10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2004

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to

Commission file number 0-11230

Regis Corporation

(Exact name of registrant as specified in its charter)

Minnesota	41 - 0749934
State or other jurisdiction	(I.R.S. Employer
of incorporation or organization	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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
None	None

Securities registered pursuant to section 12(g) of the Act:

Common Stock, Par Value $.05 per share

(Title of class)

1

     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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o

     The aggregate market value of the voting common stock held by non-affiliates computed by reference to the price at which common stock was last sold as of the last business day of the Registrant’s most recently completed second fiscal quarter, December 31, 2003, was approximately $1,698,000,000. The Registrant has no non-voting common stock.

     The number of outstanding shares of the Registrant’s common stock, par value $.05 per share, as of August 31, 2004 was 44,310,574.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant’s Proxy Statement dated September 20, 2004 are incorporated by reference into Parts I, II and III.

2

TABLE OF CONTENTS

PART I
	Item 1. Business
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9A. Other Information
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
	Item 14.Principal Accounting Fees and Services
PART IV
	Item 15. Exhibits and Financial Statement Schedules
SIGNATURES
EXHIBIT INDEX
$11.8 Million Term Loan with ILC
2004 Long Term Incentive Plan (Draft)
Consent of PricewaterhouseCoopers LLP
Chairman of the Board of Directors, President & CEO's Certification
Executive Vice President, Chief Financial & Administrative Officer's Certification
Chairman of the Board of Directors, President & CEO's Certification
Executive Vice President, Chief Financial & Administrative Officer's Certification

PART I

Item 1. Business

Regis Corporation, the Registrant, together with its subsidiaries, is referred to herein as the “Company.”

(a) General Development of Business

In 1922, Paul and Florence Kunin opened Kunin Beauty Salon, which quickly expanded into a chain of value-priced salons located in department stores. Their son, Myron, bought the chain in 1958 and changed its name to Regis. Regis Corporation was listed on the Nasdaq June 21, 1991 at a price of $13.00 ($5.78 adjusted for subsequent stock splits). In March of 2003, Regis Corporation began trading on the NYSE under the ticker symbol “RGS.” Discussions of the general development of the business take place throughout this Annual Report on Form 10-K. During fiscal year 2004, there were no significant changes to the Company’s corporate structure or material changes in the Company’s method of conducting business.

(b) Financial Information about Segments

Segment Data for the years ended June 30, 2004, 2003 and 2002 are included in Note 11 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

(c) Narrative Description of Business

The following topical areas are discussed below in order to aid in understanding the Company and its operations:

Topic	Page(s)
Background		3
Industry Overview		4
Business Strategy		4-10
Salon Concepts		11-13
Franchising Program		14-15
Markets and Marketing		15
Education and Training Programs		15-16
Staff Recruiting and Retention		16
Salon Design		16
Management Information Systems		16
Competition		17
Trademarks		17
Employees		17
Community Involvement		17
Governmental Regulations		17-18

Background:

The Company, based in Minneapolis, Minnesota, is an owner, operator and franchisor of hair and retail product salons. Additionally, the Company operates a limited number of beauty career schools in North America and internationally, which is a new undertaking for the Company in the past two years. The Company’s worldwide operations include 10,162 company-owned and franchise salons at June 30, 2004 (including ten beauty career schools). Each of the Company’s concepts generally has similar products and services, concentrates on the mass-market consumer marketplace and generally display similar economic characteristics. The Company is organized to manage its operations based on geographical location. The Company’s North American operations include 8,148 salons, including six beauty career schools and 2,330 franchise salons, operating in North America. The Company’s international operations include 2,014 salons, including four beauty career schools and 1,594 franchise salons, operating throughout Europe, primarily in the United Kingdom, France, Italy and Spain. The Company’s worldwide operations utilize key hair salon concepts such as: Supercuts, Jean Louis David, Vidal Sassoon, Regis Salons, MasterCuts, Trade Secret, SmartStyle and Cost Cutters. During fiscal year 2004, the number of customer visits at the Company’s corporate salons approximated 90.7 million. The Company had an average of approximately 50,000 corporate employees worldwide during fiscal year 2004.

3

Industry Overview:

Management estimates that annual revenues of the hair care industry are $53 billion in the United States and $150 billion worldwide. The industry is highly fragmented with the vast majority of hair care salons independently owned. However, the influence of chains, both franchise and company-owned, has increased substantially. Management believes that chains will continue to have a significant influence on the overall market and will continue to increase their presence. Management also believes that the demand for salon services and products will continue to increase as the overall population continues to focus on personal health and beauty, as well as convenience.

Business Strategy:

The Company’s goal is to provide high quality, affordable hair care services and products to a wide range of mass-market customers that enable the Company to expand in a controlled manner. The key elements of the Company’s strategy to achieve these goals are taking advantage of (1) growth opportunities, (2) economies of scale and (3) maintaining centralized control over salon operations in order to ensure (i) consistent, quality services and (ii) a superior selection of high quality, professional products. Each of these elements is discussed below.

Growth Opportunities. The Company’s expansion strategy focuses on organic (new construction and same-store sales growth) and acquisition growth.

Organic Growth

The Company executes its organic growth strategy through a combination of new construction of company-owned and franchise salons, as well as same-store sales increases. The relatively small capital and square footage requirements related to opening new salons allows the Company great flexibility in securing real estate for new salons. Additionally, franchising plays an important role in the Company’s overall growth strategy.

The Company’s long-term outlook for organic expansion remains strong. The Company has at least one salon in all major cities in the U.S. and has penetrated every viable U.S. market with at least one concept. However, because the Company has a variety of concepts, it can place several of its salons within any given market. The Company plans to continue expansion not only in North America, but also in the United Kingdom and throughout Europe. Opportunities in Asian markets are also being explored.

A key component to successful North American and international organic growth relates to site selection, as discussed in the following paragraphs.

Site Selection. The Company’s salons are located in malls, strip centers, lifestyle centers, Wal-Mart Supercenters and high-street locations. The Company’s financial strength, successful salon operations and national recognition causes the Company to be an attractive tenant to landlords. In evaluating specific locations for both company-owned and franchise stores, the Company seeks conveniently located, highly visible sites in high traffic locations which allow customers adequate parking and quick and easy store access. Various other factors are considered in evaluating sites, including trade area demographics, availability and cost of space, the strength of the major retailers within the area, location of competitors, traffic count, signage and other leasehold factors in a given center or area. All franchisee sites must be approved by the Company.

Because the Company’s different salon concepts target different mass-market customer groups, more than one of the Company’s salon concepts may be located in the same mall, strip center or lifestyle center. As a result, there are numerous leasing opportunities for all of its salon concepts.

4

In addition, the Company plans to increase its involvement with owning and operating beauty career schools. The principle activity of the beauty career schools is the teaching of beauticians to prepare for their licensing. The activities also include clinic and school sales of products to students and customers and other miscellaneous sales. Subjects available for enrollment include cosmetology, nail art and esthetic programs. The schools are certified by the U.S. Department of Education for participation in Federal Title IV Student Financial Assistance Programs. While the Company has acquired its current base of beauty career schools, it expects to continue its expansion through not only acquisition, but also through organic growth.

While same-store sales growth plays an important part in the Company’s organic growth strategy, it is not critical to achieving the Company’s long-term growth objectives. The Company expects low single-digit same-store sales growth on an annual basis.

Pricing is a factor in same-store sales growth. The Company actively monitors the prices charged by its competitors in each market and makes every effort to maintain prices which remain competitive with prices of other salons offering similar services. However, the Company has not historically depended on price increases to significantly drive its organic growth.

Acquisition Growth

The Company has an estimated two percent world-wide market share. Therefore, abundant opportunities exist for the Company to purchase existing salons. Once acquired, it is determined whether the acquired salon’s brand should be kept or the salon should be converted to one of the Company’s existing concepts.

Over the past ten years, the Company has completed nearly 300 acquisitions, adding over 7,400 salons. Through acquisition, the Company has expanded in both North America and internationally. When contemplating an acquisition, the Company evaluates the existing salon or salon group with respect to the same characteristics as discussed above in conjunction with site selection for constructed salons (conveniently located, highly visible, high traffic, strong retailers in the area, etc.). The Company generally acquires mature strip center locations. Additionally, acquisitions include franchise salon buybacks, following the same criteria as non-franchise locations, as the Company is often already involved with the leasing arrangements associated with the salon site, and the franchise salon operates under one of the Company’s brand names and in accordance with the Company’s operating standards. Acquisitions are systematically integrated within the salon concept that it most closely emulates.

During fiscal year 2004, the Company further expanded its beauty career school business with the acquisition of six Blaine Beauty Career Schools. Operating beauty career schools is complementary to the salon business as it allows the Company to attract, train and retain valuable employees. The Company expects to open and acquire additional beauty career schools in the future in order to take advantage of this opportunity. During fiscal year 2003, the Company acquired four beauty career schools in conjunction with the Vidal Sassoon acquisition.

Salon Development

The table on the following pages sets forth the number of system-wide salons (company-owned and franchise) opened at the beginning and end of each of the last five years, as well as the number of salons opened, closed, relocated, converted and acquired during each of these periods.

5

SALON LOCATION SUMMARY

	2000			2001			2002			2003			2004
NORTH AMERICA:
REGIS SALONS
Open at beginning of period		905			912			981			1,016			1,096
Salons constructed		52			43			61			53			33
Acquired		14			65			17			73			10
Less relocations		29			17			17			12			10
Salon openings		37			91			61			114			33
Conversions		(3	)		(1	)		(1	)		(2	)		(2	)
Salons closed		(27	)		(21	)		(25	)		(32	)		(35	)
Total, Regis Salons		912			981			1,016			1,096			1,092
MASTERCUTS
Open at beginning of period		460			502			523			551			590
Salons constructed		44			33			42			47			34
Acquired		7			2			1			—			3
Less relocations		5			10			2			6			9
Salon openings		46			25			41			41			28
Conversions		1			1			1			2			1
Salons closed		(5	)		(5	)		(14	)		(4	)		(15	)
Total, Mastercuts		502			523			551			590			604
TRADE SECRET
Company-owned salons:
Open at beginning of period		432			460			478			490			517
Salons constructed		49			39			34			34			26
Acquired		13			3			1			10			12
Franchise buybacks		—			—			—			—			2
Less relocations		8			7			11			4			5
Salon openings		54			35			24			40			35
Conversions		1			(2	)		(1	)		—			1
Salons closed		(27	)		(15	)		(11	)		(13	)		(4	)
Open at end of period		460			478			490			517			549
Franchise salons:
Open at beginning of period		27			26			25			26			25
Salons constructed		—			—			1			—			1
Acquired		—			—			—			—			—
Salon openings		—			—			1			—			1
Franchise buybacks		—			—			—			—			(2	)
Salons closed		(1	)		(1	)		—			(1	)		—
Open at end of period		26			25			26			25			24
Total, Trade Secret		486			503			516			542			573

6

	2000			2001			2002			2003			2004
SMARTSTYLE/COST CUTTERS IN WAL-MART
Company-owned salons:
Open at beginning of period		386			547			722			861			1,033
Salons constructed		126			152			125			168			174
Acquired		—			27			—			2			—
Franchise buybacks		43			11			17			12			61
Less relocations		5			4			1			5			—
Salon openings		164			186			141			177			235
Conversions		—			(9	)		—			—			—
Salons closed		(3	)		(2	)		(2	)		(5	)		(5	)
Open at end of period		547			722			861			1,033			1,263
Franchise salons:
Open at beginning of period		158			148			194			210			230
Salons constructed		33			39			37			33			33
Acquired		—			13			—			—			—
Less relocations		—			1			—			—			—
Salon openings		33			51			37			33			33
Conversions		—			9			—			—			—
Franchise buybacks		(43	)		(11	)		(17	)		(12	)		(61	)
Salons closed		—			(3	)		(4	)		(1	)		(1	)
Open at end of period		148			194			210			230			201
Total, SmartStyle/Cost Cutters in Wal-Mart		695			916			1,071			1,263			1,464
STRIP CENTERS
Company-owned salons:
Open at beginning of period		667			982			1,383			1,476			1,928
Salons constructed		83			114			69			85			166
Acquired		142			230			40			361			162
Franchise buybacks		134			111			36			85			133
Less relocations		3			8			2			3			8
Salon openings		356			447			143			528			453
Conversions		3			(13	)		(4	)		(13	)		(8	)
Salons closed		(44	)		(33	)		(46	)		(63	)		(63	)
Open at end of period		982			1,383			1,476			1,928			2,310
Franchise salons:
Open at beginning of period		1,615			1,740			2,011			1,988			2,172
Salons constructed		164			131			150			147			146
Acquired (2)		147			292			—			198			—
Less relocations		12			10			12			10			10
Salon openings		299			413			138			335			136
Conversions		(2	)		18			5			13			8
Franchise buybacks		(134	)		(111	)		(36	)		(85	)		(133	)
Salons closed		(38	)		(49	)		(130	)		(79	)		(78	)
Open at end of period		1,740			2,011			1,988			2,172			2,105
Total, Strip Centers		2,722			3,394			3,464			4,100			4,415

7

	2000			2001			2002			2003			2004
INTERNATIONAL (1)
Company-owned salons:
Open at beginning of period		372			352			364			382			399
Salons constructed		17			35			18			10			19
Acquired		—			3			16			17			18
Franchise buybacks		—			—			—			—			10
Salon openings		17			38			34			27			47
Conversions		—			(3	)		—			—			—
Salons closed		(37	)		(23	)		(16	)		(10	)		(26	)
Open at end of period		352			364			382			399			420
Franchise salons:
Open at beginning of period		—			—			—			1,684			1,627
Salons constructed		—			—			69			95			88
Acquired (2)		—			—			1,664			—			—
Salon openings		—			—			1,733			95			88
Conversions		—			—			—			—			—
Franchise buybacks		—			—			—			—			(10	)
Salons closed		—			—			(49	)		(152	)		(111	)
Open at end of period		—			—			1,684			1,627			1,594
Total, International		352			364			2,066			2,026			2,014
TOTAL SYSTEM-WIDE SALONS
Company-owned salons:
Open at beginning of period		3,222			3,755			4,451			4,776			5,563
Salons constructed		371			416			349			397			452
Acquired		176			330			75			463			205
Franchise buybacks		177			122			53			97			206
Less relocations		50			46			33			30			32
Salon openings		674			822			444			927			831
Conversions		2			(27	)		(5	)		(13	)		(8	)
Salons closed		(143	)		(99	)		(114	)		(127	)		(148	)
Open at end of period		3,755			4,451			4,776			5,563			6,238
Franchise salons:
Open at beginning of period		1,800			1,914			2,230			3,908			4,054
Salons constructed		197			170			257			275			268
Acquired (2)		147			305			1,664			198			—
Less relocations		12			11			12			10			10
Salon openings		332			464			1,909			463			258
Conversions		(2	)		27			5			13			8
Franchise buybacks		(177	)		(122	)		(53	)		(97	)		(206	)
Salons closed		(39	)		(53	)		(183	)		(233	)		(190	)
Open at end of period		1,914			2,230			3,908			4,054			3,924
Grand total, system-wide		5,669			6,681			8,684			9,617			10,162

8

(1) Canadian and Puerto Rican salons are included in the Regis Salons, Strip Center, MasterCuts and Trade Secret concepts and not included in the international salon totals.

(2) Represents primarily the acquisition of franchise networks.

In the preceding table, relocations represent a transfer of location by the same salon concept and conversions represent the transfer of one concept to another concept.

In addition to adding new salon locations each year, the Company has an ongoing program of remodeling its existing salons, ranging from redecoration to substantial reconstruction. This program is implemented as management determines that a particular location will benefit from remodeling, or as required by lease renewals. A total of 169 and 179 salons were remodeled in fiscal year 2004 and 2003, respectively.

Recent Salon Additions

During fiscal year 2002, the Company added over 2,000 locations through the combination of new salon construction, acquisitions and new franchise salons. Fiscal year 2002’s growth was led by the acquisitions of two of Europe’s leading franchisors. The Company completed the acquisition of the European franchisors St. Algue, formerly known as Groupe Gerard Glemain (GGG), and Jean Louis David (JLD) in November 2001 and April 2002, respectively, adding over 1,700 franchise salons in Europe.

During fiscal year 2003, the Company added nearly 1,000 locations. The Company constructed or franchised 672 new salons (397 company-owned and 275 franchised) and acquired 758 salons (560 company-owned and 198 franchised). The 560 acquired company-owned salons included franchise buybacks of 97 salons. The Company’s most significant fiscal year 2003 acquisitions included 328 North American BoRics salons, 25 Vidal Sassoon salons, four Vidal Sassoon Academies (beauty career schools) and 286 salons, including 196 franchise salons, from Opal Concepts.

During fiscal year 2004, the Company added over 500 locations through new construction and acquisitions. The Company constructed or franchised 720 new salons (452 company-owned and 268 franchised). Additionally, the Company acquired 411 company-owned salons, including 206 franchise buybacks. The Company’s most significant fiscal year 2004 acquisitions included 153 Holiday Hair Salons (primarily in Pennsylvania) and six Blaine Beauty Career Schools in Massachusetts.

Salon Closures

The Company evaluates its salon performance on a regular basis. Upon evaluation, the Company may close a salon for operational performance or real estate issues. In either case, the closures generally occur at the end of a lease term and typically do not require significant lease buyouts. In addition, during the Company’s acquisition evaluation process, the Company may identify acquired salons that do not meet operational or real estate requirements. At the time of acquisition, generally limited value is allocated to these salons, which are usually closed within the first year.

During fiscal year 2004, the Company closed 338 salons, including 148 company-owned salons and 190 franchise salons. During fiscal year 2003, the Company closed 360 salons; including 127 company-owned salons and 233 franchise salons. The number of franchise salons closed during fiscal year 2004 and 2003 were primarily the result of transition related closures in Europe. During fiscal year 2002, the Company closed 297 salons; including 114 company-owned salons and 183 franchise salons.

Economies of Scale. Management believes that due to its size and number of locations, the Company has certain advantages which are not available to single location salons or small chains. The Company has developed a comprehensive point of sale system to accumulate and monitor service and product sales trends, as well as assist in payroll and cash management. Economies of scale are realized through the support system offered by the home office. Additionally, due to its size, the Company has numerous financing and capital expenditure alternatives, as well as the benefits of buying retail products, supplies and salon fixtures directly from manufacturers. Furthermore, the Company can offer employee benefit programs, training and career path opportunities that differ from its smaller competitors.

9

Control Over Salon Operations. The Company manages its expansive salon base through a combination of area and regional supervisors, corporate salon directors and chief operating officers. Each area supervisor is responsible for the management of approximately ten salons. Regional supervisors oversee the performance of five area supervisors or approximately 50 salons. Salon directors manage approximately 200 salons while chief operating officers are responsible for the oversight of an entire salon concept. This operational hierarchy is key to the Company’s ability to expand successfully. In addition, the Company has an extensive training program, including the production of training DVDs for use in the salons, to ensure its stylists are knowledgeable in the latest haircutting and fashion trends and provide consistent quality hair care services. Finally, the Company tracks salon activity for all of its company-owned salons through the utilization of daily sales detail delivered from the salons’ point of sale system. This information is used to reconcile cash on a daily basis. This information is also reported to the Company’s Chief Executive Officer, who is also the Chief Operating Decision Maker.

Consistent, Quality Service. The Company is committed to meeting its customers’ hair care needs by providing competitively priced services and products with professional and knowledgeable stylists. The Company’s operations and marketing emphasize high quality services to create customer loyalty, to encourage referrals and to distinguish the Company’s salons from its competitors. The major services supplied by the Company’s salons are haircutting and styling, hair coloring and waving, shampooing, conditioning and waxing. During fiscal year 2004, 2003 and 2002, the percentage of company-owned service revenues attributable to each of these services was as follows:

	2004			2003			2002
Haircutting and styling (including shampooing & conditioning)		73	%		74	%		75	%
Hair coloring		17			15			14
Hair waving		5			5			6
Waxing		2			2			2
Other, including beauty career school tuition revenues		3			4			3
		100	%		100	%		100	%

Beauty career school tuition revenues were earned during fiscal years 2004 and 2003. They represented one percent or less of total company-owned service revenues for each of these years. However, the Company expects tuition revenues to increase as it expands its presence in the beauty career school market.

To promote quality and consistency of services provided throughout the Company’s salons, the Company employs full and part-time artistic directors whose duties are to train salon stylists in current styling trends.

High Quality, Professional Products. The Company’s salons merchandise nationally-recognized hair care and beauty products as well as a complete line of private label products sold under the Regis, MasterCuts and Cost Cutters labels. The retail products offered by the Company are sold exclusively through professional salons. The top selling brands include Matrix, Paul Mitchell, Tigi, Redken, Sebastian, Nioxin, OPI and the Company’s various private label brands.

The Company has the most comprehensive assortment of retail products in the industry, with an estimated share of the North American retail beauty product market of up to 15 percent. Although the Company constantly strives to carry an optimal level of inventory in relation to consumer demand, it is more economical for the Company to have excess inventory on hand than to run the risk of being under-stocked should demand prove higher than expected. The extended shelf life and lack of seasonality related to the beauty products allows the cost of carrying inventory to be relatively low and lessens the importance of inventory turnover ratios. The Company’s primary goal is to maximize revenues rather than inventory turns.

The retail portion of the Company’s business complements its salon services business. The Company’s stylists and beauty consultants are compensated and regularly trained to sell hair care and beauty products to their customers. Additionally, customers are enticed to purchase products after a stylist demonstrates its effect by using it in the styling of the customer’s hair.

10

Salon Concepts:

The Company’s salon concepts focus on providing high quality hair care services and professional products, primarily to the middle consumer market. Most of the Company’s salon concepts are located in regional malls, strip centers, Wal-Mart Supercenters, high street locations and department stores.

The Company’s North American operations consist of 8,148 salons (2,330 franchised), operating under five concepts, each offering attractive and affordable hair care products and services in the United States, Canada and Puerto Rico, as discussed below. Under each concept below and within the discussion of international operations, the number of new salons expected to be opened within the upcoming fiscal year is discussed. In addition to these openings, the Company typically acquires several hundred salons each year. The number of acquired salons and the concept under which the acquisitions will fall vary based on the acquisition opportunities which emerge throughout the year.

Regis Salons. These salons are primarily mall-based, full-service salons providing complete hair care and beauty services aimed at moderate to upscale, fashion-conscious consumers. The customer mix at these salons is approximately 75 percent women and both appointments and walk-in customers are common. These salons offer a full range of custom styling, cutting, hair coloring, waving and waxing services as well as professional hair care products. Service revenues compose approximately 80 percent of Regis Salons’ total revenues. The average ticket is approximately $31. Regis Salons compete in their existing markets primarily by emphasizing the high quality of the services provided. Included within the Regis Salons concept are various other trade names, including Carlton Hair, Vidal Sassoon, Jean Louis David and Mia & Maxx Hair Studios.

The average initial capital investment required for a new Regis Salon typically ranges from $150,000 to $200,000, excluding average opening inventory costs of approximately $10,000. Average annual salon revenues in a Regis Salon which has been open five years or more are approximately $425,000. During fiscal year 2005, the Company plans to open approximately 55 new Regis Salons.

MasterCuts. MasterCuts is a full-service mall-based salon group which focuses on the walk-in consumer (no appointment necessary) that demands more moderately priced hair care services. MasterCuts salons emphasize quality hair care services, affordable prices and time-saving services for the entire family. The customer mix at MasterCuts salons historically contained a high percentage of men and children; however, in recent years, the customer mix has been split more evenly between men and women. In addition, MasterCuts private label haircare line was introduced into salons during fiscal year 2003. Service revenues compose approximately 75 percent of total revenues for this salon concept. The average sale at MasterCuts salons is approximately $16.

The average initial capital investment required for a new MasterCuts salon is typically $150,000, excluding average opening inventory costs of approximately $10,000. Average annual salon revenues in a MasterCuts salon which has been open five years or more are approximately $300,000. During fiscal year 2005, the Company plans to open approximately 45 new MasterCuts salons.

