis Netherlands, in Section 2.2. for the FP Group and in Section 2.3 for Artal;

(ii)request jointly the appointment of a special contribution appraiser(s) (commissaire aux apports) from the relevant commercial courts;

(iii)sign the Regis Contribution Agreement, the FP Group Contribution Agreement, the Artal Contribution Agreement, the Mouton Contribution Agreement and the Provost Participations Contribution Agreement substantially in accordance with the forms attached respectively as Schedule 2.1.1, Schedule 2.2, Schedule 2.3, Schedule 2.4 and Schedule 2.5;

(iv)diligently cooperate with the contribution appraiser(s) (commissaire aux apports) and in particular give him an original copy of the Regis Contribution Agreement, the FP Group Contribution Agreement, the Artal Contribution Agreement, the Mouton Contribution Agreement and the Provost Participations Contribution Agreement in order to enable such contribution appraiser(s) to issue his reports on a timely basis;

(v)perform on a timely basis all publication and filing formalities required by applicable laws in connection with Regis Contribution, FP Group Contribution, Artal Contribution, Mouton Contribution and Provost Participations Contribution;

(vi)take all corporate steps, as may be required to make Regis Contribution, FP Group Contribution, Artal Contribution Mouton Contribution and Provost Participations Contribution and related capital increases of Provost Participations and of the Combined Entity effective in accordance with the terms and conditions of this Master Agreement;

(vii)take all corporate steps, as may be required to make the contribution by Regis Netherland to Regis Holding as described in article 2.1.1 above and the related capital increase of Regis Holding effective in accordance with the terms and conditions of this Master Agreement.

Except as may be otherwise agreed by the Parties, each of the FP Group, Artal, Jean Mouton, Provost Participations, Regis Netherlands and Regis Holding undertakes to pay all taxes and expenses that may be due in connection with respectively the FP Group Contribution, Artal Contribution, Mouton Contribution, Provost Participations Contribution, the Regis Contribution and the contribution by Regis Netherlands to Regis Holding as described in article 2.1.1 above, including without limitation any registration fees.

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4.2Closing – Closing Date

The completion of the Transaction contemplated hereby (the “Closing”) shall take place at the offices of Baker & McKenzie, 1 rue Paul Baudry - 75008 Paris, as soon as possible following the completion of the condition precedent set forth in article 3.1 and at the latest on January 31, 2008 or any other date agreed upon between the Parties (in each case subject to the conditions set forth in article 3.2 and 3.3 being satisfied) (the “Closing Date”).

The Parties shall mutually inform each other, in writing and immediately, of the completion of the pre-closing actions described in Schedule 4.1(i) for Regis Netherlands, Section 2.2 for the FP Group, Section 2.3 for Artal and the fulfillment of the Conditions Precedent.

Each of the Parties may be held liable if it fails to respect the commitments it has undertaken hereunder, and specifically in relation to Section 3 hereof.

4.3Documents to be signed by the Parties on the Closing Date

On the Closing Date, the Parties shall sign or cause to be signed:

(i)the Provost Representations and Warranties Agreement (with its schedules) the form of which is attached hereto as Schedule 4.3 (i).

(ii)the Regis Representations and Warranties Agreement (with its schedules) the form of which is attached hereto as Schedule 4.3 (ii).

(iii)the Shareholders’ Agreement (with its schedules) the form of which is attached hereto as Schedule 4.3 (iii);

(iv)the License Agreement (with its schedules) the form of which is attached hereto as Schedule 4.3 (iv); and

(v)the Escrow Agreement the form of which is attached as a schedule to the Shareholders’ Agreement.

4.4Closing actions and deliveries

4.4.1Regis Netherlands’ actions and deliveries

On the Closing Date, Regis Netherlands shall provide the FP Group and Artal with the following documents:

(i)a certified copy of the minutes of the Regis Holding’s shareholders meeting / board of directors approving Regis Contribution on the terms and conditions of the Regis Contribution Agreement and this Master Agreement;

(ii)a certified copy of the executed Regis Contribution Agreement;

(iii)the original resignation letter of Regis Netherlands as Chairman (Président) of RHS;

(iv)the original resignation letter of Andrew Cohen as Chairman (Président) of Jean-Louis David France, Regis France Salons, RISS, Saint Algue France and as “contrôleur de gestion” of the GIE Regis France; the original resignation letter of the members of the

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comité de direction of Saint-Algue France and Jean-Louis David France, if any; the documents evidencing the transfer of the shares held by Andrew Cohen in the share capital of RHS Switzerland and any other documents according to which Mr. Andrew Cohen has resigned of all its offices or employment agreements with RHS, RIF and/or any of their Subsidiaries and/or document evidencing the sale of the shares which he may still held in the share capital of RHS, RIF and/or any of their Subsidiaries on Closing Date;

(v)the original resignation letter of Mr. Andrew Cohen as employee of RHS without any right to any severance payment or deferred compensation from the Combined Entity;

(vi)a certified copy of the minutes of the Combined Entity’s shareholders meeting (a) approving the value of the Regis Contribution and Provost Participations Contribution, (b) acknowledging the completion of the subsequent capital increase of RHS, (c) modifying the by-laws of the Combined Entity according to the form of by-laws attached hereto as Schedule 4.4.1 (vii), and (d) appointing Mr. Yvon Provost as Chairman and the members of the executive committee of the Combined Entity.