11

Trade Secret. Trade Secret salons are designed to emphasize the sale of hair care and beauty products in a retail setting while providing high quality hair care services. Trade Secret salons offer one of the most comprehensive assortments of hair and beauty products in the industry. Trade Secret’s retail selection consists of highly recognized brands, and the products carried change in tandem with changing trends. Trade Secret’s primary customer base includes the female head of the household shopping for her entire family, as well as singles shopping for their own beauty products and accessories. Included within the Trade Secret concept are Beauty Express salons. Trade Secret salons are primarily mall-based. However, in recent years, the Company has begun to expand its Trade Secret salons into strip centers. As of June 30, 2004, 66 company-owned Trade Secret salons were located in strip centers. The average ticket at Trade Secret is approximately $22.

The average initial capital investment required for a new Trade Secret salon is typically $150,000, excluding average opening inventory costs of approximately $40,000. Average annual salon revenues in a Trade Secret salon which has been open five years or more are approximately $450,000. During fiscal year 2005, the Company plans to open approximately 35 new corporate Trade Secret salons.

SmartStyle. The SmartStyle salons share many operating characteristics of the Company’s other salon concepts; however, they are located entirely in Wal-Mart Supercenters. SmartStyle has a walk-in customer base, pricing is promotional and services are focused on the family. In addition, professional retail product sales contribute solidly to overall revenues. The Company also has 201 franchise salons located in Wal-Mart Supercenters.

Service revenues compose approximately 60 to 65 percent of SmartStyle’s total revenues. The average ticket at a SmartStyle salon is approximately $17.

The average initial capital investment required for a new SmartStyle salon is typically $30,000, excluding average opening inventory costs of approximately $10,000. Average annual salon revenues in a SmartStyle salon which has been open five years or more are approximately $250,000. During fiscal year 2005, the Company plans to open approximately 175 new corporate SmartStyle salons and approximately 25 franchise salons in Wal-Mart Supercenters.

Strip Center Salons. The Company’s Strip Center Salons are comprised of company-owned and franchise salons operating in strip centers across North America under the following concepts:

Supercuts. The Supercuts concept provides consistent, high quality hair care services and professional products to its customers at convenient times and locations and at a reasonable price. This concept appeals to men, women and children, although male customers account for over 65 percent of total haircuts. Service revenues typically compose approximately 85 to 90 percent of Supercuts’ total corporate revenues. The average sale at a corporate Supercuts salon is approximately $13.

The average initial capital investment required for a new Supercuts salon is typically $90,000, excluding average opening inventory costs of approximately $7,000. Average annual salon revenues in a corporate Supercuts salon which has been open five years or more are approximately $250,000. During fiscal year 2005, the Company plans to open approximately 110 new corporate Supercuts salons, as well as approximately 85 new franchise salons.

Cost Cutters (franchise salons). The Cost Cutters concept is a full-service salon concept providing value-priced hair care services for men, women and children. These full-service salons also sell a complete line of professional hair care products. Franchise revenues from Cost Cutters salons are split relatively evenly between franchise revenues related to royalties and fees and those from product sales to franchisees. During fiscal year 2005, the Company plans to open approximately 40 new franchised Cost Cutters salons.

12

In addition to the franchise salons, the Company operates company-owned Cost Cutters salons, as discussed below.

Other Company-owned Strip Center Salon Concepts. Company-owned Strip Center Salons are made up of successful salon groups acquired over the past several years operating under the primary concepts of Hair Masters, Style America, First Choice Haircutters, Best Cuts, Cost Cutters, BoRics, Magicuts and Holiday Hair, as well as other regional concept names. All concepts offer a full range of custom hairstyling, cutting, coloring and permanent wave, as well as hair care products. Hair Masters offers moderately-priced services to a predominately female demographic, while the other concepts primarily cater to time-pressed, value-oriented families. On average, service revenues compose approximately 85 to 90 percent of total company-owned strip center revenues. The average sale for a company-owned strip center salon is approximately $15.

The average initial capital investment required for a new strip center salon within this group typically ranges from $50,000 to $80,000, excluding average opening inventory costs of approximately $7,000. Average annual salon revenues in a strip center salon which has been open five years or more are approximately $300,000. During fiscal year 2005, the Company plans to open approximately 110 new company-owned strip center salons.

Other Franchise Concepts. This group of franchise salons includes primarily First Choice Haircutters, Magicuts, Pro-Cuts and Haircrafters. These concepts function primarily in the high volume, value-priced hair care market segment, with key selling features of value, convenience, quality and friendliness, as well as a complete line of professional hair care products. In addition to these franchise salons, the Company operates company-owned First Choice Haircutters and Magicuts salons, as previously discussed above.

Franchise revenues from strip center salons are split relatively evenly between franchise revenues related to royalties and fees and those from product sales to franchisees. During fiscal year 2005, the Company plans to open approximately 40 new franchised strip center salons.

International Salons:

At June 30, 2004, the Company operated 2,014 hair care salons, including 1,594 franchise salons, located throughout Europe, primarily in the United Kingdom, France, Italy and Spain. During fiscal year 2002, the Company added to its existing international salon concepts – primarily Regis Hairstylists, Trade Secret, Hair Express and Supercuts – with the acquisitions of the French franchisors St. Algue, formerly known as GGG, and JLD. Salons associated with St. Algue operate under the concepts Saint Algue, Coiff & Co., Intermede and City Looks. JLD operates primarily under the following concepts: JLD Diffusion, JLD Tradition, JLD Quick Service and JLD Just a Cut. During fiscal year 2003, the Company acquired 25 Vidal Sassoon salons, 14 of which are located in Europe. Additionally, four Vidal Sassoon Academies (beauty career schools) were acquired, including one located in Europe. Company-owned salons in the international division operate in malls, leading department stores, high-street locations and grocery and retail chains under license arrangements or real property leases, consistently focused on the value-priced, moderate and upscale hair care and beauty market.

Service revenues compose approximately 75 to 80 percent of total revenues for international corporate salons, including tuition revenues which compose approximately 5 percent of total revenues. Excluding the effects of tuition revenues, the average sale at an international salon is approximately $53. Approximately 80 percent of international franchise revenues are generated from franchise royalties and fees.

The initial capital investment required is typically £100,000 for a Regis Hairstylists salon, £50,000 for a Supercuts UK salon and £100,000 to £125,000 for an international Trade Secret salon. For a Vidal Sassoon salon, the initial capital investment required is typically over £250,000. Average annual salon revenues for a salon which has been open five years or more typically range from £300,000 to £600,000 in a Regis Hairstylists salon, £150,000 to £300,000 in a Supercuts UK salon and £500,000 to £600,000 in an international Trade Secret salon. For a mature Vidal Sassoon salon, the average annual revenues are typically in excess of £550,000. During fiscal year 2005, the Company plans to open approximately 35 new company-owned international salons, as well as approximately 130 new international franchise salons.

13

Franchising Program:

General. The Company has various franchising programs supporting its 3,924 franchise salons as of June 30, 2004, consisting mainly of Supercuts, Cost Cutters, First Choice Haircutters, Magicuts, Haircrafters, Pro Cuts, St. Algue and JLD. These salons have been included in the discussions regarding salon counts and concepts on the preceding pages.

The Company provides its franchisees with a comprehensive system of business training, stylist education, site approval and lease negotiation, professional marketing, promotion and advertising programs, and other forms of support designed to help the franchisee build a successful business.

Standards of Operations. The Company does not control the day-to-day operations of its franchisees, including hiring and firing, establishing prices to charge for products and services, business hours and capital expenditure decisions. However, the franchise agreements afford certain rights to the Company, such as the right to approve location, suppliers and the sale of a franchise. Additionally, franchisees are required to conform to company-established operational policies and procedures relating to quality of service, training, design and decor of stores, and trademark usage. The Company’s field personnel make periodic visits to franchised stores to ensure that the stores are operating in conformity with the standards for each franchising program. All of the rights afforded the Company with regard to the franchise operations allow the Company to protect its brands, but do not allow the Company to control the franchise operations or make decisions that have a significant impact on the success of the franchise salons.

To further ensure conformity, the Company may enter into the lease for the store site directly with the landlord, and subsequently sublease the site to the franchisee. The franchise agreement and sublease provide the Company with the right to terminate the sublease and gain possession of the store if the franchisee fails to comply with the Company’s operational policies and procedures. See Note 6 of “Notes to Consolidated Financial Statements” for further information.

Franchise Terms. Pursuant to their franchise agreement with the Company, each franchisee pays an initial fee for each store and ongoing royalties to the Company. In addition, for most franchise concepts, the Company collects advertising funds from franchisees and administers the funds on behalf of the concept. Franchisees are responsible for the costs of leasehold improvements, furniture, fixtures, equipment, supplies, inventory and certain other items, including initial working capital.

Additional information regarding each of the major franchisee brands is listed below:

Supercuts (North America)

The majority of existing Supercuts franchise agreements have a perpetual term, subject to termination of the underlying lease agreement or termination of the franchise agreement by either the Company or the franchisee. The agreements also provide the Company a right of first refusal if the store is to be sold. The franchisee must obtain the Company’s approval in all instances where there is a sale of the franchise. The current franchise agreement is site specific and does not provide any territorial protection to a franchisee, although some older franchise agreements do include limited territorial protection. During fiscal year 2001, the Company began selling development agreements for new markets which include limited territory protection for the Supercuts concept. The Company has a comprehensive impact policy that resolves potential conflicts among franchisees and/or the Company regarding proposed salon sites.

Cost Cutters, First Choice Haircutters and Magicuts (North America)

The majority of existing Cost Cutters’ franchise agreements have a 15-year term with a 15-year option to renew (at the option of the franchisee), while the majority of First Choice Haircutters’ franchise agreements have a ten-year term with a five-year option to renew. The majority of Magicuts’ franchise agreements have a term equal to the greater of five years or the current initial term of the lease agreement with an option to renew for two additional five-year periods. All of the agreements also provide the Company a right of first refusal if the store is to be sold. The franchisee must obtain the Company’s approval in all instances where there is a sale of the franchise. The current franchise agreement is site specific. Franchisees may enter into development agreements with the Company which provide limited territorial protection.

14

Pro Cuts (North America)

The majority of existing Pro Cuts franchise agreements have a ten-year term with a ten-year option to renew. The agreements also provide the Company a right of first refusal if the store is to be sold or transferred. The current franchise agreement is site specific. Franchisees may enter into development agreements with the Company which provide limited territorial protection.

St. Algue and JLD (International)

St. Algue was purchased in connection with the acquisition of the French franchisor, GGG. The majority of St. Algue’s franchise contracts have a five-year term with an implied option to renew for a term of three years. All new JLD contracts have five-year terms. The franchise agreements for both St. Algue and JLD are site specific and only a small minority of the contracts provide for territorial exclusivity. The agreements provide for the right of first refusal during the period covered by the franchise contract if the salon is to be sold and the franchisee must obtain the Company’s approval before selling of the salon. With regards to the store site, neither St. Algue nor JLD acts as lessor for their franchisees. Additionally, JLD franchise contracts prohibit the franchisee from selling the salon to another major national competitor for one year after the contract term ends.

Franchise Sales. Franchise expansion will continue to be a significant focus of the Company in the future.

Franchisee Training. The Company provides new franchisees with training, focusing on the various aspects of store management, including operations, personnel management, marketing fundamentals and financial controls. Existing franchisees receive training, counseling and information from the Company on a continuous basis. The Company provides store managers and stylists with extensive technical training for Supercuts franchises. For further description of the Company’s education and training programs, see the “Education and Training Programs” section of this document.

Markets and Marketing:

The Company maintains various advertising, sales and promotion programs for its salons, budgeting a predetermined percent of revenues for such programs. The Company has developed promotional tactics and institutional sales messages for each of its divisions targeting certain customer types and positioning each concept in the marketplace. Print, radio, television and billboard advertising are developed and supervised at the Company’s headquarters, but most advertising is done in the immediate market of the particular salon.

Most franchise concepts maintain separate Advertising Funds (the “Funds”), managed by the Company, that provide comprehensive advertising and sales promotion support for each system. All stores, company-owned and franchised, contribute to the Funds, the majority of which are allocated to the contributing market for media placement and local marketing activities. The remainder is allocated for the creation of national advertising campaigns and system-wide activities. This intensive advertising program creates significant consumer awareness, a strong concept image and high loyalty.

Education and Training Programs:

The Company has an extensive hands-on training program for its stylists which emphasizes both technical training in hairstyling and cutting, hair coloring, perming and hair treatment regimes as well as customer service and product sales. The objective of the training programs is to ensure that customers receive professional and quality service, which the Company believes will result in more repeat customers, referrals and product sales.

The Company has full- and part-time artistic directors who train the stylists in techniques for providing the salon services and who instruct the stylists in current styling trends. Stylist training is achieved through seminars, workshops and DVD-based programs. The Company was the first in its industry to develop a DVD-based training system in its salons and currently has over 50 DVDs designed to enhance technical skills of stylists.

15

The Company has a customer service training program to improve the interaction between employees and customers. Staff members are trained in the proper techniques of customer greeting, telephone courtesy and professional behavior through a series of professionally designed video tapes and instructional seminars.

The Company also provides regulatory compliance training for all its field employees. This training is designed to help supervisors and stylists understand employee regulatory requirements and compliance with these standards.

Staff Recruiting and Retention:

Recruiting quality managers and stylists is essential to the establishment and operation of successful salons. In search of salon managers, the Company’s supervisory team recruits or develops and promotes from within those stylists that display initiative and commitment. The Company has been and believes it will continue to be successful in recruiting capable managers and stylists. The Company believes that its compensation structure for salon managers and stylists is competitive within the industry. Stylists benefit from the Company’s high-traffic locations and receive a steady source of new business from walk-in customers. In addition, the Company offers a career path with the opportunity to move into managerial and training positions within the Company.

Salon Design:

The Company’s salons are designed, built and operated in accordance with uniform standards and practices developed by the Company based on its experience. Salon fixtures and equipment are generally uniform, allowing the Company to place large orders for these items with attendant cost savings.

The size of the Company’s salons ranges from 500 to 5,000 square feet, with the typical salon having about 1,200 square feet. At present, the cost to the Company of constructing and furnishing a new salon, including inventories, normally ranges from approximately $40,000 to $200,000, depending on the size of the salon and the concept. Less than ten percent of all salons constructed fall within a higher bracket and will cost between $200,000 and $400,000 to construct. Of the total construction costs, approximately 70 percent of the cost is for leasehold improvements and the balance is for salon fixtures, equipment and inventories.

The Company maintains its own design and construction department, which designs and supervises the constructing, furnishing and fixturing of all new company-owned salons and certain franchise locations. The Company has developed considerable expertise in designing salons. The design and construction staff focuses on visual appeal, efficient use of space, cost and rapid completion times.

Management Information Systems:

The Company utilizes a point-of-sale (POS) information system in all its company-owned salons which collects data daily from each salon. The data is consolidated into several management systems maintained at the corporate office. Salon employees deposit cash receipts into a local bank account on a daily basis. The POS system then sends the amount expected to be deposited to the corporate office, where the amount is reconciled with local depository balances transferred into a centralized corporate bank account on a daily basis. Point-of-sale information is also used to generate payroll information, monitor salon performance, and to generate customer data for use in identifying and anticipating industry trends for purposes of pricing and staffing. The Company has expanded the corporate information systems to deliver on-line information of product sales to improve its inventory control system, including monthly replenishment recommendations for a salon. Management believes that its information systems provide advantages in planning and analysis which are generally not available to a majority of its competitors.

16

Competition:

The hair care industry is highly fragmented and competitive. In every area in which the Company has a salon, there are competitors offering similar hair care services and products at similar prices. The Company faces competition within malls from companies which operate salons within department stores and from smaller chains of salons, independently owned salons and, to a lesser extent, salons which, although independently owned, are operating under franchises from a franchising company that may assist such salons in areas of training, marketing and advertising.

Significant entry barriers exist for chains to expand nationally due to the need to establish customer awareness, systems and infrastructure, recruitment of experienced hair care management and adequate store staff, and leasing of quality sites. The principal factors of competition in the affordable hair care category are quality, consistency and convenience. The Company continually strives to improve its performance in each of these areas and to create additional points of difference versus the competition. In order to obtain locations in shopping malls, the Company must be competitive as to rentals and other customary tenant obligations.

Trademarks:

The Company holds numerous trademarks, both in the United States and in many foreign countries. The most recognized trademarks are “Regis Salons,” “Supercuts,” “MasterCuts,” “Trade Secret,” “SmartStyle,” “Cost Cutters,” “Hair Masters,” “Jean Louis David,” “Saint Algue,” “First Choice Haircutters” and “Magicuts.”

“Vidal Sassoon” is a registered trademark of Procter & Gamble. The Company has a license agreement to use the Vidal Sassoon name for existing salons and academies, and new salon development.

Although the Company believes the use of these trademarks is an element in establishing and maintaining its reputation as a national operator of high quality hairstyling salons, and is committed to protecting these trademarks by vigorously challenging any unauthorized use, the Company’s success and continuing growth are the result of the quality of its salon location selections and real estate strategies.

Employees:

During fiscal year 2004, the Company had an average of approximately 50,000 full- and part-time employees worldwide, of which an average of approximately 44,000 employees were located in the United States. None of the Company’s employees are subject to a collective bargaining agreement and the Company believes that its employee relations are amicable.

Community Involvement:

Many of the Company’s stylists volunteer their time to support charitable events for breast cancer research. Proceeds collected from such events are distributed through the Regis Foundation for Breast Cancer Research. The Company’s community involvement also includes a major sponsorship role for the Susan G. Komen Twin Cities Race for the Cure. This 5K run and one-mile walk is held in Minneapolis, Minnesota on Mother’s Day to help fund breast cancer research, education, screening and treatment. Through its community involvement efforts, the Company has helped raise millions of dollars in fundraising for breast cancer research.

Governmental Regulations:

The Company is subject to various federal, state, local and provincial laws affecting its business as well as a variety of regulatory provisions relating to the conduct of its cosmetology business, including health and safety.

17

In the United States, the Company’s franchise operations are subject to the Federal Trade Commission’s Trade Regulation Rule on Franchising (the “FTC Rule”) and by state laws and administrative regulations that regulate various aspects of franchise operations and sales. The Company’s franchises are offered to franchisees by means of an offering circular/disclosure document containing specified disclosures in accordance with the FTC Rule and the laws and regulations of certain states. The Company has registered its offering of franchises with the regulatory authorities of those states in which it offers franchises and in which such registration is required. State laws that regulate the franchisor-franchisee relationship presently exist in a substantial number of states and, in certain cases, apply substantive standards to this relationship. Such laws may, for example, require that the franchisor deal with the franchisee in good faith, may prohibit interference with the right of free association among franchisees, and may limit termination of franchisees without payment of reasonable compensation. The Company believes that the current trend is for government regulation of franchising to increase over time. However, such laws have not had, and the Company does not expect such laws to have, a significant effect on the Company’s operations.

In Canada, the Company’s franchise operations are subject to both the Alberta Franchise Act and the Ontario Franchise Act. The offering of franchises in Canada occurs by way of a disclosure document, which contains certain disclosures required by the Ontario and Alberta Franchise Acts. Both the Ontario and Alberta Franchise Acts primarily focus on disclosure requirements, although each requires certain relationship requirements such as a duty of fair dealing and the right of franchisees to associate and organize with other franchisees.

Governmental regulations surrounding franchise operations in Europe are similar to those in the United States. The Company believes it is operating in substantial compliance with applicable laws and regulations governing all of its operations.

The beauty career schools derive a significant portion of their revenue from student financial assistance originating from the U.S. Department of Education’s Title IV Higher Education Act of 1965. For the students to receive financial assistance at the school, the beauty career schools must maintain eligibility requirements established by the U.S. Department of Education.

(d) Financial Information about Foreign and North American Operations

Financial information about foreign and North American markets is incorporated herein by reference to Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 and segment information in Note 11 to the Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

(e) Available Information

The Company is subject to the informational requirements of the Securities and Exchange Act of 1934 (“Exchange Act”). The Company therefore files periodic reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Such reports may be obtained by visiting the Public Reference Room of the SEC at 450 Fifth Street, NW, Washington, D.C. 20549, or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

Financial and other information can be accessed in the Investor section of the Company’s website at www.regiscorp.com. The Company makes available, free of charge, copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.

Item 2. Properties

The Company’s corporate offices are headquartered in a 170,000 square foot, three building complex in Edina, Minnesota owned by the Company. The Company also operates small offices in Toronto, Ontario, Coventry, England, London, England and Paris, France. These offices are occupied under long-term leases.

18

The Company has distribution centers located in Chattanooga, Tennessee and Salt Lake City, Utah. The Chattanooga facility currently utilizes 250,000 square feet while the Salt Lake City facility utilizes 210,000 square feet. The Salt Lake City facility was originally leased, but was purchased by the Company during the fourth quarter of fiscal year 2003. The Salt Lake City facility may be expanded to 290,000 square feet to accommodate future growth.

The Company operates all of its salon locations under leases or license agreements. Substantially all of its North American locations in regional malls are operating under leases with an original term of at least ten years. Salons operating within strip centers and Wal-Mart Supercenters have leases with original terms of at least five years, generally with the ability to renew, at the Company’s option, for an additional five years. Salons operating within department stores in Canada and Europe operate under license agreements, while freestanding or shopping center locations in those countries have real property leases comparable to the Company’s domestic locations.

The Company also leases the premises in which certain franchisees operate and has entered into corresponding sublease arrangements with the franchisees. These leases have a five-year initial term and one or more five-year renewal options. All lease costs are passed through to the franchisees. Remaining franchisees, who do not enter into sublease arrangements with the Company, negotiate and enter into leases on their own behalf.

None of the Company’s salon leases are individually material to the operations of the Company, and the Company expects that it will be able to renew its leases on satisfactory terms as they expire. See Note 6 of “Notes to Consolidated Financial Statements.”

Item 3. 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. The Company is currently a defendant in a collective action lawsuit in which the plaintiffs allege violations under the Fair Labor Standards Act (“FLSA”). The Company denies these allegations and will actively defend its position. However, 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.

In August 2003, the Company reached an agreement with the Equal Employment Opportunity Commission (“EEOC”) to settle allegations of discrimination in Supercuts. The $3.2 million settlement was accrued during the fourth quarter of fiscal year 2003 in corporate and franchise support costs in the Consolidated Statement of Operations.

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

On October 30, 2003, at the annual meeting of the shareholders of the Company, a vote on the election of the Company’s directors took place with the following results:

AUTHORITY	FOR		WITHHOLD
Rolf F. Bjelland		37,305,065		1,891,855
Paul D. Finkelstein		38,662,096		534,824
Thomas L. Gregory		37,303,902		1,893,017
Van Zandt Hawn		37,304,812		1,892,108
Susan Hoyt		37,306,646		1,890,274
David B. Kunin		38,357,673		839,246
Myron Kunin		38,353,629		843,291

19

PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

(a) Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

Regis common stock is listed and traded on the New York Stock Exchange under the symbol “RGS.”

The accompanying table sets forth the high and low closing bid quotations for each quarter during the previous two fiscal years as reported by Nasdaq through March 26, 2003 (under the symbol “RGIS”) and the New York Stock Exchange (under the symbol “RGS”) beginning on March 27, 2003. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.

As of August 31, 2004, Regis shares were owned by approximately 25,000 shareholders based on the number of record holders and an estimate of individual participants in security position listings. The common stock price was $40.93 per share on August 31, 2004.

	2004				2003
Fiscal Quarter	High		Low		High		Low
1st Quarter	$	35.37	$	29.22	$	28.20	$	21.84
2nd Quarter		41.18		32.62		29.75		24.17
3rd Quarter		44.54		38.93		27.21		22.27
4th Quarter		46.00		41.17		29.90		25.22

The Company paid quarterly dividends of $0.03 per share during each quarter of fiscal year 2003 and during the first and second quarters of fiscal year 2004. During the third and fourth quarters of fiscal year 2004, the Company increased its dividends paid to $0.04 per share. The Company expects to continue its quarterly dividend rate of $0.04 per share for the foreseeable future.

(c) Share Repurchase Program

In May 2000, the Company’s Board of Directors approved a stock repurchase program under which up to $50.0 million can be expended for the repurchase of the Company’s common stock. On August 19, 2003, the Board of Directors elected to increase the maximum repurchase amount to $100.0 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. All repurchased shares are immediately retired. This repurchase program has no stated expiration date.

All repurchases of the Company’s common stock during the quarter ended June 30, 2004 were part of this repurchase program. The following table shows the monthly fourth quarter fiscal year 2004 stock repurchase activity:

					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)
4/1/04 – 4/30/04		91,700	$	43.97		91,700	$	56,906
5/1/04 – 5/31/04		238,300		43.29		238,300	$	46,590
6/1/04 – 6/30/04		—		—		—	$	46,590
Total		330,000	$	43.48		330,000

20

Item 6. Selected Financial Data

The following table sets forth, in thousands (except per share data), for the periods indicated, selected financial data derived from the Company’s Consolidated Financial Statements in Item 8.

	2004		2003		2002			2001		2000
Revenues	$	1,923,143	$	1,684,530	$	1,454,191		$	1,311,621	$	1,142,993
Operating income		180,718		158,940		133,864			109,281		97,216	(a)
Net income (d)		105,478		86,675		72,054	(b)		53,088		49,654	(a)
Net income per diluted share		2.29		1.92		1.63			1.26		1.19
Total assets		1,271,859		1,112,955		957,190			736,505		628,355
Long-term debt, including current portion		301,143		301,757		299,016			261,558		234,601
Dividends declared	$	0.14	$	0.12	$	0.12		$	0.12	$	0.12	(c)

(a)	The following information is provided to facilitate comparisons of operating income and net income. Fiscal year 2000 operating income was decreased by $2,940 related primarily to merger and restructuring charges. These items reduced fiscal year 2000 net income by $2,726.
(b)	An income tax benefit increased reported net income by approximately $1.8 million in fiscal year 2002. See Note 8 to the Consolidated Financial Statements.
(c)	In addition, Supercuts UK declared dividends of $367 during fiscal year 2000.
(d)	Effective July 1, 2001, Regis changed its accounting to discontinue the amortization of goodwill. In fiscal year 2001 and 2000, goodwill amortization reduced reported net income by $8,866 and $7,741, respectively.

21

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

ANNUAL RESULTS

The following table sets forth, for the periods indicated, certain information derived from the Company’s Consolidated Statement of Operations in Item 8. expressed as a percent of revenues. The percentages are computed as a percent of total revenues, except as noted.

	For the Years Ended June 30,
	2004			2003			2002
Company-owned service revenues (1)		70.0	%		70.6	%		70.0	%
Company-owned product revenues (1)		30.0			29.4			30.0
Franchise revenues		5.6			6.1			5.3
Company-owned operations:
Profit margins on service (2)		43.4			43.6			43.4
Profit margins on product (3)		49.2			50.0			47.6
Direct salon (1)		9.0			9.0			9.0
Rent (1)		14.7			14.8			14.3
Depreciation (1)		3.4			3.5			3.5
Franchise direct costs, including product and equipment (4)		54.6			56.0			49.1
Corporate and franchise support costs		9.5			9.7			9.6
Depreciation and amortization		0.7			0.7			0.7
Operating income		9.4			9.4			9.2
Income before income taxes		8.6			8.2			8.0
Net income		5.5			5.1			5.0

(1)	Computed as a percent of company-owned revenues.
(2)	Computed as a percent of company-owned service revenues.
(3)	Computed as a percent of company-owned product revenues.
(4)	Computed as a percent of franchise revenues.

22

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S OVERVIEW

Regis Corporation, based in Minneapolis, Minnesota, is an owner, operator and franchisor of hair and retail product salons and beauty career schools. Our worldwide operations include 10,162 system-wide North American and international salons, including ten beauty career schools, at June 30, 2004. Each of our concepts has generally similar products and services and serves mass-market consumers. Our operations are organized to be managed based on geographical location. Our North American operation includes 8,148 salons, including 2,330 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 operations include 2,014 salons, including 1,594 franchise salons, located throughout Europe, primarily in the United Kingdom, France, Italy and Spain. During fiscal year 2004, we had an average of approximately 50,000 corporate employees worldwide.

Our growth strategy consists of two primary, but flexible, building blocks. Through a combination of organic and acquisition growth, we seek to achieve our long-term objective of 10-to-14 percent annual revenue growth. We anticipate that going forward, the mix of organic and acquisition growth to be roughly equal. However, depending on several factors, including the availability of appropriate real estate, availability of salons for sale and same-store sales trends, this mix will vary from year-to-year. We believe achieving revenue growth of 10-to-14 percent will allow us to increase annual earnings at a low-to-mid teen percent growth rate.

Organic revenue growth is achieved through the combination of new salon construction and same-store sales increases. Each fiscal year, we anticipate building several hundred corporate salons. We anticipate our franchisees will open several hundred salons as well. Older, unprofitable salons will be closed or relocated. Our long-term outlook is for annual consolidated low single-digit same-store sales increases. Based on current fashion and economic cycles, we project our fiscal year 2005 consolidated same-store sales increase to be at the low end of our long-term outlook range.

Historically, acquisitions have varied in size from as small as one salon to over one-thousand salons. The median acquisition size is approximately 10 salons. From fiscal year 1994 to fiscal year 2004, we completed nearly 300 acquisitions, adding over 7,400 salons. We anticipate adding several hundred corporate salons each year from acquisitions. Some of these acquisitions may include buying salons from our franchisees.

We execute our growth strategy by focusing on real estate. Our real estate strategy is dependent on adding salons in convenient locations with good visibility, strong customer traffic and appropriate trade demographics. Our various salon and product concepts are now operating in a wide range of retailing environments. We believe that the availability of real estate will augment our ability to achieve the aforementioned long-term growth objectives. We anticipate that we will add approximately 1,000 salons each year through a combination of organic, acquisition and franchise growth.

The conceptual strength of our business is in the fundamental similarity of our salon concepts that allow flexibility and multiple salon concept placement in shopping centers and neighborhoods, and broad customer mix. Each concept is targeted at the middle market customer, however each attracts a slightly different demographic. We anticipate expanding all of our salon concepts. In addition, we anticipate testing and developing new salon concepts to complement our existing concepts.

We have begun acquiring and are exploring the possibility of building beauty career schools. The beauty career school business is highly profitable, and often participates in governmental programs designed to encourage education. We believe there is an opportunity to place graduates in our various salon concepts which may provide us with another competitive advantage. Similar to the salon industry, the beauty career school business is highly fragmented. As a result, we believe there is an opportunity to consolidate this industry. Expanding this business would allow the Company to add incremental revenue without cannibalizing our existing salon business. Primarily through acquisition, we believe beauty career schools could contribute over $100 million in annual revenue in five years.

Additionally, we desire to enter the Asian market within the next five years.

For a discussion of our near-term expectations, please refer to the Investor Information section of our website at www.regiscorp.com.

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

23

CRITICAL ACCOUNTING POLICIES

The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the Consolidated Financial Statements, we are required to make various judgments, estimates and assumptions that could have a significant impact on the results reported in the Consolidated Financial Statements. We base these estimates on historical experience and other assumptions believed to be reasonable under the circumstances. Changes in these estimates could have a material effect on our Consolidated Financial Statements.

Our significant accounting policies can be found in Note 1 to the Consolidated Financial Statements contained in Item 8. of this Form 10-K. We believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations.

Goodwill

We review goodwill for impairment annually or at any time events or circumstances indicate that the carrying value may not be fully recoverable. According to our accounting policy, an annual review was performed during the third quarter of fiscal year 2004, and no impairment was identified. A similar review will be performed in the third quarter of each year, or more frequently if indicators of potential impairment exist. Our impairment review process is based on a discounted future cash flow approach that uses estimates of revenues for the reporting units, driven by assumed organic growth rates, estimated future gross margin and expense rates, as well as acquisition integration and maturation, and appropriate discount rates. These estimates are consistent with the plans and estimates that are used to manage the underlying businesses. Charges for impairment of goodwill for a reporting unit may be incurred in the future if the reporting unit fails to achieve its assumed revenue growth rates or assumed gross margin, or if interest rates increase significantly. We generally consider our various concepts to be reporting units when we test for goodwill impairment because that is where we believe goodwill naturally resides. The Company believes that the international operations have the highest risk for potential impairment should future revenue growth rates be lower than expected, or interest or tax rates increase.

Long-Lived Assets

We assess the impairment of long-lived assets annually or when events or changes in circumstances indicate that the carrying value of the assets or the asset grouping may not be recoverable. Our impairment analysis is performed on a salon-by-salon basis. Factors considered in deciding when to perform an impairment review include significant under-performance of an individual salon in relation to expectations, significant economic or geographic trends, and significant changes or planned changes in our use of the assets. Recoverability of assets that will continue to be used in our operations is measured by comparing the carrying amount of the asset to the related total estimated future net cash flows. If an asset’s carrying value is not recoverable through those cash flows, the asset grouping is considered to be impaired. The impairment is measured by the difference between the assets’ carrying amount and their fair value, based on the best information available, including market prices or discounted cash flow analysis.

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

Purchase Price Allocation

We make numerous acquisitions. The purchase prices are allocated to assets acquired, including identifiable intangible assets, and liabilities assumed based on their estimated fair values at the dates of acquisition. Fair value is estimated based on the amount for which the asset or liability could be bought or sold in a current transaction between willing parties. For our acquisitions, the majority of the purchase price that is not allocated to identifiable assets, or liabilities assumed, 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, the value of which is not recorded as an identifiable intangible asset under current accounting guidance and the limited value and customer preference associated with the acquired hair salon brand. Residual goodwill further represents our opportunity to strategically combine the acquired business with our existing structure to serve a greater number of customers through our expansion strategies.

24

Revenue Recognition for Company-Owned Salons

Company-owned salon revenues and related gross margin are recorded at the time of sale, as this is when the services have been provided or, in the case of product revenues, delivery has occurred, and the salon receives the customer’s payment. There are minimal accounting judgments and uncertainties affecting the application of this policy. Based on historical results, refunds to the customer represent less than one percent of total company-owned revenues. The vast majority of returns and refunds occur within a matter of days of the original sales transaction. A significant increase in returns or refunds could have a material impact on revenues disclosed in the Consolidated Financial Statements.

Cost of Product Used and Sold

Product costs are determined by applying estimated gross profit margins to service and product 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 twice a year and the monthly monitoring of factors that could impact our usage rates estimates. These factors include mix of service sales, discounting and special promotions. During fiscal year 2004, we performed physical inventory counts in September, January and May and adjusted our estimated gross profit margin to reflect the results of the observations. Significant changes in product costs, volumes or shrinkage could have a material impact on our gross margin.

Self-insurance Accruals

We use a combination of third-party insurance and self-insurance for a number of risks including workers’ compensation, health insurance and general liability claims. The liability reflected on our Consolidated Balance Sheet represents an estimate of the undiscounted ultimate cost of uninsured claims incurred as of the balance sheet date. In estimating this liability, we utilize loss development factors prepared by independent third-party actuaries. These development factors utilize historical data to project the future development of incurred losses. Loss estimates are adjusted based upon actual claims settlements and reported claims. Although we do not expect the amounts ultimately paid to differ significantly from the estimates, self-insurance accruals could be affected if future claims experience differs significantly from the historical trends and actuarial assumptions.

Contingencies

We are involved in various lawsuits and claims that arise from time to time in the ordinary course of our business. Accruals are recorded for such contingencies based on our assessment that the occurrence is probable, and where determinable, an estimate of the liability amount. Management considers many factors in making these assessments including past history and the specifics of each case. However, litigation is inherently unpredictable and excessive verdicts do occur, which could have a material impact on our Consolidated Financial Statements.

Income Taxes

In determining income for financial statement purposes, management must make certain estimates and judgements. Certain of these estimates and judgements occur in the calculation of certain tax liabilities and in the determination of the recoverability of certain deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense.

Management must assess the likelihood that deferred tax assets will be recovered. If recovery is not likely, we must increase our provision for taxes by recording a reserve, in the form of a valuation allowance, for the deferred tax assets that will not be ultimately recoverable. Should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which it is determined that the recovery is not probable.

In addition, the calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations. Management recognizes potential liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on its estimate of whether and the extent to which additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when management determines the liabilities are no longer necessary. If management’s estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result.

25

RESULTS OF OPERATIONS

Revenues

Consolidated revenues primarily include revenues of company-owned salons, franchise royalties, franchise fees and product and equipment sales to franchisees. During fiscal year 2004, consolidated revenues increased 14.2 percent to a record $1.9 billion. During fiscal year 2003, consolidated revenues increased 15.8 percent to $1.7 billion. The following chart details our consolidated revenues by concept:

(Dollars in thousands)	2004			2003			2002
Revenues:
North America:
Regis Salons	$	482,303		$	437,449		$	416,240
MasterCuts		173,415			170,288			164,768
Trade Secret*		242,604			209,671			192,892
SmartStyle		294,564			227,527			178,728
Strip Center Salons*		518,856			468,121			382,483
Total North America		1,711,742			1,513,056			1,335,111
International*		211,401			171,474			119,080
Consolidated revenues	$	1,923,143		$	1,684,530		$	1,454,191
Percent change from prior year		14.2	%		15.8	%		10.9	%
Same-store sales increase		2.6	%		1.2	%		3.1	%

* Includes aggregate franchise revenues of $106.9, $101.9 and $77.6 million for fiscal years 2004, 2003 and 2002, respectively. North American franchise revenues represented 63.0, 64.4 and 82.6 percent of total franchise revenues in fiscal year 2004, 2003 and 2002, respectively.

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 that specific day of the week during the corresponding prior period. Annual 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 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 revenue attributable to its organic growth (new salon construction and same-store sales growth) versus growth from acquisitions.

The 14.2 and 15.8 percent increases in consolidated revenues during fiscal year 2004 and 2003, respectively, were driven by the following:

	Percentage Increase (Decrease) in Revenues
	For the Years Ended June 30,
Factor	2004			2003
Acquisitions (previous twelve months)		7.1	%		11.5	%
Organic growth		6.1			4.4
Foreign currency		1.7			1.3
Franchise revenues		—			—
Closed salons		(0.7	)		(1.4	)
		14.2	%		15.8	%

We acquired 411 and 560 company-owned salons during the years ended June 30, 2004 and 2003, respectively, including 206 franchise buybacks during fiscal year 2004 and 97 during fiscal year 2003. The organic growth stemmed from the construction of 452 and 397 company-owned salons during the twelve months ended June 30, 2004 and 2003, respectively, as well as consolidated same-store sales increases. During fiscal year 2004 and 2003, the foreign currency impact was driven by the weakening of the United States dollar against the British pound, Euro and Canadian dollar as compared to the prior periods’ exchange rates. 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.

26

North American Revenues. Total North American revenues were as follows:

(Dollars in thousands)			Increase Over Prior Fiscal Year					Same-Store
Year Ended June 30,	Revenues		Dollar		Percentage			Sales Increase
2004	$	1,711,742	$	198,686		13.1	%		2.2	%
2003		1,513,056		177,945		13.3			0.7
2002		1,335,111		124,442		10.3			3.0

The fiscal year 2004 and 2003 percentage increases were due to the following factors:

	Percentage Increase (Decrease) in Revenues
	For the Years Ended June 30,
Factor	2004			2003
Acquisitions (previous twelve months)		6.9	%		8.6	%
Organic growth		6.2			5.6
Foreign currency		0.5			0.2
Franchise revenues		0.1			0.1
Closed salons		(0.6	)		(1.2	)
		13.1	%		13.3	%

We acquired 383 and 543 company-owned North American salons during the years ended June 30, 2004 and 2003, respectively. The organic growth stemmed from the construction of 433 and 387 company-owned salons in North America during the twelve months ended June 30, 2004 and 2003, respectively, as well as North American same-store sales increases. Same-store sales increases achieved during fiscal year 2004 and 2003 were driven primarily by strong product sales, as well as a shift towards higher priced services, such as hair coloring. The foreign currency impact during fiscal years 2004 and 2003 was driven by the weakening of the United States dollar against the Canadian dollar as compared to the prior periods’ exchange rates.

International Revenues. Total international revenues were as follows:

(Dollars in thousands)			Increase Over Prior Fiscal Year					Same-Store
Year Ended June 30,	Revenues		Dollar		Percentage			Sales Increase
2004	$	211,401	$	39,927		23.3	%		4.9	%
2003		171,474		52,394		44.0			6.0
2002		119,080		18,128		18.0			4.1

The fiscal year 2004 and 2003 percentage increases were due to the following factors:

	Percentage Increase (Decrease) in Revenues
	For the Years Ended June 30,
Factor	2004			2003
Acquisitions (previous twelve months)		9.4	%		43.9	%
Organic growth		4.8			(10.5	)
Foreign currency		12.0			14.8
Franchise revenues		(0.8	)		(1.2	)
Closed salons		(2.1	)		(3.0	)
		23.3	%		44.0	%

We acquired 28 and 17 company-owned international salons during fiscal year 2004 and 2003, respectively. The organic growth stemmed from the construction of 19 and ten company-owned salons in the United Kingdom during the twelve months ended June 30, 2004 and 2003, respectively, as well as international same-store sales increases. During fiscal year 2004, same-store service sales were lower than in the prior fiscal year as the service business continues to be impacted by the economy and a lengthening of hairstyles. International same-store product sales increased 30.2 and 23.6 percent during fiscal year 2004 and 2003, respectively, benefiting from our continuing improvement in assessing the merchandising demands of our international customers. The foreign currency impact during fiscal year 2004 and 2003 was driven by the weakening of the United States dollar against the British pound and the Euro as compared to the prior periods’ exchange rates. International franchise revenues decreased primarily due to 33 and 57 fewer international franchise salons being open at June 30, 2004 and 2003, respectively, as compared to the prior fiscal year.

27

Consolidated Revenues. North American and international revenues are primarily comprised of company-owned service and product revenues, as well as franchise revenues from franchise fees and royalties, and product and equipment sales to franchisees. Fluctuations in these three revenue categories were as follows:

Service Revenues. Service revenues were as follows:

(Dollars in thousands)			Increase Over Prior Fiscal Year					Same-Store
Year Ended June 30,	Revenues		Dollar		Percentage			Sales Increase
2004	$	1,271,232	$	153,670		13.8	%		0.3	%
2003		1,117,562		153,678		15.9			0.4
2002		963,884		70,412		7.9			1.5

The growth in service revenues in fiscal years 2004 and 2003 was driven by acquisitions and organic growth (new salon construction and same-store sales growth). Fiscal year 2003 same-store service sales increases were not as robust as in the prior year due to a weaker economic climate. During fiscal year 2004, same-store service sales continued to be modest due to a slight lengthening of customer visitation patterns stemming from a fashion trend towards longer hairstyles, as well as a continuing weak economic climate.

Product Revenues. Product revenues were as follows:

(Dollars in thousands)			Increase Over Prior Fiscal Year					Same-Store
Year Ended June 30,	Revenues		Dollar		Percentage			Sales Increase
2004	$	545,012	$	79,959		17.2	%		8.1	%
2003		465,053		52,325		12.7			2.9
2002		412,728		50,870		14.1			7.1

The increases in product revenues demonstrate our strength in merchandising professional salon products. During fiscal year 2004, product revenues increased 60 basis points to 30.0 percent of total company-owned revenues. This increase is due primarily to strong same-store product sales, coupled with modest same-store service sales growth. Same-store product sales increases were more robust than in the prior fiscal year primarily due to continual improvement in our merchandising execution, with emphasis placed on management of promotional buying and new product lines. Our merchandising strategy recognizes and stresses the importance of product education and communication with the salons. In addition, the sale of beauty tools, such as flat irons, was a strong contributor to the increased same-store product sales, particularly in Trade Secret and the international salons.

In fiscal year 2003, product revenues as a percent of total company-owned revenues decreased to 29.4 percent, compared to 30.0 percent of revenues in fiscal year 2002. The decrease as a percent of company-owned sales during fiscal year 2003 was primarily due to the large number of strip center salons which were acquired over the twelve months ended June 30, 2003. Strip center salons have a lower product sales mix than the corporate average. Same-store product sales increases were lower during fiscal year 2003 than in the prior year primarily due to decreased mall traffic, as well as a weaker economy.

28

Franchise Revenues. Total franchise revenues, which include royalties, franchise fees and our product and equipment sales to franchisees, were as follows:

(Dollars in thousands)				Increase (Decrease) Over Prior Fiscal Year
Year Ended June 30,		Revenues		Dollar			Percentage
2004:	Royalties	$	70,164	$	8,298			13.4	%
	Franchise fees		3,469		(2,347	)		(40.4	)
	Franchise product sales		33,266		(967	)		(2.8	)
	Total franchise revenues	$	106,899	$	4,984			4.9	%
2003:	Royalties	$	61,866	$	14,552			30.8	%
	Franchise fees		5,816		2,385			69.5
	Franchise product sales		34,233		7,399			27.6
	Total franchise revenues	$	101,915	$	24,336			31.4	%
2002:	Royalties	$	47,314	$	11,420			31.8	%
	Franchise fees		3,431		1,095			46.9
	Franchise product sales		26,834		8,773			48.6
	Total franchise revenues	$	77,579	$	21,288			37.8	%

Total franchise salons open at June 30 were 3,924, 4,054 and 3,908 for fiscal years 2004, 2003 and 2002, respectively. We purchased 206 of our franchise salons during fiscal year 2004, which was one of the drivers of the overall decrease in the number of franchise salons between periods. Of total consolidated franchise revenues, North American franchise revenues represented 63.0, 64.4 and 82.6 percent in fiscal years 2004, 2003 and 2002, respectively.

Fiscal Year 2004 Versus Fiscal Year 2003

The increase in total consolidated franchise revenues during fiscal year 2004 was due to favorable foreign currency fluctuations, which caused franchise revenues to increase 5.1 percent. Exclusive of the effect of this favorable currency fluctuation, consolidated franchise revenues decreased 0.2 percent, primarily due to our purchase of 206 franchise salons during the year.

Royalties increased during fiscal year 2004 primarily due to international franchise salons. Approximately 6.6 percent of the 13.4 percent fiscal year 2004 increase was related to favorable foreign currency fluctuations.

Franchise fees decreased during fiscal year 2004 primarily due to the timing of franchise development, particularly with regard to the international franchise salons. The 40.4 percent decrease in franchise fees during fiscal year 2004 was net of a favorable impact of approximately one percent related to foreign currency exchange rate fluctuations.

Sales of product and equipment to franchise salons decreased during fiscal year 2004 primarily due to our purchase of 206 franchise salons during the year. The franchise product revenues contributed by these salons were replaced by company-owned product revenues. Further, lower international franchise salon counts as compared to the prior fiscal year and a reduction in the prices of product sold to international franchisees contributed to the decrease in franchise product revenues. The 2.8 percent decrease is net of a 3.1 percent favorable impact related to foreign currency exchange rate fluctuations.

Fiscal Year 2003 Versus Fiscal Year 2002

The increase in international franchise revenues during fiscal year 2003, which drove the overall annual increase in consolidated franchise revenues, was primarily due to the acquisition of the European franchise operations during fiscal year 2002. Approximately seven percent of the 31.4 percent increase during fiscal year 2003 was due to the favorable impact of foreign currency exchange rate fluctuations.

Royalties increased during fiscal year 2003 primarily related to the acquisitions of the European franchise operations during the first and fourth quarters of fiscal year 2002. Approximately eight percent of the 30.8 percent increase during fiscal year 2003 was due to the favorable impact of foreign currency exchange rate fluctuations.

Franchise fees increased during fiscal year 2003 primarily as the result of franchise fees from salons opened in Europe due to our increased presence there after the fiscal year 2002 acquisitions of the European franchise operations. Favorable foreign currency exchange rate fluctuations caused 14.1 of the 69.5 percent increase during fiscal year 2003.