(vii)a certified copy of the by-laws of the Combined Entity as amended by shareholders’ meeting referred to in paragraph (vi) above according to the form of by-laws attached hereto as Schedule 4.4.1 (vii);

(viii)an original copy of the executed Regis Representations and Warranties Agreement;

(ix)an original copy of the executed Shareholders Agreement;

(x)an original copy of the Put Option in the form attached hereto as Schedule 4.4.1 (x); and

(xi)an original copy of the Call Option in the form attached hereto as Schedule 4.4.1 (xi).

4.4.2FP Group’s actions and deliveries

On the Closing Date, the FP Group shall provide Regis Holding and Artal with the following documents:

(i)a certified copy of the executed FP Group Contribution Agreement;

(ii)a certified copy of the executed termination amendment to the existing FPC shareholders’ agreement;

(iii)a certified copy of the amended by-laws of FPC the form of which is attached hereto as Schedule 4.4.2 (iii);

(iv)an original copy of the executed Provost Representations and Warranties Agreement; and

(v)an original copy of the executed Shareholders Agreement.

4.4.3Artal’ actions and deliveries

On the Closing Date, Artal shall provide Regis Holding and the FP Group with the following documents:

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(i)a certified copy of the executed Artal Contribution Agreement;

(ii)a certified copy of the executed termination amendment to the existing FPC shareholders’ agreement;

(iii)a certified copy of the amended by-laws of FPC the form of which is attached hereto as Schedule 4.4.2 (iii);

(iv)an original copy of the executed Shareholders Agreement;

(v)an original copy of the Put Option in the form attached hereto as Schedule 4.4.1(x);

(vi)an original copy of the Call Option in the form attached hereto as Schedule 4.4.1(xi); and

(vii)an assignment agreement entered into between Artal and Provalliance pursuant to which Artal will assign to Provalliance its rights and obligations under the put and call options agreements attached as Exhibit E.

Artal shall also provide Jean Mouton with an original copy of the executed Mouton Call Option in the form attached hereto as Schedule 4.4.3.

4.4.4Jean Mouton’s actions and deliveries

On the Closing Date, Jean Mouton shall provide Regis Holding, Artal and the FP Group with a certified copy of the executed Mouton Contribution Agreement.

Jean Mouton shall also provide Artal with an original copy of the executed Mouton Call Option in the form attached hereto as Schedule 4.4.3.

4.4.5Provost Participations’ actions and deliveries

On the Closing Date, the FP Group and Artal shall cause Provost Participations to provide Regis Netherlands with the following documents:

(i)a certified copy of the minutes of Provost Participations’ shareholders meeting (a) approving the value of the FPC shares contributed to Provost Participations by the FP Group and Artal, (b) acknowledging the completion of the subsequent capital increase of Provost Participations, and (c) modifying the by-laws of Provost Participationsaccordingly;

(ii)a certified copy of the executed Provost Participations Contribution Agreement; and

(iii)an original copy of the executed Shareholders Agreement.

4.4.6Combined Entity’s actions and deliveries

On the Closing Date, the Combined Entity shall deliver to Regis, Artal and the FP Group any document evidencing the deposit in escrow, to an escrow agent, of an amount of Euro 6,850,000 to secure the payment by the Combined Entity of the 126.875 shares of FPC owned by CMP pursuant to the agreement attached as a schedule to the put and call options agreements attached as Exhibit E. The escrow agreement shall provide that the amount will

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only be released by the escrow agent for the exclusive purpose of the payment by Combined Entity to CMP of the purchase price related to the said shares.

On the Closing Date, the Combined Entity shall deliver an assignment agreement entered into between Artal and Provalliance pursuant to which Artal will assign to the Combined Entity its rights and obligations under the put and call options agreements attached as Exhibit E.

5.ADDITIONAL COVENANTS

5.1Conduct of business

Between the date of this Master Agreement and the Closing Date, and subject to the pre-closing steps to be carried out by Regis Netherlands and Regis Holding as described in Schedule 4.1(i), by the FP Group as described in Section 2.2 and by Artal as described in Section 2.3, and except when expressly provided for the contrary within this Master Agreement, Regis Netherlands and the FP Group shall cause RHS, RIF, FPC and their respective Subsidiaries to operate and carry on their business in the ordinary course, with due care and diligence, and in a manner consistent with current management practices.