29

Sales of product and equipment to franchise salons increased during fiscal year 2003 primarily as the result of product sales to the European franchise operations. The increase during fiscal year 2003 was lower than during fiscal year 2002 primarily due to a same-store product sales decrease of 2.6 percent for North American franchise salons during fiscal year 2003. As previously discussed, a weaker economic environment negatively impacted fiscal year 2003 same-store product sales. Favorable foreign currency exchange rate fluctuations caused 5.0 of the 27.6 percent increase during fiscal year 2003.

Cost of Revenue

Total company-owned gross margin. Our cost of revenues includes salon based labor costs, the cost of product to provide services for company-owned salons and the cost of products sold to salon customers. The resulting gross margin for fiscal years 2004, 2003 and 2002 was as follows:

(Dollars in thousands)			Margin as % of		Increase (Decrease) Over Prior Fiscal Year
Year Ended	Total		Company-owned
June 30,	Margin		Revenues		Dollar		Percentage			Basis Point*
2004	$	819,731		45.1	$	99,657		13.8	%		(40	)
2003		720,074		45.5		105,862		17.2			90
2002		614,212		44.6		59,659		10.8			40

* Represents the annual basis point change in total margin as a percent of company-owned revenues.

Company-owned service margin. Service margin for fiscal years 2004, 2003 and 2002 was as follows:

(Dollars in thousands)			Margin as % of		Increase (Decrease) Over Prior Fiscal Year
Year Ended	Service		Company-owned
June 30,	Margin		Service Revenues		Dollar		Percentage			Basis Point*
2004	$	551,423		43.4	$	63,806		13.1	%		(20	)
2003		487,617		43.6		69,760		16.7			20
2002		417,857		43.4		33,336		8.7			40

* Represents the annual basis point change in service margin as a percent of company-owned service revenues.

The basis point decrease in service margins during fiscal year 2004 was primarily related to an increase in credit card processing fees and state unemployment taxes, partially offset by improved payroll costs as a percent of company-owned service revenues. As a percentage of company-owned service revenues, payroll costs were 51.9 percent in fiscal year 2004, compared with 52.1 percent in fiscal year 2003 and 52.4 percent in fiscal year 2002. These improvements, which were the primary driver of the improvement in service margins during fiscal year 2003, were primarily due to adherence to our labor guidelines and salon level productivity programs. Additionally, service margins during fiscal year 2003 were favorably impacted by lower cost related to the products used in salon services, consistent with the discussion below in product margins.

Company-owned product margin. Product margin for fiscal years 2004, 2003 and 2002 was as follows:

(Dollars in thousands)			Margin as % of		Increase (Decrease) Over Prior Fiscal Year
Year Ended	Product		Company-owned
June 30,	Margin		Product Revenues		Dollar		Percentage			Basis Point*
2004	$	268,308		49.2	$	35,851		15.4	%		(80	)
2003		232,457		50.0		36,102		18.4			240
2002		196,355		47.6		26,293		15.5			60

* Represents the annual basis point change in product margin as a percent of company-owned product revenues.

30

The fiscal year 2004 basis point decrease in product margins was primarily due to the prior fiscal year’s favorable physical inventory result stemming from a count performed in the fall of that year, which contributed approximately $2.8 million to fiscal year 2003 reported net income. The favorable physical inventory result was accounted for as a change in estimate associated with inventory gross profit margins (and thus reduced the cost of product sales) and was driven primarily by our ability to negotiate favorable terms with our suppliers due to our size and volume of purchases. We subsequently adjusted our cost of goods usage percentages based on the results of this physical inventory.

Rent

Rent expense, which includes base and percentage rent, common area maintenance and real estate taxes were as follows:

(Dollars in thousands)			Expense as % of		Increase (Decrease) Over Prior Fiscal Year
Year Ended			Company-owned
June 30,	Rent		Revenues		Dollar		Percentage			Basis Point*
2004	$	267,368		14.7	$	33,547		14.3	%		(10	)
2003		233,821		14.8		36,552		18.5			50
2002		197,269		14.3		20,322		11.5			20

* Represents the annual basis point change in rent expense as a percent of total company-owned revenues.

The improvement in rent expense as a percent of company-owned revenues during fiscal year 2004 was primarily due to improved common area maintenance charges (i.e., shared utility and other costs) charged by the landlords stemming from continuing scrutiny by management of such expenses. Additionally, same-store sales increased in greater magnitude than the fixed cost components of rent expense during the current fiscal year. The basis point increase in fiscal year 2003 rent expense is primarily due to rent expense increasing at a faster rate than same-store sales, as well as higher minimum rents related to acquired JLD salons in Manhattan.

Franchise Direct Costs, Including Product and Equipment

Franchise direct costs include all direct costs related to franchise salons, such as the cost of product and equipment sold to franchisees and direct costs incurred to support franchising activities. During fiscal year 2004, 2003 and 2002, franchise direct costs were as follows:

(Dollars in thousands)			Expense as %		Increase (Decrease) Over Prior Fiscal Year
Year Ended	Franchise		of Franchise
June 30,	Direct		Revenues		Dollar		Percentage			Basis Point*
2004	$	58,413		54.6	$	1,363		2.4	%		(140	)
2003		57,050		56.0		18,936		49.7			690
2002		38,114		49.1		16,877		79.5			1,140

* Represents the annual basis point change in franchise direct costs as a percent of franchise revenues.

During fiscal year 2004, the basis point improvement in franchise direct costs was primarily due to cost efficiencies realized as a result of the completion of the back-office integration associated with our European franchise operations. In addition, lower franchise product sales, which have a higher cost component than franchise royalties and fees, contributed to the overall improvement. In fiscal year 2003, franchise direct costs increased as a percent of franchise revenues stemming from the costs associated with implementing this back-office integration and a full year of operating costs in Europe, as opposed to having European operations for only a fraction of fiscal year 2002.

31

Corporate and Franchise Support Costs

Corporate and franchise support costs (CFSC) include expenses related to salon operations (field supervision, salon training and promotions and product distribution) and home office administration costs (such as salaries and professional fees). During fiscal year 2004, 2003 and 2002, corporate and franchise support costs were as follows:

(Dollars in thousands)			Expense as %		Increase (Decrease) Over Prior Fiscal Year
Year Ended			of Total
June 30,	CFSC		Revenues		Dollar		Percentage			Basis Point*
2004	$	181,992		9.5	$	18,736		11.5	%		(20	)
2003		163,256		9.7		23,602		16.9			10
2002		139,654		9.6		13,727		10.9			—

* Represents the annual basis point change in CFSC as a percent of total revenues.

Excluding the impact of fiscal year 2003 EEOC settlement costs, CFSC as a percent of consolidated revenues was flat during fiscal year 2004 as compared to the prior fiscal year. During the fourth quarter of fiscal year 2003, we recorded a charge of $3.2 million related to a settlement with the EEOC. See Note 7 to the Consolidated Financial Statements for further discussion.

Interest

Interest expense was as follows during fiscal year 2004, 2003 and 2002:

(Dollars in thousands)			Expense as %		Increase (Decrease) Over Prior Fiscal Year
Year Ended			of Total
June 30,	Interest		Revenues		Dollar			Percentage			Basis Point*
2004	$	17,064		0.9	$	(4,330	)		(20.2	)%		(40	)
2003		21,394		1.3		2,384			12.5			—
2002		19,010		1.3		(2,477	)		(11.5	)		(30	)

* Represents the annual basis point change in interest expenses as a percent of total revenues.

The fiscal year 2004 decrease in interest, and improvement as a percent of consolidated revenues, stemmed from our strong cash flow and lower outstanding debt balance as a result of the timing of acquisitions. In addition, the expiration of $55.0 million of pay-fixed, receive-variable interest rate swaps in the fourth quarter of fiscal year 2003 contributed to the improvement, as a larger percentage of our total debt was subject to lower short-term variable interest rates.

The dollar increase in fiscal year 2003 stemmed from a higher average outstanding debt related to the timing of acquisitions. Additionally, we exercised our option under an operating lease to purchase the Salt Lake City distribution center. Prior to the purchase, the variable payments related to the lease were hedged by an interest rate swap. At the date of the purchase, a $0.9 million non-cash charge was recognized in interest expense, representing the fair value of the swap at the date of purchase. For additional information pertaining to our debt structure and interest rates thereon, see Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Income Taxes

The Company’s reported effective tax rate was as follows:

	Effective			Basis Point
Fiscal Year	Rate			Decrease
2004		36.0	%		(150	)
2003		37.5			(20	)
2002		37.7			(260	)

Changes in our overall effective tax rate are largely the result of a larger percentage of our income being generated in lower rate international tax jurisdictions. Fiscal year 2003 was the first full year of operations from the acquired European franchise companies and foreign currency exchange movements are favorably impacting our mix of international income. The associated effective tax rate on our international businesses, which are in lower tax jurisdictions, resulted in the improvement in fiscal year 2004 and 2003 effective tax rates. Absent the nonrecurring income tax benefit recorded in fiscal year 2002, the effective tax rate for that fiscal year would have been 39.2 percent.

32

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 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 operations.

Recent Accounting Pronouncements

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

Constant Currency Presentation

The presentation below demonstrates the effect of foreign currency exchange rate fluctuations from year to year. In fiscal year 2004 and 2003, foreign currency translation had a positive impact on consolidated revenues and net income before income taxes due to the strengthening of the Canadian dollar, British pound and Euro. 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 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 year and the prior fiscal year. Using this method, foreign currency exchange rate fluctuations had a positive impact on consolidated net income of $2.5 and $1.1 million during fiscal year 2004 and 2003, respectively.

				Currency			Constant			Reported			Constant Currency
Fiscal Year 2004	Reported			Translation			Currency			% Increase			% Increase
(Dollars in thousands)	Amount			Benefit (Loss)			Amount			(Decrease)*			(Decrease)*
Company-owned revenues:
North America	$	1,644,397		$	7,257		$	1,637,140			13.6	%		13.1	%
International		171,847			15,929			155,918			27.1			15.3
Total	$	1,816,244		$	23,186		$	1,793,058			14.8	%		13.3	%
Franchise revenues:
North America	$	67,345		$	543		$	66,802			2.6	%		1.8	%
International		39,554			4,689			34,865			9.0			(3.9	)
Total	$	106,899		$	5,232		$	101,667			4.9	%		(0.2)	%
Total revenues:
North America	$	1,711,742		$	7,800		$	1,703,942			13.1	%		12.6	%
International		211,401			20,618			190,783			23.3			11.3
Total	$	1,923,143		$	28,418		$	1,894,725			14.2	%		12.5	%
Income before income taxes:
North America	$	334,886		$	1,416		$	333,470			9.8	%		9.3	%
International		37,632			3,635			33,997			44.5			30.5
Corporate**		(207,709	)		(1,668	)		(206,041	)		7.9			7.1
Total	$	164,809		$	3,383		$	161,426			18.9	%		16.5	%

*	represents the percentage increase over prior fiscal year reported amounts
**	primarily CFSC, corporate depreciation and amortization and net interest expense

33

				Currency			Constant						Constant
Fiscal Year 2003	Reported			Translation			Currency			Reported			Currency
(Dollars in thousands)	Amount			Benefit (Loss)			Amount			% Increase*			% Increase*
Company-owned revenues:
North America	$	1,447,425		$	2,257		$	1,445,168			13.9	%		13.7	%
International		135,190			12,297			122,893			28.1			16.4
Total	$	1,582,615		$	14,554		$	1,568,061			15.0	%		13.9	%
Franchise revenues:
North America	$	65,631		$	179		$	65,452			2.5	%		2.2	%
International		36,284			5,315			30,969			168.1			128.8
Total	$	101,915		$	5,494		$	96,421			31.4	%		24.3	%
Total revenues:
North America	$	1,513,056		$	2,436		$	1,510,620			13.3	%		13.1	%
International		171,474			17,612			153,862			44.0			29.2
Total	$	1,684,530		$	20,048		$	1,664,482			15.8	%		14.5	%
Income before income taxes:
North America	$	304,978		$	375		$	304,603			14.7	%		14.5	%
International		26,046			2,618			23,428			59.5			43.5
Corporate**		(192,423	)		(1,666	)		(190,757	)		15.5			14.5
Total	$	138,601		$	1,327		$	137,274			19.8	%		18.7	%

*	represents the percentage increase over prior fiscal year reported amounts
**	primarily corporate and franchise support costs, corporate depreciation and amortization and net interest expense

34

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 year end, was as follows:

	Debt to			Basis Point
Fiscal Year	Capitalization			Improvement
2004		30.5	%		440
2003		34.9			530
2002		40.2			330

Our principal on-going cash requirements are to finance construction of new stores, remodel certain existing stores, acquire salons and purchase inventory. Customers pay for salon services and merchandise in cash at the time of sale, which reduces our working capital requirements. Since December 2001, we have maintained an investment grade “2” rating with the NAIC, the rating agency that regulates insurance companies in the private placement debt market.

Total assets at June 30, 2004 and 2003 were as follows:

(Dollars in thousands)

	Total		$ Increase Over		% Increase Over
June 30,	Assets		Prior Year		Prior Year
2004	$	1,271,859	$	158,904		14.3	%
2003		1,112,955		155,765		16.3

Salon acquisitions were primarily funded by a combination of operating cash flows, debt and the assumption of acquired salon liabilities.

Total shareholders’ equity at June 30, 2004 and 2003 was as follows:

(Dollars in thousands)

	Shareholders’		$ Increase Over		% Increase Over
June 30,	Equity		Prior Year		Prior Year
2004	$	687,561	$	124,757		22.2	%
2003		562,804		118,139		26.6

During fiscal year 2004 and 2003, equity increased as a result of net income, increased accumulated other comprehensive income due to foreign currency translation adjustments as the result of the strengthening of foreign currencies that underlie our investments in those markets, and additional paid-in capital recorded in connection with the exercise of stock options and stock issued for business acquisitions, partially offset by share repurchases under our stock repurchase program.

Cash Flows

Operating Activities

Net cash provided by operating activities increased in fiscal year 2004 and 2003 to $205.7 and $151.1 million, respectively. The cash flows from operating activities were a result of the following:

	Operating Cash Flows
	For the Years Ended June 30,
(Dollars in thousands)	2004			2003
Net income	$	105,478		$	86,675
Depreciation and amortization		75,547			67,399
Deferred income taxes		16,071			3,475
Accounts payable and accrued expenses		4,470			22,468
Inventories		(462	)		(31,145	)
Other		4,560			2,247
	$	205,664		$	151,119

35

During fiscal year 2004, deferred income taxes increased primarily due to differences in the book and tax treatment of depreciation and amortization methodologies associated with property and equipment and goodwill. During fiscal year 2003, inventories increased resulting from additional needs due to growth through acquisitions and new construction, as well as same-store product sales increasing at a slower rate of 2.9 percent during fiscal year 2003, compared to 7.1 percent in the prior year.

Investing Activities

Net cash used in investing activities of $173.4 and $143.1 million in fiscal year 2004 and 2003, respectively, was the result of the following:

	Investing Cash Flows
	For the Years Ended June 30,
(Dollars in thousands)	2004			2003
Capital expenditures for remodels or other additions	$	(36,192	)	$	(32,339	)
Capital expenditures for new salon construction		(28,542	)		(28,418	)
Capital expenditures for the corporate office (including all technology-related expenditures)		(9,342	)		(16,703	)
Business and salon acquisitions		(99,734	)		(66,880	)
Proceeds from the sale of assets		432			1,273
	$	(173,378	)	$	(143,067	)

We constructed 452 company-owned salons and acquired 411 company-owned salons (206 of which were franchise buybacks) during fiscal year 2004. We constructed 397 company-owned salons and acquired 560 company-owned salons (97 of which were franchise buybacks) during fiscal year 2003. The company-owned constructed and acquired salons consisted of the following number of salons in each concept:

	Years Ended June 30,
	2004				2003
	Constructed		Acquired		Constructed		Acquired
Regis Salons		33		10		53		73
MasterCuts		34		3		47		—
Trade Secret		26		14		34		10
SmartStyle		174		61		168		14
Strip Center		166		295		85		446
International		19		28		10		17
		452		411		397		560

Additionally, we completed 169 and 179 major remodeling projects during fiscal years 2004 and 2003, respectively.

Financing Activities

Net cash used in financing activities was $16.8 and $36.3 million during fiscal year 2004 and 2003, resulting from the following:

	Financing Cash Flows
	For the Years Ended June 30,
(Dollars in thousands)	2004			2003
Repurchase of common stock	$	(22,548	)	$	(21,694	)
Net (payments) borrowings of long-term debt		(12,224	)		18,529
Dividend payments		(6,166	)		(5,202	)
Net borrowings (payments) on revolving credit facilities		6,625			(32,225	)
Proceeds from the issuance of common stock		17,347			7,051
Other		118			(2,720	)
	$	(16,848	)	$	(36,261	)

The proceeds from the issuance of common stock were related to the exercise of stock options. In the third quarter of fiscal year 2004, the quarterly dividend was increased from its historical rate of $0.03 per share to $0.04 per share.

36

New Financing Arrangements

Fiscal Year 2004

In the second quarter of fiscal year 2004, the Company entered into an $11.9 million term loan related to its Salt Lake City Distribution Center. The loan has a rate of 7.16 percent and matures in November of fiscal year 2011.

Fiscal Year 2003

In November 2002, we extended our revolving credit facility through November 2006. In February 2003, we renewed one of our private placement debt facilities, thereby extending its terms through October 1, 2005 and increasing its related borrowing capacity from $125.0 to $246.0 million. No other significant changes were made to either of the facilities’ terms. There were no other significant financing activities during fiscal year 2003. Derivative instruments are discussed in Note 5 to the Consolidated Financial Statements and in Item 7A. of this Annual Report on Form 10-K.

In June 2003, we borrowed $30.0 million under a 4.69 percent senior term note due June 2013 to repay existing debt from our revolving credit facility.

Fiscal Year 2002

In March 2002, we completed a $125.0 million private debt placement, with an average life of 8.6 years and a fixed coupon rate of 6.98 percent. Proceeds were in part used to repay approximately $75.0 million of existing debt from our revolving credit facility. The additional $50.0 million of proceeds were primarily used to fund the JLD acquisition, which was completed in April 2002.

Acquisitions

The acquisitions during fiscal years 2004 and 2003 are summarized below. These acquisitions individually and in the aggregate are not material to our operations. Therefore, pro forma information is not included in the Notes to the Consolidated Financial Statements.

	Number of			Number of
Fiscal Year 2004	Salons/Schools		Fiscal Year 2003	Salons/Schools
Company-Owned			Company-Owned
Franchise buybacks		206	Franchise buybacks		97
Holiday Hair		153	BoRics		328
Blaine Beauty Career Schools		6	Vidal Sassoon salons		25
Other		46	Vidal Sassoon Beauty Academies		4
			Opal Concepts (various salons)		90
			Other		16
Total		411	Total		560
Franchise Networks			Franchise Networks
	None		Pro Cuts		198

The acquisitions were funded primarily from operating cash flow, debt and the issuance of common stock. Since 1994, we have acquired over 7,400 salons. One of the Vidal Sassoon Beauty Academies and 14 of the Vidal Sassoon salons acquired during fiscal year 2003 were located in Europe. The remaining acquisitions listed above relate to salons or schools located within North America.

37

Contractual Obligations and Commercial Commitments

The following table reflects a summary of obligations and commitments outstanding by payment date as of June 30, 2004:

(Dollars in thousands)	Within		Payments due by period				More than
Contractual Obligations	1 year		1-3 years		3-5 years		5 years		Total
On-balance sheet:
Long-term debt obligations	$	16,159	$	72,378	$	100,026	$	99,753	$	288,316
Capital lease obligations		2,969		6,489		3,369				12,827
Other long-term liabilities		1,521		2,109		2,532		16,329		22,491
Total on-balance sheet		20,649		80,976		105,927		116,082		323,634
Off-balance sheet(a):
Operating lease obligations		220,456		342,856		200,261		142,384		905,957
Other long-term obligations		485		1,028		1,167		2		2,682
Total off-balance sheet		220,941		343,884		201,428		142,386		908,639
Total	$	241,590	$	424,860	$	307,355	$	258,468	$	1,232,273

(a) In accordance with accounting principles generally accepted in the United States of America, these obligations are not reflected in the Consolidated Balance Sheet.

On-Balance Sheet Obligations

Our long-term obligations are composed primarily of senior term notes and a revolving credit facility. The related interest expected to be paid in relation to these obligations is not included in the table above. Additionally, certain senior term notes are hedged by contracts with financial institutions commonly referred to as interest rate swaps, as discussed in Item 7A., “Quantitative and Qualitative Disclosures about Market Risk.” At June 30, 2004, $2.4 million of our long-term obligations represents the fair value of the adjustments made to mark these hedge contracts to fair value and an additional $1.1 million represents a deferred gain related to the termination of certain interest rate hedge contracts in the prior fiscal year.

Other long-term liabilities in the contractual obligations table include a total of $9.8 million related to a salary deferral program, $7.2 million related to established contractual payment obligations under retirement and severance payment agreements for a small number of retired employees, $4.5 million related to the Executive Profit Sharing Plan (see Note 9) and $1.0 million related to contractual payments required under non-compete agreements entered into in conjunction with recent acquisitions. All amounts exclude amounts deemed to represent interest payments.

This table excludes the short-term liabilities, other than the current portion of long-term debt, disclosed on our balance sheet as the amounts recorded for these items will be paid in the next year. We have no unconditional purchase obligations, as defined by FAS 47, “Disclosure of Long-Term Obligations.” Also excluded from the contractual obligations table are payment estimates associated with employee health and workers’ compensation claims for which we are self-insured. The majority of our recorded liability for self-insured employee health and workers’ compensation losses represents estimated reserves for incurred claims that have yet to be filed or settled.

The Company has unfunded deferred compensation contracts covering certain management and executive personnel. The deferred compensation contracts are offered to key executives based on their accomplishments within the Company. Because we cannot predict the timing or amount of our future payments related to these contracts, such amounts were not included in the table above. Related obligations totaled $10.7 and $8.6 million at June 30, 2004 and 2003, respectively, and are included in other non-current liabilities in the Consolidated Balance Sheet. Refer to Note 9 of the Consolidated Financial Statements for additional information.

38

Off-Balance Sheet Arrangements

Operating leases primarily represent long-term obligations for the rental of salon premises, including leases for company-owned salons, as well as franchisee subleases of approximately $126.4 million, which are funded by franchisees. Regarding the franchisee subleases, we generally retain the right to the related salon assets net of any outstanding obligations in the event of a default by a franchise owner. Management has not experienced and does not expect any material loss to result from these arrangements.

Other long-term obligations represent our guarantees, primarily entered into prior to December 31, 2002, on a limited number of equipment lease agreements between our franchisees and leasing companies. If the franchisee should fail to make payments in accordance with the lease, we will be held liable under such agreements and retain the right to possess the related salon operations. We believe the fair value of the salon operations exceeds the maximum potential amount of future lease payments for which we could be held liable. The existing guaranteed lease obligations, which have an aggregate undiscounted value of $2.7 million at June 30, 2004, terminate at various dates between June 2006 and April 2009. The Company has not experienced and does not expect any material loss to result from these arrangements.

In certain franchise area development agreements, a buyback program was included allowing the franchisee to require us to purchase all of their salon assets within a specified market for 90 percent of their original cost within two years from the date of the franchisee opening their first salon. As of June 30, 2004, 17 existing franchise salons were covered by such agreements and the related maximum potential amount of undiscounted future payments was estimated to be approximately $1.2 million. This potential obligation is not included in the table above as the opportunity or the timing of the potential expenditures cannot be reasonably estimated. We have not and do not expect to incur material expenditures under the buyback program as the program has been discontinued with respect to any new franchise area development agreements and most franchisees who were offered the program in the past choose to continue operating the salons themselves. Further, in the case of a franchisee initiating the buyback program, we anticipate finding another franchisee to purchase the salons directly rather than purchasing them ourselves.

We have interest rate swap contracts, as well as a cross-currency swap to hedge a portion of our net investment in foreign operations. See Item 7A., “Quantitative and Qualitative Disclosures about Market Risk,” for a detailed discussion of our derivative instruments.