In particular, the FP Group shall procure to Regis Netherlands that, except with the prior written approval of Regis Netherlands, FPC and its Subsidiaries:

(i)shall not use their available funds for purposes other than those falling under the scope of normal business;

(ii)shall not enter into, or subscribe in any manner whatsoever to, any obligation other than those relating to normal business, in conformity with past practice;

(iii)shall not make any material change to their accounting principles;

(iv)shall not purchase any asset, whatever its form, which would result in a net consolidated financial debt (including any and all interest bearing debt due to any third party including shareholders, financial obligations, financial guarantees or form of financial commitments, off balance sheet commitments including but not limited to finance leases, factored assets, discounted notes, asset securitization, all accrued interest in respect to the preceding liabilities)  exceeding five times their Normalized EBITDA for the last 12-month period ending with the last quarter, increased by the Normalized EBITDA of the target asset resulting from its last financial audited accounts;

(v)shall not, except in the ordinary course of business and in conformity with past practice, make any sale, rental, conveyance or assignment of its assets, in any way whatsoever, and shall not commit to do so;

(vi)shall not incur indebtedness or amend the terms of existing indebtedness which would result in a net consolidated financial debt exceeding five times their Normalized EBITDA for the last 12-month period ending with the last quarter, as the case maybe, increased by the Normalized EBITDA of the target asset resulting from its last financial audited accounts, and of any related security interests to such indebtedness;

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(vii)	shall not issue, to the benefit of the employees or of the management, any warrants or other securities or options to subscribe or purchase their shares;
(viii)	shall not enter into terms of employment or office (either at nomination or in the terms of an amendment) of any employee or officer granting to the employee or officer severance rights or deferred compensation in excess of 500,000 euros ;
(ix)	shall not enter into, amend, or terminate any master franchise agreements or trademark license agreements for more than ten years or terminate any of the existing agreements on the date hereof which generates more than 500,000 euros of their Normalized EBITDA;
(x)	shall not amend their by-laws (except increases in share capital, change in the registered office and change of name or as required by this Master Agreement);
(xi)	shall not enter into any material related-party transaction with Artal or its Affiliates, or with any member of the FP Group or any business entity controlled by such member;
(xii)	shall pay their debts on the due date and in the normal course of business with the funds available in their corporate books, and shall not withhold any amounts due to employees, creditors and/or other third parties after such shall become due;
(xiii)	shall not terminate the employment agreements or term of office of any key executive of the FPC or its Subsidiaries and shall not decide the increase of their compensation by more than 50%; and
(xiv)	shall not enter into any agreement, commitment or arrangement to effect any of the foregoing.

Regis Netherlands shall procure to the FP Group that, except with the written prior approval of the FP Group, RHS and RIF and their respective Subsidiaries:

(i)	shall not use their available funds for purposes other than those falling under the scope of normal business;
(ii)	shall not enter into, or subscribe in any manner whatsoever to, any obligation other than those relating to normal business, in conformity with past practice;
(iii)	shall not make any material change to their accounting principles;
(iv)	shall not purchase any asset, whatever its form, which would result in a net consolidated financial debt (including any and all interest bearing debt due to any third party including shareholders, financial obligations, financial guarantees or form of financial commitments, off balance sheet commitments including but not limited to finance leases, factored assets, discounted notes, asset securitization, all accrued interest in respect to the preceding liabilities) exceeding five times their Normalized EBITDA for the last 12-month period ending with the last quarter, increased by the Normalized EBITDA of the target asset resulting from its last financial audited accounts;

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(v)	shall not, except in the ordinary course of business and in conformity with past practice, make any sale, rental, conveyance or assignment of its assets, in any way whatsoever, and shall not commit to do so;
(vi)	shall not incur indebtedness or amend the terms of existing indebtedness which would result in a net consolidated financial debt exceeding five times their Normalized EBITDA for the last 12-month period ending with the last quarter, as the case maybe, increased by the Normalized EBITDA of the target asset resulting from its last financial audited accounts, and of any related security interests to such indebtedness;
(vii)	shall not issue, to the benefit of the employees or of the management, any warrants or other securities or options to subscribe or purchase their shares;
(viii)	shall not inter into the terms of employment or office (either at nomination or in the terms of an amendment) of any employee or officer granting to the employee or officer severance rights or deferred compensation in excess of 500,000 euros ;
(ix)	shall not enter into, amend, or terminate any master franchise agreements or trademark license agreements for more than ten years or terminate any of the existing agreements on the date hereof which generates more than 500,000 euros of their Normalized EBITDA;
(x)	shall not enter into any material related-party transaction with Regis and its Affiliates Affiliates;
(xi)	shall not grant any guarantee to any third party, nor any endorsement, letter of comfort or security interests of any nature whatsoever other than in the ordinary course of business ;
(xii)	shall not amend their by-laws (except as required by this Master Agreement);
(xiii)	shall not create any subsidiary other than in the ordinary course of business;
(xiv)	shall not cancel or terminate any insurance policy, except if replaced by a new insurance policy providing for at least the same coverage in all material respects;
(xv)	shall not increase the annual level of remuneration of their directors, officers or employees except to the extent mandatory pursuant to applicable laws, collective bargain agreements, or existing collective agreements (accords d’entreprise) or individual employment agreements existing on the date hereof or in the ordinary course of business;
(xvi)	shall not sell or, other than in the ordinary course of business, license any patent, trade name or trademark;
(xvii)	shall pay their debts on the due date and in the normal course of business with the funds available in their corporate books, and shall not withhold any amounts due to employees, creditors and/or other third parties after such shall become due; and
(xviii)	shall not take decision or negotiation having any material impact on their financial or commercial situation or on their operations, including, but not limited to, any decision

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	or negotiation resulting in the termination, cancellation, refusal to renew material contracts, or in the renewal of contracts in conditions that are less favorable to them;
(xix)	shall not terminate the employment agreements or term of office of any key executive of RHS, RIF and their Subsidiaries and shall not decides the increase of their compensation by more than 50%;
(xx)	shall not make redundant any of the office employees of RHS, RIF and their Subsidiaries as of the signature of this Agreement; and
(xxi)	shall not enter into any agreement, commitment or arrangement to effect any of the foregoing.

Regis Netherlands on the one hand, and the FP Group on the other hand, undertake to immediately inform each others in writing of (i) any event or circumstance of any nature whatsoever which affects or could affect in a material adverse way the financial situation, assets, undertakings or operations of RHS, RIF, FPC and their respective Subsidiaries and (ii) any breach of their undertakings hereunder.

5.2Filings and applications

As of the date of this Master Agreement the Parties shall conduct an analysis to determine whether the Transaction must be filed with any Anti-Trust Authorities.  In the context of such analysis, the Parties undertake to cooperate as described in Section 5.1.3.

Within fifteen (15) days from the date hereof, Regis Netherlands shall consult with the French competition authorities (DGCCRF) regarding the Transaction and confirm in writing to the FP Group and Artal whether or not a filing of the terms of the Transaction is required by the French competition authorities. In the event such filing were required, the Parties should use their best effort to file the appropriate documentation within thirty (30) days from Regis Netherlands notice with the French competition authorities.

The clearances which may have to be obtained from the Anti-trust Authorities are hereinafter collectively referred to as the “Anti-trust Clearances”.

5.3Cooperation

Each Party shall use its best efforts to cause the Conditions Precedent and the Parties’ covenants to be fulfilled and the Closing to occur in accordance with this Master Agreement and agrees to cooperate with the other Parties and execute and deliver such additional documents and instruments and to perform such additional acts, including make any additional filings, as may be deemed reasonably necessary or appropriate by any Party, before or after the Closing Date, to comply with, carry out and perform all of the terms and provisions of this Master Agreement.

In particular, each Party agrees to promptly provide the other Parties with any information and documents that may reasonably request to (i) proceed with the required anti-trust filings, and (ii) satisfy any request, and answer any question asked by the Anti-trust Authorities.

Each Party shall keep each other appraised of the status of any communication with, and any inquiries or requests for additional information from, any foreign or domestic, Anti-trust

20

Authority, or other authority or governmental entity, and shall comply promptly with any such inquiries or requests.

Each Party shall use its best efforts to obtain any clearance required under any applicable legislation, rules or regulations for the completion of the Transaction.

However, the Parties shall in no event be obliged to agree to, accept or propose any remedy or undertaking to any Anti-trust Authority in order to obtain any Anti-trust Clearance and consummate the Transaction.

5.4Access to Regis entities’ records and employees

The Parties will facilitate the organization of weekly meetings between the members of the management of FPC and the members of the management of RHS.

Regis Netherlands hereby undertakes to give, between the date of this Master Agreement and the Closing Date, to the current management of FPC, access to the records, books and key employees of RHS and RIF as may reasonably be required by the FP Group and Artal in relation to preparing the completion of Transaction.  Such access shall however be agreed upon in advance by the Parties in respect of time, form and content so as not to be disruptive for the Regis operations.

Between the date hereof and December 15, 2007 and in any case before the Closing Date, the management of FPC will prepare a draft organization chart of the Combined Entity.  This chart will take into account the independent future developments of each of the trademarks of the new group.  Such chart will be provided to Regis Netherlands and Artal by December 15, 2007 for discussions between Regis Netherlands, the FP Group and Artal.