We do not have other unconditional purchase obligations, or significant other commercial commitments such as commitments under lines of credit, standby letters of credit and standby repurchase obligations or other commercial commitments.

We are in compliance with all covenants and other requirements of our credit agreements and senior notes. Additionally, the credit agreements do not include rating triggers or subjective clauses that would accelerate maturity dates.

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.

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (SPEs), which would have been established for the purpose of facilitating off-balance sheet financial arrangements or other contractually narrow or limited purposes at June 30, 2004. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Financing

Financing activities are discussed on page 37 and in Note 4 to the Consolidated Financial Statements, and derivative activities are discussed in Note 5 to the Consolidated Financial Statements and Item 7A., “Quantitative and Qualitative Disclosures about Market Risk.”

Management believes that cash generated from operations and amounts available under existing debt facilities will be sufficient to fund its anticipated capital expenditures, acquisitions and required debt repayments for the foreseeable future. As of June 30, 2004, we have an unused committed line of credit amount of $220.6 million under our existing revolving credit facility.

39

Dividends

We paid dividends of $0.14 per share during fiscal year 2004 and $0.12 per share during fiscal years 2003 and 2002. On August 20, 2004, the Board of Directors of the Company declared a $0.04 per share quarterly dividend payable September 17, 2004 to shareholders of record on September 3, 2004.

Share Repurchase Program

In May 2000, our Board of Directors approved a stock repurchase program under which up to $50.0 million could be expended for the repurchase of Regis Corporation common stock. On August 19, 2003, the Board of Directors elected to increase the maximum repurchase amount to $100.0 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. The repurchases to date have been made primarily to eliminate the dilutive effect of shares issued in conjunction with acquisitions and stock option exercises. As of June 30, 2004, a total of 1.8 million shares have been repurchased for $53.4 million, including $22.5 million during fiscal year 2004. All repurchased shares are immediately retired. This repurchase program has no stated expiration date.

Risk Factors

Impact of Acquisition and Real Estate Availablity

The key driver of our revenue and earnings growth is the number of salons we acquire or construct. While we believe that substantial future acquisition and organic growth opportunities exist, any material decrease in the number of such opportunities would have an impact on our revenue and earnings growth.

Impact of the Economic Environment

Changes to the United States, Canadian, United Kingdom and other European economies have an impact on our business. Visitation patterns to our salons can be adversely impacted by changes in unemployment rates and discretionary income levels.

Impact of Key Relationships

We maintain key relationships with certain companies. Termination of these relationships could have an adverse impact on our ability to grow or future operating results.

Impact of Fashion

Changes in consumer tastes and fashion trends can have an impact on our financial performance.

Impact of Changes in Regulatory and Statutory Laws

With more than 10,000 locations and 50,000 employees world-wide, our financial results can be adversely impacted by regulatory or statutory changes in laws.

Impact of Competition

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.

Impact of Changes in Manufacturers’ Choice of Distribution Channels

The retail products that we sell are licensed to be carried exclusively by professional salons. 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.

40

Impact of Changes to Interest Rates and Foreign Currency Exchange Rates

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 floating rate debt instruments and other financial instruments. See discussion in Item 7A., “Quantitative and Qualitative Disclosures about Market Risk,” for additional information.

Changes in foreign currency exchange rates will have an impact on our reported results from operations. The majority of the revenue and costs associated with the performance of our foreign operations are denominated in local currencies such as the Canadian dollar, Euro and British pound. Therefore, we do not have significant foreign currency transaction risk; however, the translation at different exchange rates from period to period may impact the amount of reported income from our international operations. For the year ended June 30, 2004, operations denominated in currencies other than the United States dollar represented approximately 19 percent of consolidated net income before income taxes, and changes in foreign currency exchange rates benefited net income before income taxes by approximately $3.4 million. This impact was calculated by multiplying current year net income before income taxes in local currencies by the change in the average foreign currency exchange rate between the current fiscal year and the prior fiscal year. Refer the constant currency discussion on page 33 for further detail.

Impact of Seasonality

Our business is not subject to substantial seasonal variations in demand. However, the timing of Easter may cause a quarterly variation in the third and fourth quarters. Historically, our revenue and net earnings have generally been realized evenly throughout the fiscal year. The service and retail product revenues associated with our corporate salons, as well as our franchise revenues, are of a replenishment nature. We estimate that customer visitation patterns are generally consistent throughout the year.

Impact of Changes in Securities Laws and Regulations

The Sarbanes-Oxley Act of 2002 that became law in July 2002 requires changes in some of our corporate governance and securities disclosure or compliance practices. We are presently preparing for our required compliance with the Sarbanes-Oxley Act of 2002, and management’s assertions concerning financial reporting controls. While we believe that we can ultimately comply with the new legislated requirements associated with being a registrant with the Securities and Exchange Commission, this process is costly and presents both challenge and risk.

The Sarbanes-Oxley Act of 2002 also requires the SEC to promulgate new rules on a variety of subjects, in addition to rule proposals already made, and the New York Stock Exchange has approved revisions to its requirements for listed companies. We expect these developments to increase our compliance costs. These developments could possibly make it more difficult and more expensive to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These developments could make it more difficult for us to attract and retain qualified members of our board of directors, or qualified executive officers. We are presently evaluating and monitoring regulatory developments and cannot estimate the timing or magnitude of additional costs which may be incurred as a result.

41

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

This annual report, 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 and financing for new salon development; governmental initiatives such as minimum wage rates, taxes and possible franchise legislation; the ability of the Company to successfully identify and acquire salons that support its growth objectives; 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 the Company’s Form S-3 Registration Statement filed with the Securities and Exchange Commission on June 4, 2004. 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-Q and 8-K and Proxy Statements on Schedule 14A.

42

Item 7A. 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 floating 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. The Company has established policies and procedures that govern the management of these exposures. By policy, the Company does not enter into such contracts for the purpose of speculation. The following details the Company’s policies and use of financial instruments.

Interest Rate Risk:

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 floating and fixed rate debt. Considering the Company’s policy of maintaining variable rate debt instruments, a one percent change in interest rates may impact the Company’s interest expense by approximately $1.0 million. As of June 30, 2004 and 2003, the Company had the following outstanding debt balances:

	June 30,
(Dollars in thousands)	2004		2003
Fixed rate debt	$	271,743	$	278,957
Floating rate debt		29,400		22,800
	$	301,143	$	301,757

In addition, the Company has entered into the following financial instruments:

Interest Rate Swap Contracts:

The Company manages its interest rate risk by balancing the amount of fixed and floating 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. Generally, the terms of the interest rate swap agreements contain quarterly settlement dates based on the notional amounts of the swap contracts.

     (Pay fixed rates, receive variable rates)

The Company had interest rate swap contracts that pay fixed rates of interest and receive variable rates of interest (based on the three-month LIBOR rate) on notional amounts of indebtedness of $11.8 million at June 30, 2004 and 2003. These swaps are being accounted for as cash flow swaps. During fiscal year 2003, the $11.8 million interest rate swap was redesignated from a hedge of variable rate operating lease obligations to hedge of a portion of the interest payments associated with the Company’s long-term financing program. The redesignation was the result of the Company exercising its right to purchase the property under the variable rate operating lease. See the discussion in Note 5 to the Consolidated Financial Statements for further explanation.

     (Pay variable rates, receive fixed rates)

The Company has interest rate swap contracts that pay variable rates of interest (based on the three-month and six-month LIBOR rates plus a credit spread) and receive fixed rates of interest on an aggregate $81.0 and $88.5 million notional amount at June 30, 2004 and 2003, respectively, with maturation dates between July 2005 and March 2009. These swaps were designated as hedges of a portion of the Company’s senior term notes and are being accounted for as fair value swaps.

During the second quarter of fiscal year 2003, the Company terminated a portion of its $40.0 million interest rate swap contract, thereby lowering the aggregate notional amount by $20.0 million. See Note 5 to the Consolidated Financial Statements for further discussion.

43

Tabular Presentation:

The following table presents information about the Company’s debt obligations and derivative financial instruments that are sensitive to changes in interest rates. For fixed rate debt obligations, the table presents principal amounts and related weighted-average interest rates by fiscal year of maturity. For variable rate obligations, the table presents principal amounts and the weighted-average forward LIBOR interest rates as of June 30, 2004 through November 2006. For the Company’s derivative financial instruments, the table presents notional amounts and weighted-average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract.

Expected maturity date as of June 30,

	2005			2006			2007			2008			2009			Thereafter			Total			Fair Value
Liabilities
(U.S.$ equivalent in thousands)
Long-term debt:
Fixed rate (U.S.$)	$	18,505		$	17,203		$	31,383		$	24,495		$	76,290		$	99,753		$	267,629		$	271,120
Average interest rate		7.8	%		7.3	%		7.5	%		7.6	%		6.9	%		6.9	%		7.1	%
Fixed rate (Euro)	$	623																	$	623		$	623
Average interest rate		5.5	%																	5.5	%
Variable rate (U.S.$)							$	29,400											$	29,400		$	29,400
Average interest rate								4.9	%											4.9	%
Total liabilities	$	19,128		$	17,203		$	60,783		$	24,495		$	76,290		$	99,753		$	297,652		$	301,143
Interest rate derivatives
(U.S.$ equivalent in thousands)
Pay variable/receive fixed (U.S.$)	$	12,500		$	12,500		$	22,000		$	9,000		$	25,000					$	81,000		$	(2,410	)
Average pay rate**		4.3	%		5.8	%		6.6	%		6.4	%		6.6	%					6.1	%
Average receive rate**		7.2	%		7.2	%		7.3	%		6.9	%		6.8	%					7.1	%
Pay fixed/receive variable (U.S.$)	$	11,800																	$	11,800		$	316
Average pay rate		5.1	%																	5.1	%
Average receive rate		2.3	%																	2.3	%

** Represents the average expected cost of borrowing for outstanding derivative balances as of June 30, 2004.

Foreign Currency Exchange Risk:

The majority of the Company’s revenue, expense and capital purchasing activities are transacted in United States dollars. However, because a portion of the Company’s operations consists of activities outside of the United States, the Company has transactions in other currencies, primarily the Canadian dollar, British pound and Euro. In preparing the Consolidated Financial Statements, the Company is required to translate the financial statements of its foreign subsidiaries from the currency in which they keep their accounting records, generally the local currency, into United States dollars. Different exchange rates from period to period impact the amounts of reported income and the amount of foreign currency translation recorded in accumulated other comprehensive income. As part of its risk management strategy, the Company frequently evaluates its foreign currency exchange risk by monitoring market data and external factors that may influence exchange rate fluctuations. As a result, the Company may engage in transactions involving various derivative instruments to hedge assets, liabilities and purchases denominated in foreign currencies. As of June 30, 2004, the Company has entered into the following financial instrument:

Hedge of the Net Investment in Foreign Subsidiaries:

The Company has a cross-currency swap with a notional amount of $21.3 million to hedge a portion of its net investments in its foreign operations. The purpose of this hedge is to protect against adverse movements in exchange rates.

44

The table below provides information about the Company’s net investments in foreign operations and derivative financial instruments by functional currency and presents such information in United States (U.S.) dollar equivalents. The table summarizes the Company’s exposure to foreign currency translation risk related to its net investments in its foreign subsidiaries along with the associated cross-currency instrument with a notional amount of $21.3 million to partially hedge the Company’s Euro foreign currency exposure related to its $115.1 million net foreign investment. The cross-currency swap hedged approximately seven and nine percent of the Company’s net investments in total foreign operations at June 30, 2004 and 2003, respectively.

Net Investments:
(U.S.$ Equivalent in thousands)
Net investment (CND)	$	64,758
Net investment (EURO)		115,139
Net investment (GBP)		83,966
Foreign Currency Derivative:
Fixed-for-fixed cross currency swap (Euro/U.S.)
Euro amount	€	23,782
Average pay Euro rate		8.29	%
U.S.$ amount	$	21,284
Average receive U.S. rate		8.39	%

The cross-currency swap derivative financial instrument expires in fiscal year 2007. At June 30, 2004 and 2003, the Company’s net investment in this derivative financial instrument was in an $8.7 and $6.7 million loss position, respectively, based on its estimated fair value. See Note 5 to the Consolidated Financial Statements for further discussion.

45

Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm	47
Consolidated Balance Sheet as of June 30, 2004 and 2003	48
Consolidated Statement of Operations for each of the three years in the period ended June 30, 2004	49
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income for each of the three years in the period ended June 30, 2004	50
Consolidated Statement of Cash Flows for each of the three years in the period ended June 30, 2004	52
Notes to Consolidated Financial Statements	53
Quarterly Financial Data (unaudited)	74

46

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Directors of
Regis Corporation:

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in shareholders’ equity and comprehensive income and of cash flows present fairly, in all material respects, the consolidated financial position of Regis Corporation at June 30, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2004, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, Regis Corporation changed its method of accounting for equity-based compensation arrangements to begin expensing new awards as of July 1, 2003.

/s/ PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP

Minneapolis, Minnesota
August 24, 2004

47

REGIS CORPORATION
CONSOLIDATED BALANCE SHEET

(Dollars in thousands, except per share amounts)

	June 30,
	2004		2003
ASSETS
Current assets:
Cash and cash equivalents	$	73,567	$	55,454
Receivables, net		35,033		31,947
Inventories		161,304		156,827
Deferred income taxes		15,285		18,469
Other current assets		28,253		16,963
Total current assets		313,442		279,660
Property and equipment, net		381,903		356,725
Goodwill		457,140		372,618
Other intangibles, net		79,174		64,498
Other assets		40,200		39,454
Total assets	$	1,271,859	$	1,112,955
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Long-term debt, current portion	$	19,128	$	21,123
Accounts payable		53,112		56,175
Accrued expenses		129,721		118,696
Total current liabilities		201,961		195,994
Long-term debt		282,015		280,634
Other noncurrent liabilities		100,322		73,523
Total liabilities		584,298		550,151
Commitments and contingencies (Notes 6 and 7)
Shareholders’ equity:
Preferred stock, authorized 250,000 shares at June 30, 2004 and 2003
Common stock, $.05 par value; issued and outstanding, 44,283,949 and 43,527,244 common shares at June 30, 2004 and 2003, respectively		2,214		2,176
Additional paid-in capital		220,204		207,650
Accumulated other comprehensive income		40,642		27,789
Retained earnings		424,501		325,189
Total shareholders’ equity		687,561		562,804
Total liabilities and shareholders’ equity	$	1,271,859	$	1,112,955

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

48

REGIS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS

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

	Years Ended June 30,
	2004			2003			2002
Revenues:
Company-owned salons:
Service	$	1,271,232		$	1,117,562		$	963,884
Product		545,012			465,053			412,728
		1,816,244			1,582,615			1,376,612
Franchise revenues:
Royalties and fees		73,632			67,682			50,745
Product sales		33,267			34,233			26,834
		106,899			101,915			77,579
		1,923,143			1,684,530			1,454,191
Operating expenses:
Company-owned salons:
Cost of service		719,809			629,945			546,027
Cost of product		276,704			232,596			216,373
Direct salon		163,178			142,173			123,915
Rent		267,368			233,821			197,269
Depreciation		62,273			54,894			48,269
		1,489,332			1,293,429			1,131,853
Franchise direct costs, including product and equipment		58,413			57,050			38,114
Corporate and franchise support costs		181,992			163,256			139,654
Depreciation and amortization		12,688			11,855			10,706
Total operating expenses		1,742,425			1,525,590			1,320,327
Operating income		180,718			158,940			133,864
Other income (expense):
Interest		(17,064	)		(21,394	)		(19,010	)
Other, net		1,155			1,055			796
Income before income taxes		164,809			138,601			115,650
Income taxes:
Provision		(59,331	)		(51,926	)		(45,346	)
Nonrecurring income tax benefit								1,750
		(59,331	)		(51,926	)		(43,596	)
Net income	$	105,478		$	86,675		$	72,054
Net income per share:
Basic	$	2.40		$	2.00		$	1.70
Diluted	$	2.29		$	1.92		$	1.63
Weighted average common and common equivalent shares outstanding:
Basic		44,014			43,292			42,283
Diluted		46,145			45,229			44,172
Cash dividends declared per common share	$	0.14		$	0.12		$	0.12

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

49

REGIS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(Dollars in thousands)

	Common Stock
	Shares			Amount
Balance, June 30, 2001		41,726,787		$	2,087
Net income
Foreign currency translation adjustments
Changes in fair market value of financial instruments designated as hedges of interest rate exposure, net of taxes and transfers
Stock repurchase plan		(278,700	)		(14	)
Proceeds from exercise of stock options		621,163			31
Shares issued through franchise stock incentive program		8,198
Shares issued in connection with salon acquisitions		962,933			48
Tax benefit realized upon exercise of stock options
Dividends
Balance, June 30, 2002		43,040,381			2,152
Net income
Foreign currency translation adjustments
Changes in fair market value of financial instruments designated as hedges of interest rate exposure, net of taxes and transfers
Stock repurchase plan		(860,301	)		(43	)
Proceeds from exercise of stock options		724,569			36
Shares issued through franchise stock incentive program		9,346
Shares issued in connection with salon acquisitions		613,249			31
Tax benefit realized upon exercise of stock options
Dividends
Balance, June 30, 2003		43,527,244			2,176
Net income
Foreign currency translation adjustments
Changes in fair market value of financial instruments designated as hedges of interest rate exposure, net of taxes and transfers
Stock repurchase plan		(544,000	)		(27	)
Proceeds from exercise of stock options		1,135,939			57
Stock option compensation
Shares issued through franchise stock incentive program		9,428
Shares issued in connection with salon acquisitions		155,338			8
Tax benefit realized upon exercise of stock options
Dividends
Balance, June 30, 2004		44,283,949		$	2,214

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

50

			Accumulated
Additional			Other
Paid-In			Comprehensive			Retained						Comprehensive
Capital			Income (Loss)			Earnings			Total			Income
$	165,489		$	(4,815	)	$	176,740		$	339,501
							72,054			72,054		$	72,054
				9,460						9,460			9,460
				(707	)					(707	)		(707	)
	(7,729	)								(7,743	)
	7,719									7,750
	173									173
	26,253									26,301
	2,954									2,954
							(5,078	)		(5,078	)
	194,859			3,938			243,716			444,665		$	80,807
							86,675			86,675			86,675
				22,025						22,025			22,025
				1,826						1,826			1,826
	(21,651	)								(21,694	)
	8,545									8,581
	337									337
	21,470									21,501
	4,090									4,090
							(5,202	)		(5,202	)
	207,650			27,789			325,189			562,804		$	110,526
							105,478			105,478			105,478
				12,698						12,698			12,698
				155						155			155
	(22,521	)								(22,548	)
	17,290									17,347
	198									198
	281									281
	8,992									9,000
	8,314									8,314
							(6,166	)		(6,166	)
$	220,204		$	40,642		$	424,501		$	687,561		$	118,331

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

51

REGIS CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in thousands)

	Years Ended June 30,
	2004			2003			2002
Cash flows from operating activities:
Net income	$	105,478		$	86,675		$	72,054
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		72,096			63,767			56,821
Amortization		3,451			3,632			2,911
Deferred income taxes		16,071			3,475			11,890
Other, net		1,265			710			739
Changes in operating assets and liabilities:
Receivables		(16	)		8			(575	)
Inventories		(462	)		(31,145	)		(7,759	)
Other current assets		(10,629	)		2,120			(6,446	)
Other assets		(1,387	)		(13,606	)		(2,460	)
Accounts payable		(4,991	)		1,363			7,354
Accrued expenses		9,461			21,105			13,070
Other noncurrent liabilities		15,327			13,015			755
Net cash provided by operating activities		205,664			151,119			148,354
Cash flows from investing activities:
Capital expenditures		(74,076	)		(77,460	)		(66,232	)
Proceeds from sale of assets		432			1,273			873
Business and salon acquisitions, net of cash acquired		(99,734	)		(66,880	)		(59,925	)
Net cash used in investing activities		(173,378	)		(143,067	)		(125,284	)
Cash flows from financing activities:
Borrowings on revolving credit facilities		514,650			854,195			250,800
Payments on revolving credit facilities		(508,025	)		(886,420	)		(336,300	)
Proceeds from issuance of long-term debt		11,887			30,000			125,000
Repayments of long-term debt		(24,111	)		(11,471	)		(5,212	)
Other, primarily increase (decrease) in negative book cash balances		118			(2,720	)		4,937
Dividends paid		(6,166	)		(5,202	)		(5,078	)
Repurchase of common stock		(22,548	)		(21,694	)		(7,743	)
Proceeds from issuance of common stock		17,347			7,051			7,750
Net cash (used in) provided by financing activities		(16,848	)		(36,261	)		34,154
Effect of exchange rate changes on cash		2,675			2,122			1,519
Increase (decrease) in cash		18,113			(26,087	)		58,743
Cash and cash equivalents:
Beginning of year		55,454			81,541			22,798
End of year	$	73,567		$	55,454		$	81,541

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

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Business Description:

Regis Corporation (the “Company”) owns, operates and franchises hairstyling and hair care salons throughout the United States, the United Kingdom (UK), France, Canada, Puerto Rico and several other countries. In addition, beginning in fiscal year 2003, the Company has owned and operated beauty career schools in the United States and the UK. Substantially all of the hairstyling and hair care salons owned and operated by the Company in the United States are located in leased space in enclosed mall shopping centers, strip shopping centers or Wal-Mart Supercenters. Franchise salons throughout the United States are primarily located in strip shopping centers. The company-owned and franchise salons in the UK, France and several other countries are owned and operated in malls, leading department stores, mass merchants and high-street locations.

At June 30, 2004 and 2003, approximately three percent of the Company’s outstanding common stock was owned by Curtis Squire, Inc. (CSI), which is a holding company controlled by the Vice Chairman of the Board of Directors of the Company. In addition, approximately three percent of the Company’s outstanding common stock was owned by management and the Company’s benefit plans at June 30, 2004 and 2003, respectively.

Consolidation:

The Consolidated Financial Statements include the accounts of the Company and all of its wholly-owned subsidiaries. In consolidation, all material intercompany accounts and transactions are eliminated.

Use of Estimates:

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates made by management are the valuation of goodwill, the useful lives and net realizable values of long-lived assets, the fair value of assets acquired in business combinations, customer returns and refunds, the cost of product used and sold during interim periods, self-insurance accruals, tax liabilities and the recoverability of certain deferred tax assets, and various commitments and contingencies. Actual results could differ from those estimates.

Foreign Currency Translation:

Financial position, results of operations and cash flows of the Company’s international subsidiaries are measured using local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rates in effect at each fiscal year end. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive income within shareholders’ equity. Statement of Operations accounts are translated at the average rates of exchange prevailing during the year. The different exchange rates from period to period impact the amount of reported income from the Company’s international operations.

Inventories:

Inventories consist principally of hair care products held either for use in salon services or for sale. Inventories are stated at the lower of cost or market with cost determined on a weighted average basis. Cost of product used and sold are determined by applying estimated gross profit margins to service and product 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.

Cash and Cash Equivalents:

Cash equivalents consist of investments in short-term, highly liquid securities having original maturities of three months or less, which are made as a part of the Company’s cash management activity. The carrying values of these assets approximate their fair market values. The Company primarily utilizes a cash management system with a series of separate accounts consisting of lockbox accounts for receiving cash, concentration accounts that funds are moved to, and several “zero balance” disbursement accounts for funding of payroll and accounts payable. As a result of the Company’s cash management system, checks issued, but not presented to the banks for payment, may create negative book cash balances. Checks outstanding in excess of related book cash balances totaling approximately $9.1 and $8.7 million at June 30, 2004 and 2003, respectively, are included in accounts payable and accrued expenses within the Consolidated Statement of Operations.

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Property and Equipment:

Property and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization of property and equipment are computed on the straight-line method over estimated useful asset lives (30 to 39 years for buildings and improvements and five to ten years for equipment, furniture, software and leasehold improvements).