5.5Exclusivity

As of the date of this Master Agreement and during the period commencing on the date hereof and ending on the earlier of (i) the Closing Date and (ii) the termination of this Master Agreement, neither Regis Netherlands nor the FP Group, Artal and their respective officers, directors, employees, representatives and agents (as the case may be) will directly or indirectly, (a) solicit, initiate, enter into or conduct any discussions or negotiations, or enter into an agreement or understanding, with any person or entity (other than Parties hereto) regarding the sale or transfer, directly or indirectly, of any interest in or any assets of RHS, RIF, FPC and their respective Subsidiaries (other than, for transactions regarding individual hair salons, in the ordinary course of business) or (b) disclose any non-public information (other than in the ordinary course of business) relating to RHS, RIF, FPC and their respective Subsidiaries or permit access to the properties, books or records of RHS, RIF, FPC and their respective Subsidiaries to any other person that it has reason to believe is considering acquiring any interest in or any assets of RHS, RIF, FPC or their respective Subsidiaries.  In the event that one Party receives any inquiry or solicitation from any other person related to acquiring an interest in one of these Companies, it shall promptly notify the other Parties.

5.6Post-Closing Cash Needs

Regis Netherlands shall procure that, as of the Closing Date, RHS, RIF and their respective Subsidiaries have secured credit facilities of a total amount of Euro 5,000,000 from financial

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institutions and/or from Regis Netherlands. Should the credit line be granted by Regis, it would be under the following terms and conditions:

·the loan will bear interest at a rate of Libor plus 175 base points ;

·the loan and related interests will be paid to Regis Netherlands a the latest on June 30, 2008.

5.7Artal’s representations

5.7.1Power and authority of Artal

Artal represents and warrants that they have the legal right and full power, capacity and authority to enter into, and perform the commitments undertaken under this Agreement and the other agreements referred to in this Agreement, as are required to implement the Transaction as provided in this Agreement, and these agreements will constitute valid and binding obligations of Artal, enforceable in accordance with their terms.

5.7.2Absence of breach

The execution and delivery of this Agreement and the other agreements, and the performance by Artal, of the Transaction and of their obligations under this Agreement and the other Agreements will not and are not likely to:

(i)constitute or result in a breach, default or violation of, or conflict with, or shall give rise to the payment of any liability, penalty, cost, expense, damage, fee or any other amount under, or to a right of termination of:

·any provision of the by-laws (statuts) of Provost Participations, FPC or its Subsidiaries, or any provision of any shareholders agreement pertaining to Provost Participations, FPC or its Subsidiaries;

·any resolution adopted by the shareholders of Provost Participations, FPC or its Subsidiaries;

(ii)cause Provost Participations, FPC or its Subsidiaries to become subject to any liability, or cause Provost Participations, FPC or its Subsidiaries to become liable for the payment of any tax; or

(iii)result in the imposition or creation of any Encumbrances upon or with respect to any of the assets owned or used by FPC or its Subsidiaries.

5.7.3Ownership

The signature of the Artal Contribution Agreement and the registration in the shareholder’s account opened in the name of Combined Entity in the FPC books, shall entail the transfer of full ownership of the FPC shares contributed by Artal to the benefit of Combined Entity.

5.7.4Authority of Artal to contribute their FPC shares

Artal is vested with full power and authority to contribute their FPC shares to Provost Participations and have obtained all prior authorizations, as may be required.

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The contribution by Artal of its FPC shares to Provost Participations as well as all transactions taking place for the purposes of completing such contribution, do not and will note violate any applicable laws and regulations, nor any provision of Provost Participations or FPC by-laws or other governing documents of FPC or any agreement (such as shareholders agreement), covenant or contract to which Artal is or have been a party, or any administrative or judicial ruling or decision applicable thereto.

5.8CMP

Artal and the FP Group procure that Provalliance shall purchase prior to December 31, 2008 all of the shares held by CMP in FPC in accordance with the terms and conditions of the put and call option agreements attached in Exhibit E.

5.9Minority Shareholding

The FP Group shall procure that FPC and/or any of its Subsidiaries shall acquire before the Closing Date, the minority interest held by any member of the FP Group in FPC’s Subsidiaries at a price of one (1) euro for the shares held by each shareholder in each entity.

6.REPRESENTATIONS AND WARRANTIES AGREEMENT

As a material condition to the Transaction, Regis Netherlands and the FP Group undertake to make and grant to each other and to the Combined Entity, on the Closing Date, representations and warranties as to the assets and liabilities contributed to the Combined Entity as well as on the existing assets and liabilities of the Combined Entity itself on the Closing Date, in conformity with the form of Representations and Warranties Agreements (and their exhibits and schedules) attached hereto as Schedule 4.3 (i) and Schedule 4.3 (ii).

The Parties agree that the disclosures and related schedules provided for in the form of Representations and Warranties Agreements attached as Schedule 4.3 (i) and Schedule 4.3 (ii) may be updated provided however that:

(i)	such updates relate to events, facts or circumstances which occurred between the date hereof and the Closing Date, and
(ii)	if an update by Regis Netherlands gives rise to a material change in the financial conditions, assets and liabilities, or results of operations of RIF, RHS or any of their respective Subsidiaries, that as a whole is as substantial and adverse as to fundamentally impair the value of any of these companies, the Provost Group and Artal will have the right not to consummate the Transaction under this Master Agreement, and
(iii)	if an update by the FP Group gives rise to a material change in the financial conditions, assets and liabilities, or results of operations of FPC or any of its Subsidiaries, that as a whole is as substantial and adverse as to fundamentally impair the value of any of these companies, Regis Netherlands will have the right not to consummate the Transaction under this Master Agreement; and

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(iv)such additional disclosures shall not be considered as exemptions to the application of the Representations and Warranties Agreements except for the disclosures which result from the implementation of the operations referred to in this Master Agreement.

7.TERMINATION

7.1Termination Events

This Master Agreement may, by notice given prior to or on the Closing Date, be terminated:

(i)	by either Party if a material breach of any provision of this Master Agreement has been committed by another Party and such breach has not been waived or cured within fifteen (15) days of written notice of such breach;
(ii)	by mutual written consent of all Parties; or
(iii)	by either Artal, FP Group or Regis Netherlands if the Closing has not occurred (other than through the failure of any Party seeking to terminate this Master Agreement to comply fully with its obligations under this Master Agreement) on or before January 31, 2008, or such later date as such Parties may agree upon.

7.2Effect of Termination

Each Party’s right of termination under Section 7.1 is in addition to any other rights it may have under this Master Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies.  If this Master Agreement is terminated pursuant to Section 7.1, all further obligations of the Parties under this Master Agreement will terminate, except that the obligations in Section 8 (which relates to confidentiality) and Section 9 (which relates to costs) will survive; provided, however, that if this Master Agreement is terminated by a Party because of the breach of the Master Agreement by other Party or because one or more of the conditions to the terminating Party’s obligations under this Master Agreement is not satisfied as a result of other Party’s failure to comply with its obligations under this Master Agreement, the terminating Party’s right to pursue all legal remedies will survive such termination unimpaired.

8.CONFIDENTIALITY

8.1	From and after the date hereof, the Parties shall treat as confidential and not disclose the provisions of this Master Agreement and/or the provisions of any agreement entered into pursuant to this Master Agreement.
8.2	Section 8.1 above shall not prohibit disclosure or use of any information if and to the extent:
(i)	the disclosure or use is required by law, any regulatory body, including for the purposes of the Anti-trust Clearances, or the rules and regulations of any recognized stock exchange; In this respect, the 8K form attached hereto as Schedule 8.2(i) will be

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	filed with the Securities and Exchange Commission following the execution of this Master Agreement.
(ii)	the disclosure or use is required to vest the full benefit of this Master Agreement in any of the Parties hereto, as the case may be;
(iii)	the disclosure or use is required for the purpose of any judicial proceedings arising out of this Master Agreement or any other agreement entered into under or pursuant to this Master Agreement or the disclosure is reasonably necessary, desirable or required to be made to a taxation or social authority in connection with the taxation or social affairs of the disclosing party;
(iv)	the information becomes publicly available (other than by breach of this Master Agreement); or
(v)	the other party has given prior written approval to the disclosure or use;

provided that prior to disclosure or use of any information pursuant to (i), (ii) or (iii), the Party concerned shall promptly notify the other Parties of such requirement with a view to providing the other Parties with the opportunity to contest such disclosure or use, or otherwise to agree the timing and content of such disclosure or use.

9.COSTS AND EXPENSES - REGISTRATION DUTIES

Whether or not the Closing occurs, and unless otherwise provided for in this Master Agreement, each Party shall bear its own fees, expenses and costs incurred in connection with negotiating, drafting and implementing this Master Agreement and the transactions contemplated herein, as well as any taxes required by law to be paid by such Party (including in the case of Combined Entity, any transfer tax or registration duty owed in relation to the Regis Contribution, the FP Group Contribution, the Artal Contribution, the Mouton Contribution and the Provost Participations Contribution).

10.ASSIGNMENT – SUCCESSORS

None of the Parties may assign any of its rights and obligations under this Master Agreement without the prior consent of the other Parties except, with respect to individuals, in case of death, to their heirs and successors provided they are bound by this agreement.  However, Artal may assign any of its rights under this Master Agreement to Artal Group or any entity that is controlled (within the meaning of Article L. 233-3 I of the French Code de commerce) by Artal Group and Regis Netherlands may assign any of its rights under this Master Agreement to Regis Corporation or any entity that is controlled (within the meaning of Article L. 233-3 I of the French Code de commerce) by Regis Corporation.