The Company capitalizes both internal and external costs of developing or obtaining computer software for internal use. Costs incurred to develop internal-use software during the application development stage are capitalized, while data conversion, training and maintenance costs associated with internal-use software are expensed as incurred. At June 30, 2004 and 2003, the net book value of capitalized software costs was $21.6 million. Amortization expense related to capitalized software was $5.8, $5.8 and $5.5 million in fiscal years 2004, 2003 and 2002, respectively, which has been determined based on an estimated useful life of five or seven years.

Expenditures for maintenance and repairs and minor renewals and betterments which do not improve or extend the life of the respective assets are expensed. All other expenditures for renewals and betterments are capitalized. The assets and related depreciation and amortization accounts are adjusted for property retirements and disposals with the resulting gain or loss included in operations. Fully depreciated/amortized assets remain in the accounts until retired from service.

Goodwill:

Effective July 1, 2001, the Company ceased all amortization of goodwill balances. Goodwill is tested for impairment annually or at the time of a triggering event in accordance with the provisions of Statement of Financial Accounting Standards (FAS) 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. The Company generally considers its various concepts to be reporting units when it tests for goodwill impairment because that is where the Company believes goodwill naturally resides. During the third quarter of each of the three fiscal years in the period ending June 30, 2004, goodwill was tested for impairment in this manner. The estimated fair value of the reporting units exceeded their carrying amounts, indicating no impairment of goodwill.

Asset Impairment Assessments:

The Company reviews long-lived assets for impairment at the salon level annually or if events or circumstances indicate that the carrying value of such assets may not be fully recoverable. Impairment is evaluated based on the sum of undiscounted estimated future cash flows expected to result from use of the assets compared to its carrying value. If an impairment is recognized, the carrying value of the impaired asset is reduced to its fair value, based on discounted estimated future cash flows.

During fiscal years 2004, 2003 and 2002, the Company tested its long-lived assets for impairment and recognized impairment charges related to the carrying value of certain salons’ property and equipment located primarily in North America of $3.2, $3.1 and $1.3 million, respectively. None of the impaired salon assets were held for sale. Impairment charges are included in depreciation related to company-owned salons in the Consolidated Statement of Operations.

Deferred Rent:

The Company’s operating lease agreements include certain escalation provisions. Accounting principles generally accepted in the United States of America require rent expense to be recognized on a straight-line basis over the lease term. The difference between the rent due under the stated terms of the lease compared to that of the straight-line basis is recorded as deferred rent within other noncurrent liabilities in the Consolidated Balance Sheet.

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Franchise Revenues and Expenses:

Franchise revenues include royalties, initial franchise fees, sales of product to franchisees and net rental income (see Note 6). Royalties are recognized as revenue in the month in which franchisee services are rendered or products are sold to franchisees. The Company recognizes revenue from initial franchise fees at the time franchisee salons are opened. Product sales by the Company to franchisees are recorded at the time product is shipped to franchise locations. Franchise expenses included in franchise direct costs in the Consolidated Statement of Operations include all direct expenses, such as the cost of product sold to franchisees. All other indirect expenses associated with franchise operations are included in corporate and franchise support costs in the Consolidated Statement of Operations.

Revenue Recognition:

Company-owned revenues and related gross margin are recorded at the time of sale, as this is when the services have been provided or, in the case of product revenues, delivery has occurred, and the salon receives the customer’s payment. An accrual for estimated returns and credits has been recorded, and is less than one percent of sales.

Shipping and Handling Costs:

Shipping and handling costs are incurred to move and ship product from the Company’s distribution centers to company-owned and franchise salons. Such shipping and handling costs related to product shipped to company-owned salons are included in corporate and franchise support costs in the Consolidated Statement of Operations. Shipping and handling costs related to shipping product to franchise salons are included within franchise direct costs (along with the cost of the product) and any amounts billed to the franchisee for shipping and handling are included in franchise product revenues within the Consolidated Statement of Operations.

Advertising:

Advertising costs, including salon collateral material, are expensed as incurred. Net advertising costs expensed were $46.6, $41.3 and $31.3 million in fiscal years 2004, 2003 and 2002, respectively. The Company participates in cooperative advertising programs under which the vendor reimburses the Company for costs related to advertising for its products. The Company records such reimbursements as a reduction of advertising expense when the expense is incurred. During fiscal year 2004, 2003 and 2002, no amounts were received in excess of the Company’s related expense.

Advertising Funds:

Franchisees and certain company-owned salons are required to contribute a percentage of sales to various advertising funds. The Company administers the advertising funds at the directive of or subject to input from the franchise community. Accordingly, amounts collected and spent by the advertising funds are not reflected as revenues and expenditures of the Company. Assets of the advertising funds administered by the Company, along with an offsetting obligation to spend such assets, are recorded in the Consolidated Balance Sheet.

Income Taxes:

Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the Consolidated Financial Statements or income tax returns. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using currently enacted tax rates in effect for the years in which the differences are expected to reverse. Realization of deferred tax assets is ultimately dependent upon future taxable income. Inherent in the measurement of deferred balances are certain judgments and interpretations of tax laws and published guidance with respect to the Company’s operations. Income tax expense is the current tax payable for the period and the change during the period in certain deferred tax assets and liabilities.

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Net Income Per Share:

Basic earnings per share (EPS) is calculated as net income divided by weighted average common shares outstanding. The Company’s dilutive securities include shares issuable under the Company’s stock option plan and shares issuable under contingent stock agreements. Diluted EPS is calculated as net income divided by weighted average common shares outstanding, increased to include assumed exercise of dilutive securities. Stock options with exercise prices greater than the average market value of the Company’s common stock are excluded from the computation of diluted EPS.

Reclassifications:

Certain prior period amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income or shareholders’ equity as previously presented.

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 exposure and foreign currency translation charged or credited to the cumulative translation account within shareholders’ equity. These amounts are presented in the Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income.

Recent Accounting Pronouncements:

In December 2003, the Financial Accounting Standards Board (FASB) issued FAS No. 132 (R), a revision of FAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” FAS No. 132 (R) increases the existing disclosure requirements by requiring more details about pension plan assets, benefit obligations, cash flows, benefit costs and related information. It also requires the segregation of plan assets by category, such as debt, equity and real estate, and the disclosure of certain expected rates of return and other informational disclosures. This Statement is effective for annual financial statements for fiscal years ending after December 15, 2003, which is the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004. Additionally, Statement 132(R) requires the disclosure of various elements of pension and postretirement benefit costs in interim financial statements for quarters beginning after December 15, 2003 (the Company’s fiscal quarter ending March 31, 2004). The adoption of FAS 132 (R) did not have a material impact on the Company’s Consolidated Financial Statements.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” (FIN 46). FIN 46 addresses the consolidation of entities whose equity holders have either (a) not provided sufficient equity at risk to allow the entity to finance its own activities or (b) do not possess certain characteristics of a controlling financial interest. FIN 46 requires the consolidation of these entities, known as variable interest entities (VIEs), by the primary beneficiary of the entity. The primary beneficiary is the entity, if any, that is subject to a majority of the risk of loss from the VIE’s activities, entitled to receive a majority of the VIE’s residual returns, or both. In December 2003, the FASB issued a revised FIN 46 (referred to as FIN 46(R)) to clarify some of the provisions of FIN 46 and to exempt certain entities from its requirements. Among these exemptions, FIN 46(R) provides a scope exception for an entity that is deemed to be a business, but also lists four conditions which, if present, disallow companies from applying this scope exception. FIN 46(R) was effective for VIEs that are commonly referred to as special-purpose entities for the Company’s quarter ending December 31, 2003 and for all other types of VIEs for the Company’s quarter ending March 31, 2004.

Effective December 31, 2003, the Company adopted FIN 46(R). The Company does not have any relationships with special-purpose entities. Therefore, the initial adoption of FIN 46(R) had no impact on the Company’s Consolidated Financial Statements. Additionally, the majority of the Company’s franchise entities are not within the scope of this Interpretation, as they are businesses as defined by FIN 46(R). Although the Company generally does not provide financial support to the franchisee in its typical franchise relationship, the Company has financing agreements with a very limited number of franchisees. With respect to such cases, the Company completed its evaluation and FIN 46(R) did not have a material effect on its Consolidated Financial Statements.

Effective July 1, 2003, the Company adopted the provisions of FAS No. 149, “Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities” and FAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” The initial adoption of these Statements did not have a material impact on the Consolidated Financial Statements.

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Stock-Based Employee Compensation Plans:

2000 Stock Option Plan and 1991 Stock Option Plan At June 30, 2004, the Company had two employee stock option plans, the 2000 Stock Option Plan and the 1991 Stock Option Plan, which are described more fully in Note 9. The Company had outstanding stock options under the 1991 Plan, although the Plan terminated in 2001. Prior to July 1, 2003, the Company accounted for these plans using the intrinsic value method under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25) and related Interpretations and applies FAS No. 123, “Accounting for Stock-Based Compensation” (FAS No. 123), as amended by FAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (FAS No. 148), for disclosure purposes only. The FAS No. 123 disclosures include pro forma net income and earnings per share as if the fair value-based method of accounting had been used. Under the provisions of APB No. 25, no stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying stock on the date of grant.

On May 4, 2004, the Company’s Board of Directors elected to adopt the fair value recognition provisions of FAS No. 123 using the prospective transition method with an effective date of July 1, 2003 (the beginning of the current fiscal year). Under the prospective method of adoption, compensation cost is recognized related to options granted, modified or settled after the beginning of the fiscal year in which the fair value method is first adopted. Under this approach, fiscal year 2004 compensation expense is less than it would have been had the fair value recognition provisions of FAS No. 123 been applied from its original effective date because the fair value of the options vesting during the year which were granted prior to fiscal year 2004 are not recognized in the Consolidated Statement of Operations. Options granted in fiscal years prior to the adoption of the fair value recognition provisions will continue to be accounted for under APB Opinion No. 25. The adoption of the fair value recognition provisions increased the Company’s fiscal year 2004 compensation expense by approximately $98,000. Assuming shareholder approval in fiscal year 2005 of the 2004 Long Term Incentive Plan (see Note 9), management estimates that, provided there are no significant changes to the key weighted average assumptions, the adoption will increase compensation expense in fiscal year 2005 by approximately $1.4 million.

The Company’s pro forma net income and pro forma earnings per share for the years ended June 30, 2004, 2003 and 2002 was as follows:

	For the Years Ended June 30,
(Dollars in thousands)	2004			2003			2002
Net income, as reported	$	105,478		$	86,675		$	72,054
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		61			—			—
Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects		(6,600	)		(6,554	)		(6,345	)
Pro forma net income	$	98,939		$	80,121		$	65,709
Earnings per share:
Basic – as reported	$	2.40		$	2.00		$	1.70
Basic – pro forma	$	2.25		$	1.85		$	1.55
Diluted – as reported	$	2.29		$	1.92		$	1.63
Diluted – pro forma	$	2.16		$	1.80		$	1.52

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The weighted average fair value per option granted during 2004, 2003 and 2002 was $13.66, $12.83 and $14.31, respectively, calculated by using the fair value of each option grant on the date of grant. The fair value of options was calculated utilizing the Black-Scholes option-pricing model and the following key weighted average assumptions:

	2004			2003			2002
Risk-free interest rate		4.16	%		2.89	%		4.86	%
Expected life in years		5.5			7.25			6.50
Expected volatility		30.00	%		42.00	%		43.27	%
Expected dividend yield		0.37	%		0.45	%		0.49	%

2004 Long Term Incentive Plan

In May of 2004, the Company’s Board of Directors approved the 2004 Long Term Incentive Program (2004 Plan). The 2004 Plan is currently pending shareholder approval at the annual shareholders’ meeting to be held on October 28, 2004. The 2004 Plan provides for three types of equity compensation: stock options, stock appreciation rights (SARs) and restricted stock. The Company will recognize compensation cost related to equity compensation under the 2004 Plan using the fair value based method, as described in FAS No. 123. See Note 9 for further discussion.

2. OTHER FINANCIAL STATEMENT DATA

The following provides additional information concerning selected balance sheet accounts as of June 30, 2004 and 2003:

	(Dollars in thousands)
	2004			2003
Accounts receivable	$	37,874		$	35,633
Less allowance for doubtful accounts		(2,841	)		(3,686	)
	$	35,033		$	31,947
Property and equipment:
Land	$	3,817		$	3,817
Buildings and improvements		38,534			38,113
Equipment, furniture and leasehold improvements		584,268			535,476
Internal use software		45,591			41,790
Equipment, furniture and leasehold improvements under capital leases		30,661			22,147
		702,871			641,343
Less accumulated depreciation and amortization		(306,548	)		(273,059	)
Less amortization of equipment, furniture and leasehold improvements under capital leases		(14,420	)		(11,559	)
	$	381,903		$	356,725
Other Assets:
Notes receivable	$	8,090		$	8,872
Other noncurrent assets		32,110			30,582
	$	40,200		$	39,454
Accounts payable:
Book overdrafts payable	$	5,569		$	5,179
Trade accounts payable		47,543			50,996
	$	53,112		$	56,175

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

	(Dollars in thousands)
	2004		2003
Accrued expenses:
Payroll and payroll related costs	$	57,702	$	45,388
Insurance		35,069		26,446
Taxes payable, primarily income taxes		5,833		10,238
Book overdrafts payable		3,506		3,540
Other		27,611		33,084
	$	129,721	$	118,696
Other noncurrent liabilities:
Deferred income taxes	$	39,598	$	26,472
Deferred rent payable		13,183		13,313
Other		47,541		33,738
	$	100,322	$	73,523

	2004							2003
			Accumulated							Accumulated
(Dollars in thousands)	Cost		Amortization			Net		Cost		Amortization			Net
Amortized intangible assets:
Trade names	$	31,879	$	(2,089	)	$	29,790	$	29,722	$	(1,374	)	$	28,348
Product license agreements		15,338		(1,144	)		14,194		14,481		(602	)		13,879
Franchise agreements		16,513		(3,413	)		13,100		16,421		(2,947	)		13,474
Non-compete agreements		480		(458	)		22		5,315		(5,206	)		109
Other		23,222		(1,154	)		22,068		10,596		(1,908	)		8,688
	$	87,432	$	(8,258	)	$	79,174	$	76,535	$	(12,037	)	$	64,498

Certain intangible asset amounts set forth above are based on preliminary purchase price allocations associated with recent business acquisitions, and are subject to finalization and adjustment.

All intangible assets have been assigned an estimated finite useful life, and are amortized on a straight-line basis over the number of years that approximate their respective useful lives (ranging from four to 30 years). The straight-line method of amortization allocates the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the Company in that reporting period. Total amortization expense related to amortizable intangible assets during the years ended June 30, 2004, 2003 and 2002 was approximately $2.9, $3.0 and $2.3 million, respectively. As of June 30, 2004, future estimated amortization expense related to amortizable intangible assets is estimated to be:

(Dollars in thousands)
Fiscal Year
2005	$	2,988
2006		2,941
2007		2,941
2008		2,913
2009		2,872

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

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

	2004		2003		2002
Weighted average shares for basic earnings per share		44,014,126		43,291,609		42,283,308
Effect of dilutive securities:
Dilutive effect of stock options		2,103,803		1,782,252		1,867,038
Contingent shares issuable under contingent stock agreements		27,006		155,036		21,986
Weighted average shares for diluted earnings per share		46,144,935		45,228,897		44,172,332

Stock options covering approximately 330,000 and 55,000 shares were excluded from the shares used in the computation of diluted earnings per share for fiscal year 2003 and 2002, respectively, since they were anti-dilutive.

The following provides supplemental disclosures of cash flow activity:

	(Dollars in thousands)
	2004		2003		2002
Cash paid during the year for:
Interest	$	17,368	$	20,303	$	17,609
Income taxes, net of refunds	$	44,361		31,719		34,117

Significant non-cash investing and financing activities include the following:

In fiscal years 2004, 2003 and 2002, the Company financed capital expenditures totaling $8.5, $7.0 and $0.1 million, respectively, through capital leases.

In fiscal years 2004, 2003 and 2002, in connection with various acquisitions, the Company entered into seller-financed payables and non-compete agreements as well as issuing 155,338, 613,249 and 962,933 shares, respectively, of the Company’s common stock (see Note 3).

3. ACQUISITIONS:

During fiscal years 2004, 2003 and 2002, the Company made numerous 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. These acquisitions individually and in the aggregate are not material to the Company’s operations. Operations of the acquired companies have been included in the operations of the Company since the date of the respective acquisition. The most significant fiscal year 2004 acquisitions were Holiday Hair and Blaine Beauty Career Schools. Of the fiscal year 2003 acquisitions, the most significant were BoRics, Vidal Sassoon and salons from Opal Concepts. The most significant of the fiscal year 2002 acquisitions were the acquisition of the European franchise companies, St. Algue, formerly known as Groupe Gerard Glemain (GGG), and Jean Louis David (JLD).

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Based upon purchase price allocations, which may have components representing preliminary allocations with respect to recent fiscal year 2004 acquisitions, the components of the aggregate purchase prices of the acquisitions made during fiscal years 2004, 2003 and 2002, and the allocation of the purchase prices, were as follows:

(Dollars in thousands)	2004		2003		2002
Components of aggregate purchase prices:
Cash	$	99,734	$	66,880	$	59,925
Stock		9,000		21,501		26,301
Liabilities assumed or payable		1,472		3,246		13,608
	$	110,206	$	91,627	$	99,834
Allocation of the purchase prices:
Net tangible assets (liabilities) acquired	$	15,704	$	16,828	$	(1,952	)
Identifiable intangible assets		14,990		9,172		41,181
Goodwill		79,512		65,627		60,605
	$	110,206	$	91,627	$	99,834

Approximately $0.1, $1.1 and $1.1 million of employee termination and other exit costs were incurred in connection with acquisitions in fiscal years 2004, 2003 and 2002, respectively. These costs consisted primarily of employee termination costs and were treated as a liability assumed at the acquisition date.

Based upon the actual and preliminary purchase price allocations, the change in the carrying amount of the goodwill for the years ended June 30, 2004 and 2003 is as follows:

	2004						2003
(Dollars in thousands)	North America			International			North America			International
Balance at beginning of year	$	299,602		$	73,016		$	252,055		$	52,474
Goodwill acquired		77,042			2,470			45,963			19,664
Finalization of purchase accounting		8,882	*		(8,314	)*		(1,407	)		(8,496	)
Translation rate adjustments		193			4,249			2,991			9,374
Balance at end of year	$	385,719		$	71,421		$	299,602		$	73,016

*Relates to the finalization of the allocation of goodwill to the related reporting units, as well as a deferred tax adjustment related to acquired intangible assets.

Generally, the goodwill recognized in the North American transactions is expected to be fully deductible for tax purposes and the goodwill recognized in the international transactions is non-deductible for tax purposes. The majority of the purchase price 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 hair salon brand. 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. Internationally, the residual goodwill primarily represents the growth prospects that are not captured as part of acquired tangible or identified intangible assets.

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

In a limited number of acquisitions, the Company has guaranteed 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 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 June 30, 2004 market price, the Company would be required to provide an additional 46,501 shares related to these acquisition contingencies if the agreed-upon time frames were all assumed to have expired June 30, 2004. These contingently issuable shares have been included in the calculation of diluted earnings per share for the year ended June 30, 2004.

4. FINANCING ARRANGEMENTS:

The Company’s long-term debt as of June 30, 2004 and 2003 consists of the following:

							(Dollars in thousands)
	Maturity		Interest rate %				Amounts outstanding
	Dates		2004		2003		2004			2003
Senior term notes		2004-2013		4.69-8.39		4.69-8.39	$	245,891		$	269,478
Revolving credit facilities		2007		2.73-5.06		2.34-5.06		29,400			22,775
Equipment and leasehold notes payable		2004-2008		5.90-10.50		9.21-11.56		13,014			7,726
Other notes payable		2004-2009		5.00-7.16		5.00-11.50		12,838			1,778
								301,143			301,757
Less current portion								(19,128	)		(21,123	)
Long-term portion							$	282,015		$	280,634

In the second quarter of fiscal year 2004, the Company entered into an $11.9 million term loan related to its Salt Lake City Distribution Center. The loan has a rate of 7.16 percent and matures in November of fiscal year 2011.

During the second quarter of fiscal year 2003, the Company extended its revolving credit facility through November of fiscal year 2006. The facility bears interest at the prime rate or LIBOR plus 112.5 to 137.5 basis points. The prime rate at June 30, 2004 and 2003 was 4.0 percent. The three-month LIBOR rate at June 30, 2004 and 2003 was 1.60 and 1.11 percent, respectively. The revolving credit facility requires a quarterly fee related to the unused portion of the facility at 27.5 to 32.5 basis points. The LIBOR credit spread and unused fee are based on the Company’s debt-to-EBITDA ratio at the end of each fiscal quarter. The facility is used for short-term financing of new salon and acquisition growth as well as to finance the general working capital requirements of the Company. In the third quarter of fiscal year 2003, the Company renewed one of its private placement debt facilities, thereby extending its terms through October 1, 2005 and increasing its related borrowing capacity from $125.0 to $246.0 million. No other significant changes were made to either of the facilities’ terms.

In June 2003, the Company borrowed $30.0 million under a 4.69 percent senior term note due June 2013 to repay existing debt from the Company’s revolving credit facility.

The equipment and leasehold notes payable are primarily comprised of capital lease obligations totaling $12.8 and $7.2 million at June 30, 2004 and 2003, respectively. These capital lease obligations are payable in monthly installments through fiscal year 2009.

All of the Company’s debt instruments are unsecured, except for its capital lease obligations which are collateralized by the assets purchased under the agreement and the term loan entered into during fiscal year 2004 related to the Salt Lake City Distribution Center.

The debt agreements contain covenants, including limitations on incurrence of debt, granting of liens, investments, merger or consolidation, and transactions with affiliates. In addition, the Company must not exceed specified fixed charge coverage, leverage and debt-to-capitalization ratios.

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

As a result of the fair value hedging activities discussed in Note 5, an adjustment of approximately $3.5 and $8.5 million were made to increase the carrying value of the Company’s long-term fixed rate debt at June 30, 2004 and 2003, respectively. Therefore, at June 30, 2004 and 2003, approximately 30 and 34 percent of the Company’s fixed rate debt has been marked to market, respectively. Considering the mark-to-market adjustment and current market interest rates, the carrying values of the Company’s debt instruments, based upon discounted cash flow analyses using the Company’s current incremental borrowing rate, approximate their fair values at June 30, 2004 and 2003.

Aggregate maturities of long-term debt, including associated fair value hedge obligations of $3.5 million and capital lease obligations of $12.8 million at June 30, 2004, are as follows:

Fiscal year	(Dollars in thousands)
2005	$	19,128
2006		17,471
2007		61,396
2008		24,495
2009		78,900
Thereafter		99,753
	$	301,143

5. 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 floating 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. The Company has established policies and procedures that govern the management of these exposures. 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 floating and fixed rate debt. As of June 30, 2004 and 2003, the Company had the following outstanding debt balances:

	June 30,
(Dollars in thousands)	2004		2003
Fixed rate debt	$	271,743	$	278,957
Floating rate debt		29,400		22,800
	$	301,143	$	301,757

Considering the Company’s policy of maintaining variable rate debt instruments, a one percent change in interest rates (including the impact of existing interest rate swap contracts) may impact the Company’s interest expense by approximately $1.0 million. In this regards, the Company has entered into the following financial instruments:

Cash Flow Hedges

The Company had interest rate swap contracts that pay fixed rates of interest and receive variable rates of interest (based on the three-month LIBOR rate) on notional amounts of indebtedness of $11.8 million at June 30, 2004 and 2003. These cash flow hedges are recorded at fair value within other noncurrent liabilities in the Consolidated Balance Sheet, with a corresponding offset in other comprehensive income within shareholders’ equity.

Additionally, when interest payments are made on the underlying hedged items, a pre-tax adjustment to interest expense based on the net settlement amounts on the swaps is recorded in the Consolidated Statement of Operations, as amounts are transferred out of accumulated other comprehensive income to earnings at each interest payment date.