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11.NOTICES

11.1FP Group Representative

(i)The members of the FP Group hereby appoint Mr. Yvon Provost, as their representative entrusted with acting in their name and on their behalf with respect to any notice or other communication made pursuant to the Master Agreement, in its capacity as FP Group Representative.  Consequently, any notice or communication made by any Party to the FP Group Representative pursuant to this Master Agreement shall be deemed to have been made to each member of the FP Group. Similarly, any notice or communication made by the FP Group Representative to any other Party shall be deemed to have been made by each member of the FP Group.

(ii)In case of death, disability or resignation of the FP Group Representative, the members of the FP Group undertake to appoint, no later than thirty (30) days after the occurrence of such event, a person as a successor to the former FP Group Representative. They shall in a timely manner notify the other Parties with the details of such successor. Until such notification of the details of such successor, a notification or communication to the former FP Group Representative shall be deemed correctly made for purposes of this Section 11.

11.2Notices

(i)Any notices or other communications required or permitted hereunder shall be given in writing and shall be delivered by hand against receipt or sent by express international courier, by facsimile, by electronic mail or by registered letter with return receipt requested, to the following addresses or to such other address as the Parties shall have given notice pursuant to the terms and conditions hereof:

FP Group

For the attention of: Mr. Yvon Provost

14, rue Ancelle, 92200 Neuilly-sur-Seine

Fax no.: 00 33 1 41 27 36 22

With Copy to: Cabinet d’avocat

For the attention of: Me Lafont

6, avenue Constant Coquelin

75007 Paris

Fax no.: 00 33 1 42 19 00 08

Artal

1932, Saint-Stevens-Woluwe, Woluwedal 28, Belgium

For the attention of: Mr. Bernard Darimont

Fax no.: 00 32 2 712 87 31

Artal Group

105 Grand-Rue, L1661 Luxemburg

For the attention of Mrs Anne Goffard

Fax no: 00 35 222 42 59 22

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Jean Mouton

3, rue de Luynes, 75007 Paris, France

RegisNetherlands

Strawinskylaan 3105, Atrium 7^th floor,

PO Box 1469 – 1000 BL Amsterdam, Netherlands

For the attention of: Mr. Andrew Cohen

Fax no.: 00 31 20 40 64 555

RHS

156 rue du Faubourg Saint Denis – 75010 Paris, France

For the attention of: Regis Netherlands represented by Mr. Andrew Cohen

Fax no.: + 33 1 53 35 53 74

Regis Corporation

7201 Metro Boulevard, Minneapolis, MN 55439 (USA)

For the attention of: President and CEO & General Counsel

Fax no.: 00 1 952 918-4770

(ii)Any notice sent by registered letter, express international courier, facsimile or electronic mail shall be considered as having been received:

·with respect to a facsimile or an electronic mail, twelve (12) hours after sending of such, subject to confirmation in writing to be sent by registered letter with return receipt requested, within five (5) days following the sending of such facsimile or electronic mail;

·with respect to a registered letter, on the date of first presentation appearing on the postal return receipt;

·with respect to an express international courier, on the date of first presentation.

(iii)Each Party shall in a timely manner notify the other Parties with any change in the details mentioned above.

12.MISCELLANEOUS

12.1Entire Master Agreement and Modification

This Master Agreement, the Schedules and Exhibits hereto represent the entire understanding and agreement of the Parties and supersede, cancel and replace any and all prior agreements, understandings or arrangements among the Parties hereto with respect to the subject matter hereof, and can be amended, supplemented or changed, and any provision hereof can be waived, only by written instrument making specific reference to this Master Agreement signed by the Parties.

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12.2Sections headings

The Sections headings contained in this Master Agreement are for convenience purpose only and shall not affect in any way the meaning or interpretation of this Master Agreement.

12.3Severability

If at any time subsequent to the Closing Date, any provisions of this Master Agreement shall be held illegal, invalid, void or unenforceable by any court of competent jurisdiction, the remainder of this Master Agreement shall not be affected or impaired thereby and the Parties shall negotiate in good faith to replace the offending provision by another enforceable, valid and legal provision that achieves as much as possible the purport, sense and economic purpose of the original provision.

12.4Waiver

Except if applicable law or this Master Agreement require the exercise of a right within a certain period of time, no delay on the part of a Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver or partial exercise on the part of the Parties of any right, power or privilege hereunder preclude any other or further exercises of any other right, power or privilege which is not precluded by this Master Agreement.

12.5Language of the Master Agreement

For purposes of convenience, this Master Agreement may be translated into other languages, but it is understood that the English version of this Master Agreement will control for all purposes, as between the parties hereto.  In case of a conflict in meaning between the different versions, the Parties are responsible for performing in accordance with the English version hereof.  Unless the context of this Master Agreement otherwise requires, the singular will include the plural and vice versa.

12.6Communication — Press release

Regis Corporation, Regis Netherlands, the FP Group and Artal shall not issue any press release or any other public statement or communication with respect to this Master Agreement and the Transaction without consulting with each other and agree on the content of any such communication, provided however that such consultation process shall not prevent any party to comply with applicable laws and regulations.

13.GOVERNING LAW - JURISDICTION

This Master Agreement shall be exclusively governed by and construed in accordance with the laws of France.

Any disputes between the Parties in connection with, or arising out of, this Master Agreement (including without limitation its validity, construction, performance or termination) shall be subject to the exclusive jurisdiction of the Commercial Court of Paris.

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14.LIST OF SCHEDULES AND EXHIBITS

The Schedules and Exhibits listed below form an integral part of this Agreement.

Exhibit B	Subsidiaries of RHS
Exhibit C	Subsidiaries of RIF
Exhibit D	Subsidiaries of FPC
Exhibit E	Agreements with CMP
Exhibit F	Final Structure of the Combined Entity
Schedule 2.1.1	Regis Contribution Agreement
Schedule 2.2	FP Group Contribution Agreement
Schedule 2.3	Artal Contribution Agreement
Schedule 2.4	Mouton Contribution Agreement
Schedule 2.5	Provost Participations Contribution Agreement
Schedule 4.1(i)	Regis Pre-Closing Operations
Schedule 4.3(i)	Provost Representations and Warranties Agreement
Schedule 4.3(ii)	Regis Representations and Warranties Agreement
Schedule 4.3(iii)	Shareholders’ Agreement
Schedule 4.3(iv)	License Agreement
Schedule 4.4.1(vii)	By-Laws of Combined Entity
Schedule 4.4.1 (x)	Put Option
Schedule 4.4.1 (xi)	Call Option
Schedule 4.4.2(iii)	By-Laws of FPC
Schedule 4.4.3	Mouton Call Option
Schedule 8.2(i)	8K Form

This Master Agreement has been executed in ten (10) original counterparts.

Executed in Paris

On 11, October 2007

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REGIS NETHERLANDS
By: Mr. Andrew Cohen	Mr. Yvon Provost
ARTAL	RHS
By: Mr Paul Köhler	By: Regis Netherlands Represented by Mr. Andrew Cohen
REGIS CORPORATION	ARTAL GROUP S.A.
By: Mr. Eric Bakken	By: Mr Paul Köhler
Monique La Rizza	Olivia Provost
Fabien Provost	Jean Mouton

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EX-15

Exhibit No. 15

February 7, 2008
Securities and Exchange Commission
100 F Street, N.E.
Washington DC 20549

RE:Regis Corporation Registration Statements on Form S-3 (File No. 333-100327, No. 333-51094, No. 333-28511, No. 333-78793, No. 333-49165, No. 333-89279, No. 333-90809, No. 333-31874, No. 333-57092, No. 333-72200, No. 333-87482, No. 333-102858 and No. 333-116170), and Form S-8 (File No. 33-44867 and No. 33-89882)

Commissioners:

We are aware that our report dated February 7, 2008, on our reviews of the interim financial information of Regis Corporation for the three and six month periods ended December 31, 2007 and 2006 and included in the Company’s Quarterly Report on Form 10-Q for the three months ended December 31, 2007, is incorporated by reference in the above referenced registration statements.

Yours very truly,

/s/ PRICEWATERHOUSECOOPERS LLP

PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota

EX-31.1

Exhibit No. 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Paul D. Finkelstein, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Regis Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the 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;

4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s Board of Directors:

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

February 7, 2008

/s/ Paul D. Finkelstein

Paul D. Finkelstein, Chairman of the Board of Directors, President and Chief Executive Officer

EX-31.2

Exhibit No. 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Randy L. Pearce, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Regis Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the 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;

4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s Board of Directors:

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

February 7, 2008

/s/Randy L. Pearce

Randy L. Pearce, Senior Executive Vice President, Chief Financial and Administrative Officer

EX-32.1

Exhibit No. 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Regis Corporation (the Registrant) on Form 10-Q for the fiscal quarter ending December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof, I, Paul D. Finkelstein, Chairman of the Board of Directors, President and Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Quarterly Report on Form 10-Q complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

February 7, 2008

/s/ Paul D. Finkelstein

Paul D. Finkelstein, Chairman of the Board of Directors, President and Chief Executive Officer

EX-32.2

Exhibit No. 32.2

CERTIFICATION PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Regis Corporation (the Registrant) on Form 10-Q for the fiscal quarter ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof, I, Randy L. Pearce, Senior Executive Vice President, Chief Financial and Administrative Officer of the Registrant, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Quarterly Report on Form 10-Q complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

February 7, 2008

/s/Randy L. Pearce

Randy L. Pearce, Senior Executive Vice President, Chief Financial and Administrative Officer