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The cumulative tax-effected net loss recorded in accumulated other comprehensive income, set forth under the caption shareholders’ equity in the Consolidated Balance Sheet, related to the cash flow swap was $0.3 and $0.5 million at June 30, 2004 and 2003, respectively. The following table depicts the hedging activity in other comprehensive income related to the cash flow swap for the years ended June 30, 2004, 2003 and 2002.

(Dollars in thousands)	2004			2003			2002
Tax-effected gain (loss) on cash flow hedge recorded in other comprehensive income:
Realized net loss transferred from other comprehensive income to earnings	$	386		$	2,510		$	2,745
Unrealized net loss from changes in fair value of cash flow swap		(231	)		(684	)		(3,452	)
	$	155		$	1,826		$	(707	)

As of June 30, 2004, the Company estimates, based on current interest rates, that approximately $0.2 million of tax-effected charges to interest expense will be recorded in the Consolidated Statement of Operations during the next twelve months.

Fair Value Hedges

The Company has interest rate swap contracts that pay variable rates of interest (based on the three-month and six-month LIBOR rates plus a credit spread) and receive fixed rates of interest on an aggregate $81.0 and $88.5 million notional amount at June 30, 2004 and 2003, respectively, with maturation dates between July 2005 and March 2009. These swaps were designated as hedges of a portion of the Company’s senior term notes and are being accounted for as fair value hedges.

During fiscal year 2003, the Company terminated a portion of a $40.0 million interest rate swap contract. The termination resulted in the Company realizing a gain of $1.5 million, which is deferred in long-term debt in the Consolidated Balance Sheet and will be amortized against interest expense over the remaining life of the underlying debt that matures in March 2009. During fiscal year 2004 and 2003, approximately $0.3 and $0.1 million of the deferred gain was amortized against interest expense, respectively, resulting in a remaining deferred gain of $1.1 and $1.4 million in long-term debt at June 30, 2004 and 2003, respectively.

The Company’s fair value hedges are recorded at fair value within other assets in the Consolidated Balance Sheet, with a corresponding cumulative adjustment to the underlying senior term note within long-term debt of $2.4 and $7.1 million at June 30, 2004 and 2003, respectively. No hedge ineffectiveness occurred during fiscal year 2004 or 2003. As a result, the fair value hedges did not have a net impact on earnings.

64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Hedge of Net Investments in Foreign Operations

The Company has numerous investments in foreign subsidiaries, and the net assets of these subsidiaries are exposed to exchange rate volatility. The Company frequently evaluates its foreign currency exchange risk by monitoring market data and external factors that may influence exchange rate fluctuations. As a result, the Company may engage in transactions involving various derivative instruments to hedge assets, liabilities and purchases denominated in foreign currencies. At June 30, 2004, the Company had a cross-currency swap with a notional amount of $21.3 million to hedge a portion of its net investments in its foreign operations. The purpose of this hedge is to protect against adverse movements in exchange rates. The cross-currency swap hedged approximately seven and nine percent of the Company’s total net investments in foreign operations at June 30, 2004 and 2003, respectively.

The Company’s cross-currency swap is recorded at fair value within other noncurrent liabilities in the Consolidated Balance Sheet. At June 30, 2004 and 2003, the Company’s net investment in this derivative financial instrument was in a $8.7 and $6.7 million loss position, respectively, based on its estimated fair value. The corresponding tax-effected offset is charged to the cumulative translation adjustment account, which is a component of accumulated other comprehensive income set forth under the caption shareholders’ equity in the Consolidated Balance Sheet. The cumulative tax-effected net loss recorded in accumulated other comprehensive income related to the cross-currency swap was $6.3 and $4.1 million at June 30, 2004 and 2003, respectively. For the years ended June 30, 2004, 2003 and 2002, $2.2, $2.7 and $1.5 million of tax-effected loss related to this derivative was charged to the cumulative translation adjustment account, respectively.

6. COMMITMENTS AND CONTINGENCIES:

Operating Leases:

The Company is committed under long-term operating leases for the rental of most of its company-owned salon locations. The original terms of the leases range from one to 20 years, with many leases renewable for an additional five to ten year term at the option of the Company, and certain leases include escalation provisions. For certain leases, the Company is required to pay additional rent based on a percent of sales in excess of a predetermined amount and, in most cases, real estate taxes and other expenses. Rent expense for the Company’s international department store salons is based primarily on a percent of sales.

The Company also leases the premises in which the majority of its franchisees operate and has entered into corresponding sublease arrangements with the franchisees. These leases, generally with terms of approximately five years, are expected to be renewed on expiration. All additional lease costs are passed through to the franchisees.

Rent expense in the Consolidated Statement of Operations excludes $31.0, $31.9 and $30.6 million in fiscal years 2004, 2003 and 2002, respectively, of rent expense on premises subleased to franchisees. These amounts are netted against the related rental income on the sublease arrangements with franchisees. In most cases, the amount of rental income related to sublease arrangements with franchisees approximates the amount of rent expense from the primary lease, thereby having no net impact on rent expense or net income. However, in limited cases, the Company charges a ten percent mark-up in its sublease arrangements in accordance with specific franchise agreements. The net rental income resulting from such arrangements totaled $0.5, $0.6 and $0.4 million in fiscal years 2004, 2003 and 2002, respectively, and was classified in the franchise revenues – royalties and fees caption of the Consolidated Statement of Operations.

Total rent expense, excluding rent expense on premises subleased to franchisees, includes the following:

	(Dollars in thousands)
	2004		2003		2002
Minimum rent	$	192,874	$	167,154	$	138,480
Percentage rent based on sales		17,121		15,166		14,661
Real estate taxes and other expenses		57,373		51,501		44,128
	$	267,368	$	233,821	$	197,269

65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Future Minimum Lease Payments:

As of June 30, 2004, future minimum lease payments (excluding percentage rents based on sales) due under existing noncancellable operating leases with remaining terms of greater than one year are as follows:

	(Dollars in thousands)
	Corporate		Reimbursable
Fiscal year	leases		franchisee leases
2005	$	183,842	$	36,614
2006		161,865		30,330
2007		127,549		23,112
2008		100,863		16,351
2009		73,773		9,274
Thereafter		131,677		10,707
Total minimum lease payments	$	779,569	$	126,388

In addition to the amounts listed in the table above, the Company is guarantor on a limited number of equipment lease agreements between its franchisees and leasing companies. If the franchisee should fail to make payments in accordance with the lease, the Company will be held liable under such agreements and retains the right to possess the related salon operations. The Company believes the fair value of the salon operations exceeds the maximum potential amount of future lease payments for which it could be held liable. The existing guaranteed lease obligations, which have an aggregate undiscounted value of $2.7 million at June 30, 2004, terminate at various dates between June 2006 and April 2009. Management has not experienced and does not expect any material loss to result from these arrangements.

Salon Development Program:

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

Contingencies:

The Company is self-insured for most workers’ compensation and general liability losses subject to per occurrence and aggregate annual liability limitations. The Company is insured for losses in excess of these limitations. The Company is also self-insured for health care claims for eligible participating employees subject to certain deductibles and limitations. The Company determines its liability for claims incurred but not reported on an actuarial basis.

7. 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. The Company is currently a defendant in a collective action lawsuit in which the plaintiffs allege violations under the Fair Labor Standards Act (“FLSA”). The Company denies these allegations and will actively defend its position. However, 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.

In August 2003, the Company reached an agreement with the Equal Employment Opportunity Commission (“EEOC”) to settle allegations of discrimination in Supercuts. The $3.2 million settlement was accrued during the fourth quarter of fiscal year 2003 in corporate and franchise support costs in the Consolidated Statement of Operations.

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

8. INCOME TAXES:

The provision for income taxes consists of:

	(Dollars in thousands)
	2004		2003		2002
Current:
United States	$	39,722	$	46,462	$	27,815
International		3,538		2,086		2,891
Nonrecurring federal benefit						(1,750	)
Deferred:
United States		15,159		2,090		14,640
International		912		1,288
	$	59,331	$	51,926	$	43,596

In fiscal year 2002, the Company implemented certain tax strategies resulting in approximately $1.8 million of economic benefit, which has been recognized as a nonrecurring income tax benefit in the third quarter, thus reducing fiscal year 2002 income tax expense. The majority of the nonrecurring benefit was realized through the amendment of previous tax filings.

The components of the net deferred tax asset (liability) are as follows:

	(Dollars in thousands)
	2004			2003
Net current deferred tax asset:
Insurance	$	5,752		$	8,415
Payroll and payroll related costs		4,902			3,014
Nonrecurring items		382			455
Reserve for impaired assets		2,351			1,485
Accrued litigation		—			1,321
Deferred franchise fees		767			702
Other, net		1,131			3,077
	$	15,285		$	18,469
Net noncurrent deferred tax liability:
Depreciation and amortization	$	(56,786	)	$	(39,881	)
Deferred rent		3,910			3,576
Payroll and payroll related costs		10,168			7,088
Derivatives		3,367			2,860
Other, net		(257	)		(115	)
	$	(39,598	)	$	(26,472	)

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The components of income before income taxes are as follows:

	(Dollars in thousands)
	2004		2003		2002
Income before income taxes:
United States	$	140,987	$	126,906	$	108,116
International		23,822		11,695		7,534
	$	164,809	$	138,601	$	115,650

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:

	(Dollars in thousands)
	2004			2003			2002
U.S. statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit		2.1			3.0			3.3
Other, primarily meals and entertainment, and nondeductible goodwill and tax credits		(1.1	)		(0.5	)		0.9
Nonrecurring federal benefit								(1.5	)
		36.0	%		37.5	%		37.7	%

As of June 30, 2004, undistributed earnings of international subsidiaries of approximately $13.4 million were considered to have been reinvested indefinitely and, accordingly, the Company has not provided United States income taxes on such earnings.

9. BENEFIT PLANS:

Profit Sharing Plan:

Effective July 1, 2003, the Company’s qualified employee stock ownership plan (ESOP) was converted to a profit sharing plan. The profit sharing plan covers substantially all field supervisors, warehouse and corporate office employees. The profit sharing plan is a noncontributory defined contribution plan and contributions to the plan are at the discretion of the Company. Prior to January 22, 2002, such contributions were invested in common stock of the Company. Subsequent to that date, such contributions may be invested in a broad range of securities, at the participant’s election.

Executive Profit Sharing Plan:

Effective July 1, 2003, the Company’s nonqualified executive stock award plan (ESAP) was converted to a nonqualified profit sharing plan. The Executive Profit Sharing Plan covers those employees not eligible to participate under the qualified profit sharing plan. Contributions to the Executive Profit Sharing Plan are at the discretion of the Company.

Stock Purchase Plan:

The Company has an employee stock purchase plan (SPP) available to substantially all employees. Under terms of the plan, eligible employees may purchase the Company’s common stock through payroll deductions. The Company contributes an amount equal to 15 percent of the purchase price of the stock to be purchased on the open market and pays all expenses of the SPP and its administration, not to exceed an aggregate contribution of $5.0 million (on August 19, 2003, the Board of Directors elected to increase the maximum aggregate contribution from $4.0 to $5.0 million). At June 30, 2004, cumulative contributions to the SPP totaled $4.1 million.

Franchise Stock Purchase Plan:

The Company has a franchise stock purchase plan (FSPP) available to substantially all franchisee employees. Under the terms of the plan, eligible franchisees and their employees may purchase the Company’s common stock. The Company contributes an amount equal to five percent of the purchase price of the stock to be purchased on the open market and pays all expenses of the plan and its administration, not to exceed an aggregate contribution of $0.7 million. At June 30, 2004, cumulative contributions to the FSPP totaled $83,000.

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Summary of Benefit Plans

Compensation expense included in income before income taxes related to the aforementioned plans, excluding amounts paid for expenses and administration of the plans, for the three years in the period ended June 30, 2004, included the following:

	(Dollars in thousands)
	2004		2003		2002
Profit sharing plan	$	3,665	$	2,836	$	2,689
Executive Profit Sharing Plan		735		600		711
SPP		521		446		455
FSPP		7		6		7

Stock Options:

On October 24, 2000, the shareholders of Regis Corporation adopted the Regis Corporation 2000 Stock Option Plan (2000 Plan), which allows the Company to grant both incentive and nonqualified stock options and replaces the Company’s 1991 Stock Option Plan (1991 Plan).

Total options covering 3,500,000 shares of common stock may be granted under the 2000 Plan to employees of the Company for a term not to exceed ten years from the date of grant. The term may not exceed five years for incentive stock options granted to employees of the Company possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any subsidiary of the Company. Options may also be granted to the Company’s outside directors for a term not to exceed ten years from the grant date.

The 2000 Plan contains restrictions on transferability, time of exercise, exercise price and on disposition of any shares acquired through exercise of the options. Stock options are granted at not less than fair market value on the date of grant. The Board of Directors determines the 2000 Plan participants and establishes the terms and conditions of each option.

The Company also has outstanding stock options under the 1991 Plan, although the Plan terminated in 2001. The terms and conditions of the 1991 Plan are similar to the 2000 Plan. Total options covering 5,200,000 shares of common stock were available for grant under the 1991 Plan and, as of June 30, 2001, all available shares were granted.

In fiscal year 2001, in addition to the regular options granted, the Board of Directors approved a special grant of options covering 2,263,000 shares of common stock from the 2000 Plan. These options began vesting after two years at a rate of one-third per year for three years and expire ten years from the date of grant.

Common shares available for grant under the Company’s stock option plan were 453,100, 504,200 and 819,650 shares as of June 30, 2004, 2003 and 2002, respectively.

69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Stock options outstanding and weighted average exercise prices are as follows:

	Options Outstanding
				Weighted Average
	Shares			Exercise Price
Balance, June 30, 2001		6,821,719		$	14.97
Granted		301,500			29.60
Cancelled		(360,749	)		16.27
Exercised		(621,163	)		12.48
Balance, June 30, 2002		6,141,307		$	15.85
Granted		398,000			27.54
Cancelled		(128,100	)		19.84
Exercised		(724,569	)		9.73
Balance, June 30, 2003		5,686,638		$	17.30
Granted		157,000			40.89
Cancelled		(111,276	)		24.49
Exercised		(1,135,939	)		15.28
Balance, June 30, 2004		4,596,423		$	18.32

At June 30, 2004, the weighted average exercise prices and remaining contractual lives of stock options are as follows:

	Options outstanding						Options exercisable
			Weighted
	Number		average		Weighted-
	options		remaining		average		Number		Weighted
	outstanding		contractual		exercise		exercisable		average
Range of exercise prices	as of 6/30/04		life (in years)		price		as of 6/30/04		price
Under $16.00		1,770,737		5.94	$	14.96		381,253	$	14.56
$16.01-$20.00		1,880,828		5.49		16.80		232,528		17.93
$20.01-$25.00		325,608		5.47		20.81		204,329		20.60
$25.01-$35.00		513,750		8.43		28.80		126,511		28.75
$42.79		105,500		9.90		42.79		—		—
Total		4,596,423		6.09	$	18.32		944,621	$	18.59

All options granted relate to stock option plans that have been approved by the shareholders of the Company.

See Note 1 to the Consolidated Financial Statements for discussion of the Company’s measure of compensation cost for its incentive stock option plans, as well as pro forma information.

70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2004 Long Term Incentive Plan:

In May of 2004, the Company’s Board of Directors approved the 2004 Long Term Incentive Plan (2004 Plan). The 2004 Plan is currently pending shareholder approval at the annual shareholders’ meeting to be held on October 28, 2004. The 2004 Plan provides for the granting of stock options, stock appreciation rights (SARs) and restricted stock, as well as cash-based performance grants, to officers of the Company. The 2004 Plan will expire on May 26, 2014. A maximum of 2,500,000 shares of the Company’s common stock are available for issuance pursuant to grants and awards made under the 2004 Plan. Stock options, SARs and restricted stock under the 2004 Plan generally vest pro rata over five years and have a maximum term of ten years. The cash-based performance grants will be tied to the achievement of certain performance goals during a specified performance period, not less than one fiscal year in length.

In June 2004, 72,500 shares of restricted stock and 110,750 SARs were awarded under the 2004 Plan, pending shareholder approval. No stock options were granted under the 2004 Plan. No compensation expense was recognized or will be recognized in the Consolidated Statement of Operations related to these awards until the 2004 Plan is approved by the Company’s shareholders. See Note 1 to the Consolidated Financial Statements for discussion of the Company’s measure of compensation cost for its incentive stock plans, as well as an estimate of future compensation expense related to these awards.

Other:

The Company has agreed to pay the Chief Executive Officer, commencing upon his retirement, an amount equal to 60 percent of his salary, adjusted for inflation, for the remainder of his life. Additionally, the Company has a survivor benefit plan for the Chief Executive Officer’s spouse, payable upon his death, at a rate of one half of his deferred compensation benefit, adjusted for inflation, for the remaining life of his spouse. In addition, the Company has other unfunded deferred compensation contracts covering key executives based on their accomplishments within the Company. The key executives’ benefits are based on years of service and the employee’s compensation prior to departure. The Company utilizes a June 30 measurement date for these deferred compensation contracts and a discount rate based on the Aa Bond index rate (6.25 percent at June 30, 2004). Compensation associated with these agreements is charged to expense as services are provided. Associated costs included in corporate and franchise support costs on the Consolidated Statement of Operations totaled $2.1, $2.3 and $1.2 million for fiscal years 2004, 2003 and 2002, respectively. Related obligations totaled $10.7 and $8.6 million at June 30, 2004 and 2003, respectively, and are included in other non-current liabilities in the Consolidated Balance Sheet. The Company intends to fund its future obligations under this plan through company-owned life insurance policies on the participants. Cash values of these policies totaled $9.4 and $8.4 million at June 30, 2004 and 2003, respectively, and are included in other assets in the Consolidated Balance Sheet.

The Company also has entered into an agreement with the Vice Chairman of the Board of Directors (the Vice Chairman), providing that the Vice Chairman will continue to service the Company until at least May 2007. The Company has agreed to pay the Vice Chairman an annual amount of $0.6 million, adjusted for inflation, for the remainder of his life. The Vice Chairman has agreed that during the period in which payments are made, as provided in the agreement, he will not engage in any business competitive with the business conducted by the Company. Additionally, the Company has a survivor benefit plan for the Vice Chairman’s spouse, payable upon his death, at a rate of one half of his deferred compensation benefit, adjusted for inflation, for the remaining life of his spouse. Estimated associated costs included in corporate and franchise support costs on the Consolidated Statement of Operations totaled $0.3, $2.3 and $0.4 million for fiscal years 2004, 2003 and 2002, respectively. All service costs will be fully recognized by May 2007. Related obligations totaled $4.0 and $3.7 million at June 30, 2004 and 2003, respectively, and are included in other non-current liabilities in the Consolidated Balance Sheet. The Company intends to fund all future obligations under this agreement through company-owned life insurance policies on the Vice Chairman. Cash values of these policies totaled $2.3 and $2.1 million at June 30, 2004 and 2003, respectively, and are included in other assets in the Consolidated Balance Sheet. The policy death benefits exceed the obligations under this agreement.

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

10.	SHAREHOLDERS’ EQUITY:
	In addition to the shareholders’ equity activities described in Note 9, the following activity has taken place:
	Authorized Shares and Designation of Preferred Class:
	The Company has 100 million shares of capital stock authorized, par value $.05, of which all outstanding shares, and shares available under the Stock Option Plans, have been designated as common.
	In addition, 250,000 shares of authorized capital stock have been designated as Series A Junior Participating Preferred Stock (preferred stock). None of the preferred stock has been issued.
	Shareholders’ Rights Plan:
	The Company has a shareholders’ rights plan pursuant to which one preferred share purchase right is held by shareholders for each outstanding share of common stock. The rights become exercisable only following the acquisition by a person or group, without the prior consent of the Board of Directors, of 20 percent or more of the Company’s voting stock, or following the announcement of a tender offer or exchange offer to acquire an interest of 20 percent or more. If the rights become exercisable, they entitle all holders, except the takeover bidder, to purchase one one-hundredth of a share of preferred stock at an exercise price of $120, subject to adjustment, or in lieu of purchasing the preferred stock, to purchase for the same exercise price common stock of the Company (or in certain cases common stock of an acquiring company) having a market value of twice the exercise price of a right.
	Stock Repurchase Plan:
	In May 2000, the Company’s Board of Directors approved a stock repurchase program under which up to $50.0 million can be expended for the repurchase of the Company’s common stock. In August, 2003, the Board of Directors elected to increase the maximum repurchase amount to $100.0 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. The repurchases to date have been made primarily to eliminate the dilutive effect of shares issued in conjunction with acquisitions and stock option exercises. During the year ended June 30 2004, 2003 and 2002, 544,000, 860,301 and 278,700 shares were repurchased for $22.5, $21.7 and $7.7 million, respectively. All repurchased shares are immediately retired. This repurchase program has no stated expiration date and at June 30, 2004, $46.6 million remains to be repurchased under this program.
11.	SEGMENT INFORMATION:
	The Company operates or franchises 8,148 North American salons (located in the United States, Canada and Puerto Rico) and 2,014 international salons. The Company operates its North American operations through five primary concepts: Regis Salons, MasterCuts, Trade Secret, SmartStyle and Strip Center salons. Each of the concepts offers similar products and services, concentrates on the mass-market consumer marketplace and has consistent distribution channels. All of the salons within the North American 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 operations, which are primarily in Europe, are located in salons operating in malls, leading department stores, mass merchants and high-street locations. Based on the way the Company manages its business, it has presented its North American and international operations as two reportable operating segments.
	The accounting policies of the reportable operating segments are the same as those described in Note 1 to the Consolidated Financial Statements. Corporate assets detailed below are primarily comprised of property and equipment associated with the Company’s headquarters and distribution centers, corporate cash, inventories located at corporate distribution centers, deferred income taxes, franchise receivables and other corporate assets. Intersegment sales and transfers are not significant.

72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Summarized financial information concerning the Company’s reportable operating segments is shown in the following table as of June 30, 2004, 2003 and 2002:

	(Dollars in thousands)
	2004			2003			2002
Total company-owned service revenues:
North America	$	1,137,220		$	1,008,561		$	877,261
International		134,012			109,001			86,623
Total	$	1,271,232		$	1,117,562		$	963,884
Total company-owned product revenues:
North America	$	507,177		$	438,864		$	393,806
International		37,835			26,189			18,922
Total	$	545,012		$	465,053		$	412,728
Total franchise royalties and fees:
North America	$	41,378		$	40,088		$	40,290
International		32,254			27,594			10,455
Total	$	73,632		$	67,682		$	50,745
Total franchise product sales:
North America	$	25,967		$	25,543		$	23,754
International		7,300			8,690			3,080
Total	$	33,267		$	34,233		$	26,834
Income before income taxes:
North America	$	334,886		$	304,978		$	265,930
International		37,632			26,046			16,327
Corporate*		(207,709	)		(192,423	)		(166,607	)
Total	$	164,809		$	138,601		$	115,650
Depreciation and amortization:
North America	$	58,674		$	52,692		$	46,542
International		6,479			5,229			3,694
Corporate		9,808			8,828			8,739
Total	$	74,961		$	66,749		$	58,975
Total assets:
North America	$	814,532		$	686,492		$	577,230
International		205,727			177,854			130,922
Corporate		251,600			248,609			249,038
Total	$	1,271,859		$	1,112,955		$	957,190
Long-lived assets:
North America	$	713,151		$	593,257		$	510,591
International		147,321			142,663			114,047
Corporate		57,745			57,921			53,280
Total	$	918,217		$	793,841		$	677,918
Capital expenditures:
North America	$	65,208		$	63,496		$	54,444
International		7,817			4,622			4,792
Corporate		1,051			9,342			6,996
Total	$	74,076		$	77,460		$	66,232
Purchases of salon assets:
North America	$	105,113		$	68,109		$	26,060
International		5,093			23,518			73,774
Total	$	110,206		$	91,627		$	99,834

* primarily corporate and franchise support costs, corporate depreciation and amortization and net interest expense

73

Total revenues associated with salon operations in the United States represent 95.7, 95.9 and 95.9 percent of the amounts set forth as North American revenues above for the years ended June 30, 2004, 2003 and 2002, respectively. Total long-lived assets associated with salon operations in the United States represent 92.6, 92.2 and 91.9 percent of the North American long-lived assets presented above at June 30, 2004, 2003 and 2002, respectively.

QUARTERLY FINANCIAL DATA

(Unaudited)

	(Dollars in thousands, except per share amounts)
	Quarter Ended
									Year
	September 30		December 31		March 31		June 30		Ended
2004
Revenues	$	460,721	$	472,452	$	481,373	$	508,597	$	1,923,143
Operating income		43,331		47,083		43,994		46,310		180,718
Net income		24,958		27,662		25,554		27,304		105,478
Net income per diluted share		0.55		0.60		0.55		0.59		2.29
Dividends declared per share		0.03		0.03		0.04		0.04		0.14

	(Dollars in thousands, except per share amounts)
	Quarter Ended
									Year
	September 30		December 31		March 31		June 30		Ended
2003
Revenues	$	399,223	$	414,759	$	422,315	$	448,233	$	1,684,530
Operating income		36,348		43,235		38,616		40,741		158,940
Net income		19,717		23,573		20,891		22,494		86,675
Net income per diluted share		0.44		0.52		0.46		0.50		1.92
Dividends declared per share		0.03		0.03		0.03		0.03		0.12

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

74

Item 9A. Other Information

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 June 30, 2004. Based upon this evaluation, the chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance in ensuring that material information required to be disclosed is included in the reports that it files with the Securities and Exchange Commission.

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 subsequent to the date of the Company’s most recent evaluation of its disclosure controls and procedures utilized to compile information included in this filing.

75

PART III

Item 10. Directors and Executive Officers of the Registrant

Information regarding the Directors of the Company and Exchange Act Section 16(a) filings is included in the sections titled “Election of Directors” and “Functioning of Board and Committees” of the Company’s Proxy Statement dated September 20, 2004, and is incorporated herein by reference. Additionally, information regarding the Company’s audit committee and audit committee financial expert, as well nominating committee functions, is included in the section titled “Committees of the Board” and shareholder communications with directors is included in the section titled “Communications with the Board” of the Company’s Proxy Statement dated September 20, 2004, and is incorporated herein by reference.

The Company has adopted a code of ethics, known as the Code of Business Conduct & Ethics, that applies to all employees, including the Company’s chief executive officer, chief financial officer, directors and executive officers. The Code of Business Conduct & Ethics is available on the Company’s website at www.regiscorp.com, under the heading “Corporate Governance” (within the “Corporate Information” section). The Company intends to disclose any substantive amendments to, or waivers from, its Code of Business Conduct & Ethics on its website or in a report on Form 8-K. In addition, the charters of the Company’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee and the Company’s Corporate Governance Guidelines may be found on the Company’s website. Copies of any of these documents are available upon request to any shareholder of the Company by writing to the Company’s Secretary at Regis Corporation, 7201 Metro Boulevard, Edina, Minnesota 55439.

Information relating to Executive Officers of the Company follows:

Name	Age		Position
Myron Kunin		75	Vice Chairman of the Board of Directors
Paul D. Finkelstein		62	Chairman of the Board of Directors, President and Chief Executive Officer
Randy L. Pearce		49	Executive Vice President, Chief Financial and Administrative Officer
Eric A. Bakken		37	Vice President, General Counsel and Secretary
Melissa Boughton		49	Senior Vice President, Real Estate
Bruce Johnson		51	Senior Vice President, Design and Construction
Mark Kartarik		48	Senior Vice President, Regis Corporation and President, Franchise Division
Gordon Nelson		53	Senior Vice President, Fashion, Education and Marketing
Kris Bergly		43	Chief Operating Officer, Strip Center Division
C. John Briggs		60	Chief Operating Officer, SmartStyle
Sharon Kiker		59	Chief Operating Officer, Regis Salons and MasterCuts
Norma Knudsen		46	Chief Operating Officer, Trade Secret
Andrew Cohen		41	President, International Division
Raymond Duke		53	Senior Vice President, International Managing Director, UK

76

Name	Age		Position
Vicki Langan		48	Chief Operating Officer, Supercuts
David Petruccelli		40	Vice President, International Managing Director, Europe

Myron Kunin served as Chairman of the Board of Directors of the Company from 1983 to 2004, as Chief Executive Officer of the Company from 1965 until July 1, 1996, as President of the Company from 1965 to 1987 and as a director of the Company since its formation in 1954. Concurrent with his resignation as Chairman of the Board of Directors in 2004, he was elected Vice Chairman. He is also Chairman of the Board and holder of the majority voting power of Curtis Squire, Inc., a 2.8 percent shareholder. Further, he is a director of Nortech Systems Incorporated.

Paul D. Finkelstein has served as President, Chief Operating Officer and as a director of the Company since December 1987, as Executive Vice President of the Company from June 1987 to December 1987 and has served as Chief Executive Officer since July 1, 1996. During 2004, he was elected Chairman of the Board of Directors. He is also a director of Eagle Supply Group, Inc., a distributor of roofing supplies and related products.

Randy L. Pearce was elected Executive Vice President and Chief Administrative Officer in 1999, has served as Chief Financial Officer since 1998, was Senior Vice President, Finance from 1998 to 1999, has served as Vice President of Finance from 1995 to 1997 and as Vice President of Financial Reporting from 1991 to 1994.

Eric A. Bakken oversees the Company’s legal affairs and acts as corporate secretary. He joined the Company in 1994 as a lawyer, becoming Vice President, Law in 1998, and General Counsel in 2004.

Melissa Boughton has served as Senior Vice President of Real Estate since December of 2002, and has been in the shopping center industry for over 20 years. Prior to joining the Company, she served as Vice President of Real Estate at Best Buy, Inc.

Bruce Johnson was elected a Senior Vice President of Design and Construction in 1997 and has served as Vice President from 1988 to 1997.

Mark Kartarik has served as Senior Vice President of Regis Corporation since 1994 and as Vice President from 1989 to 1994. He was elected President of Supercuts, Inc. in 1998 and served as Chief Operating Officer of Supercuts, Inc. from 1997 to April 2001.

Gordon Nelson has served as Senior Vice President, Fashion, Education and Marketing of the Company since 1994 and as Vice President from 1989 to 1994.

Kris Bergly was elected Chief Operating Officer, Style America in March 1999 and has served as Chief Operating Officer, SmartStyle Family Hair Salons since April 1998 and as Vice President, Salon Operations from 1993 to 1998.

C. John Briggs was elected Chief Operating Officer, SmartStyle in March 1999, and has served as Vice President, Regis Operations since 1988.

Sharon Kiker was elected Chief Operating Officer, Regis Salons in April 1998 and has served as Vice President, Salon Operations from 1989 to 1998. She was elected Chief Operating Officer of MasterCuts Family Haircutters during fiscal year 2003.

Norma Knudsen was elected Chief Operating Officer, Trade Secret in February 1999 and has served as Vice President, Trade Secret Operations since 1995.

Andrew Cohen was elected Chief Operating Officer, International in April 2002 and has served as Vice President, Salon Operations since 1998.

77

Raymond Duke was elected Senior Vice President, International Managing Director, UK in February, 1999 and has served as Vice President since 1992.

Vicki Langan was elected Chief Operating Officer, Supercuts in April 2001 and has served as Vice President, Supercuts Operations since November 1997.

David Petruccelli was appointed International Managing Director, Europe in 2001. He served as president of JLD France from 2000 to 2001. From 1997 to 2000, he was president of U.S JLD operations.

Item 11.    Executive Compensation

Executive compensation included in the sections titled “Compensation Committee Report on Executive Compensation,” “Summary Compensation Table,” “Stock Option Grants,” “Stock Option Exercises and Option Values,” “Director Compensation,” “Comparative Stock Performance,” and “Employment Arrangements” of the Company’s Proxy Statement dated September 20, 2004, is incorporated herein by reference.

Item 12.   Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners and Management in the section titled “Security Ownership of Certain Beneficial Owners and Management” of the Company’s Proxy Statement dated September 20, 2004, is incorporated herein by reference.

The following table provides information about the Company’s common stock that may be issued upon the exercise of stock options under all of the Company’s equity compensation plans in effect as of June 30, 2004.

					Number of securities
					remaining available for
					future issuance under
	Number of Securities to be				equity compensation
	issued upon exercise of		Weighted-average exercise		plans (excluding
	outstanding options,		price of outstanding		securities reflected in the
	warrants and rights		options, warrants and rights		column (a) )
	(a)		(b)		(c)
Equity compensation plans approved by security holders (1)		4,596,423	$	18.32		453,100
Equity compensation plans not approved by security holders (2)		—		—		2,500,000
Total		4,596,423	$	18.32		2,953,000

(1) Includes stock options granted under the Regis Corporation 2000 Stock Option Plan and 1991 Stock Option Plan. Information regarding the stock option plans included in Notes 1 and 9 to the Consolidated Financial Statements .

(2) Includes shares available for grant through stock options, stock appreciation rights and restricted stock under the 2004 Long Term Incentive Plan, which is currently pending shareholder approval at the annual shareholders’ meeting to be held on October 28, 2004.

78

Item 13.   Certain Relationships and Related Transactions

Information regarding certain relationships and related transactions is included in the section titled “Certain Relationships and Related Transactions” of the Company’s Proxy Statement dated September 20, 2004, and is incorporated herein by reference.

Item 14.  Principal Accounting Fees and Services

A description of the fees paid to the independent registered public accounting firm will be set forth in the section titled “Independent Registered Public Accounting Firm” of the Company’s Proxy Statement dated September 20, 2004, and is incorporated herein by reference.

79

PART IV

Item 15.    Exhibits and Financial Statement Schedules

(a) (1).	All financial statements:
	Consolidated Financial Statements filed as part of this report are listed under Part II, Item 8, pages 47 through 74 of this Form 10-K.
(2).	Financial statement schedules:
	Schedule II — Valuation and Qualifying Accounts as of June 30, 2004, 2003 and 2002.
	All other schedules are inapplicable to the Company, or equivalent information has been included in the Consolidated Financial Statements or the notes thereto, and have therefore been excluded.

(b)	Exhibits:
	The exhibits listed in the accompanying index are filed as part of this report.

Exhibit Number	Description
3(a)	Election of the Registrant to become governed by Minnesota Statutes Chapter 302A and Restated Articles of Incorporation of the Registrant, dated March 11, 1983; Articles of Amendment to Restated Articles of Incorporation, dated October 29, 1984; Articles of Amendment to Restated Articles of Incorporation, dated August 14, 1987; Articles of Amendment to Restated Articles of Incorporation, dated October 21, 1987. (Filed as Exhibit 3(a) to the Registrant’s Registration Statement on Form S-1 (Reg. No. 40142) and incorporated herein by reference.)
3(b)	By-Laws of the Registrant. (Filed as Exhibit 3(c) to the Registrant’s Registration Statement on Form S-1 (Reg. No. 40142) and incorporated herein by reference.)
4(a)	Three-for-two stock split. (Incorporated by reference to Exhibit A of the Company’s Report on Form 8-K dated May 2, 1996.)
4(b)	Shareholder Rights Agreement dated December 23, 1996 (Incorporated by reference to Exhibit 4 of the Company’s Report on Form 8-A12G dated February 4, 1997.)
4(c)	Three-for-two stock split. (Incorporated by reference to Item 2 of the Company’s Report on Form 10-Q dated May 3, 1999 for the quarter ended March 31, 1999.)
10(a)	Employment and Deferred Compensation Agreement, Dated as of April 14, 1998, between the Company and Paul D. Finkelstein. (Incorporated by reference to the Company’s Report on Form 10-K dated September 17, 1998, for the year ended June 30, 1998.)
10(b)	Form of Employment and Deferred Compensation Agreement between the Company and six executive officers. (Incorporated by reference to Exhibit 10(b) of the Company’s Report on Form 10-K date September 24, 1997.)
10(c)	Northwestern Mutual Life Insurance Company Policy Number 10327324, dated June 1, 1987, face amount $500,000 owned by the Registrant, insuring the life of Paul D. Finkelstein and providing for division of death proceeds between the Registrant and the insured’s designated beneficiary (split-dollar plan). (Filed as Exhibit 10(g) to the Registrant’s Registration Statement on Form S-1 (Reg. No. 40142) and incorporated herein by reference.)

80

Exhibit Number	Description
10(d)	Schedule of omitted split-dollar insurance policies. (Filed as Exhibit 10(h) to the Registrant’s Registration Statement on Form S-1 (Reg. No. 40142) and incorporated herein by reference.)
10(e)	Employee Stock Ownership Plan and Trust Agreement dated as of May 15, 1992 between the Registrant and Myron Kunin and Paul D. Finkelstein, Trustees. (Incorporated by reference to Exhibit 10(q) as part of the Company’s Report on Form 10-K dated September 27, 1993, for the year ended June 30, 1993.)
10(f)	Executive Stock Award Plan and Trust Agreement dated as of July 1, 1992 between the Registrant and Myron Kunin, Trustee, (Incorporated by reference to Exhibit 10(r) as part of the Company’s Report on Form 10-K dated September 27, 1993, for the year ended June 30, 1993.)
10(g)	Survivor benefit agreement dated June 27, 1994 between the Company and Myron Kunin. (Incorporated by reference to Exhibit 10(t) part of the Company’s Report on Form 10-K dated September 28, 1994, for the year ended June 30, 1994.)
10(h)	Series A Senior Note drawn from Private Shelf Agreement dated as of February 21, 1996, between the Registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(s) of the Company’s Report on Form 10-Q dated May 3, 1996, for the quarter ended March 31, 1996.)
10(i)	Series B Senior Note drawn from Private Shelf Agreement dated as of June 10, 1996, between the Registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(v) of the Company’s Report on Form 10-K dated September 16, 1996, for the year ended June 30, 1996.)
10(j)	Series C Senior Note drawn from Private Shelf Agreement dated as of October 28, 1996, between the Registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(x) of the Company’s Report on Form 10-K dated November 5, 1996, for the quarter ended September 30, 1996.)
10(k)	Term Note A Agreement between the Registrant and LaSalle National Bank dated October 28, 1996. (Incorporated by reference to Exhibit 10(y) of the Company’s Report on Form 10-Q dated November 5, 1996, for the quarter ended September 30, 1996.)
10(l)	Series E Senior Note drawn from Private Shelf Agreement dated as of April 7, 1997, between the Registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(y) of the Company’s Report on Form 10-K dated September 24, 1997, for the year ended June 30, 1997.)
10(m)	Compensation and non-competition agreement dated May 7, 1997, between the Company and Myron Kunin. (Incorporated by reference to Exhibit 10(z) of the Company’s Report on Form 10-K dated September 24, 1997, for the year ended June 30, 1997.)
10(n)	Series F Senior Note drawn from Private Shelf Agreement dated as of July 28, 1997, between the Registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(cc) of the Company’s Report on Form 10-K dated September 24, 1997, for the year ended June 30, 1997.)
10(o)	Private Shelf Agreement dated as of December 19, 1997 between the Registrant and ING Investment Management, Inc. (Incorporated by reference to Exhibit 10(gg) of the Company’s Report on Form 10-Q dated February 9, 1998, for the quarter ended December 31, 1997.)

81

Exhibit Number	Description
10(p)	Series R-1 Senior Note drawn from Private Shelf dated as of December 19, 1997, between Registrant and ING Investment Management, Inc. (Incorporated by reference to Exhibit 10(hh) of the Company’s Report on Form 10-Q dated February 9, 1998, for the quarter ended December 31, 1997.)
10(q)	Series R-2 Senior Note drawn from Private Shelf dated as of December 19, 1997, between Registrant and ING Investment Management, Inc. (Incorporated by reference to Exhibit 10(ii) of the Company’s Report on Form 10-Q dated February 9, 1998, for the quarter ended December 31, 1997.)
10(r)	Series G Senior Note dated as of July 10, 1998 between the Registrant and Prudential Insurance Company of America. (Incorporated by reference to the Company’s Report on Form 10-K dated September 17, 1998, for the year ended June 30, 1998.)
10(s)	Term Note C Agreement between the Registrant and LaSalle National Bank dated September 1, 1998. (Incorporated by reference to Exhibit 10(mm) of the Company’s Report on Form 10-Q dated November 9, 1998, for the quarter ended September 30, 1998.)
10(t)	Term Note H-1 Agreement between the Registrant and Prudential Insurance Company of America dated March 26, 1999. (Incorporated by reference to Exhibit 10(oo) of the Company’s Report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.)
10(u)	Term Note H-2 Agreement between the Registrant and Prudential Insurance Company of America dated March 26, 1999. (Incorporated by reference to Exhibit 10(pp) of the Company’s Report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.)
10(v)	Term Note H-3 Agreement between the Registrant and Prudential Insurance Company of America dated March 26, 1999. (Incorporated by reference to Exhibit 10(qq) of the Company’s Report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.)
10(w)	Term Note H-4 Agreement between the Registrant and Prudential Insurance Company of America dated March 26, 1999. (Incorporated by reference to Exhibit 10(rr) of the Company’s Report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.)
10(x)	Revolving Credit Agreement dated November 12, 2002 between the Registrant, Bank of America, National Association, LaSalle Bank, N.A. and other financial institutions arranged by Bank of America Securities LLC. (Incorporated by reference to Exhibit 10 (jj) of the Company’s Report on Form 10-K dated September 17, 1999, for the year ended June 30, 1999).
10(y)	Private Shelf Agreement dated October 3, 2000. (Incorporated by reference to Exhibit 10(ff) of the Company’s Report on Form 10-Q dated November 13, 2000, for the quarter ended September 30, 2000.)
10(z)	Term Note I-1 agreement between the Registrant and Prudential Insurance Company of America dated October 3, 2000. (Incorporated by reference to Exhibit 10(aa) of the Company’s Report on Form 10-K dated September 12, 2001, for the year ended June 30, 2001.)
10(aa)	Note purchase agreement for $125,000,000 between the Registrant and purchasers listed in the attached Schedule A dated March 1, 2002. (Incorporated by reference to Exhibit 10(aa) of the Company’s Report on Form 10-K dated September 24, 2002, for the year ended June 30, 2002.)

82

Exhibit Number	Description
10(bb)	Series A Senior Note between the Registrant and purchasers listed in the attached schedule A as referred to in 10(aa). (Incorporated by reference to Exhibit 10(bb) of the Company’s Report on Form 10-K dated September 24, 2002, for the year ended June 30, 2002.)
10(cc)	Series B Senior Note between the Registrant and purchasers listed in the attached schedule A as referred to in 10(aa). (Incorporated by reference to Exhibit 10(cc) of the Company’s Report on Form 10-K dated September 24, 2002, for the year ended June 30, 2002.)
10(dd)	Series J Senior Notes between the Registrant and purchasers listed in the attached purchaser schedule. (Incorporated by reference to Exhibit 10(dd) of the Company’s Report on Form 10-K dated September 17, 2003, for the year ended June 30, 2003.)
10(ee)	$11.9 million term loan between the Registrant and ILC, dated November 26, 2003.
10(ff)	2004 Long Term Incentive Plan (Draft)
23	Consent of PricewaterhouseCoopers LLP
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.
31.2	Executive Vice President, Chief Financial and Administrative Officer of Regis Corporation: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.
32.2	Executive Vice President, Chief Financial and Administrative Officer of Regis Corporation: Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

83

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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

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

By	/s/ Randy L. Pearce
	Randy L. Pearce, Executive Vice President, Chief Financial and Administrative Officer (Principal Financial and Accounting Officer)

DATE:    September 10, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ Paul D. Finkelstein	Date: September 10, 2004
Paul D. Finkelstein, Chairman of the Board of Directors
/s/ Myron Kunin	Date: September 10, 2004
Myron Kunin, Vice Chairman of the Board of Directors
/s/ David B. Kunin	Date: September 10, 2004
David B. Kunin, Director
/s/ Rolf Bjelland	Date: September 10, 2004
Rolf Bjelland, Director
/s/ Van Zandt Hawn	Date: September 10, 2004
Van Zandt Hawn, Director
/s/ Susan S. Hoyt	Date: September 10, 2004
Susan S. Hoyt, Director
/s/Thomas L. Gregory	Date: September 10, 2004
Thomas L. Gregory, Director

84

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of Regis Corporation:

Our audits of the consolidated financial statements referred to in our report dated August 24, 2004 appearing in the 2004 Annual Report on Form 10-K of Regis Corporation also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
August 24, 2004

85

REGIS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

as of June 30, 2004, 2003 and 2002

(dollars in thousands)

Column A	Column B		Column C					Column D			Column E
	Balance at		Charged to								Balance at
	beginning		costs and		Charged to						end of
Description	of period		expenses		Other Accounts			Deductions			period
Valuation Account, Allowance for doubtful accounts
June 30, 2004	$	3,686	$	1,334	$	148	(1)	$	2,327	(2)	$	2,841
June 30, 2003	$	1,837	$	757	$	1,571	(3)	$	479	(2)	$	3,686
June 30, 2002	$	1,613	$	696	$	45	(3)	$	517	(2)	$	1,837

Notes:

(1) Represents the effect of foreign currency exchange rate fluctuations.

(2) Represents primarily the write off of uncollectible receivables.

(3) Related to the acquisition of receivables.

86

EXHIBIT INDEX

Exhibit Number	Description
3(a)	Election of the Registrant to become governed by Minnesota Statutes Chapter 302A and Restated Articles of Incorporation of the Registrant, dated March 11, 1983; Articles of Amendment to Restated Articles of Incorporation, dated October 29, 1984; Articles of Amendment to Restated Articles of Incorporation, dated August 14, 1987; Articles of Amendment to Restated Articles of Incorporation, dated October 21, 1987. (Filed as Exhibit 3(a) to the Registrant’s Registration Statement on Form S-1 (Reg. No. 40142) and incorporated herein by reference.)
3(b)	By-Laws of the Registrant. (Filed as Exhibit 3(c) to the Registrant’s Registration Statement on Form S-1 (Reg. No. 40142) and incorporated herein by reference.)
4(a)	Three-for-two stock split. (Incorporated by reference to Exhibit A of the Company’s Report on Form 8-K dated May 2, 1996.)
4(b)	Shareholder Rights Agreement dated December 23, 1996 (Incorporated by reference to Exhibit 4 of the Company’s Report on Form 8-A12G dated February 4, 1997.)
4(c)	Three-for-two stock split. (Incorporated by reference to Item 2 of the Company’s Report on Form 10-Q dated May 3, 1999 for the quarter ended March 31, 1999.)
10(a)	Employment and Deferred Compensation Agreement, Dated as of April 14, 1998, between the Company and Paul D. Finkelstein. (Incorporated by reference to the Company’s Report on Form 10-K dated September 17, 1998, for the year ended June 30, 1998.)
10(b)	Form of Employment and Deferred Compensation Agreement between the Company and six executive officers. (Incorporated by reference to Exhibit 10(b) of the Company’s Report on Form 10-K date September 24, 1997.)
10(c)	Northwestern Mutual Life Insurance Company Policy Number 10327324, dated June 1, 1987, face amount $500,000 owned by the Registrant, insuring the life of Paul D. Finkelstein and providing for division of death proceeds between the Registrant and the insured’s designated beneficiary (split-dollar plan). (Filed as Exhibit 10(g) to the Registrant’s Registration Statement on Form S-1 (Reg. No. 40142) and incorporated herein by reference.)

87

Exhibit Number	Description
10(d)	Schedule of omitted split-dollar insurance policies. (Filed as Exhibit 10(h) to the Registrant’s Registration Statement on Form S-1 (Reg. No. 40142) and incorporated herein by reference.)
10(e)	Employee Stock Ownership Plan and Trust Agreement dated as of May 15, 1992 between the Registrant and Myron Kunin and Paul D. Finkelstein, Trustees. (Incorporated by reference to Exhibit 10(q) as part of the Company’s Report on Form 10-K dated September 27, 1993, for the year ended June 30, 1993.)
10(f)	Executive Stock Award Plan and Trust Agreement dated as of July 1, 1992 between the Registrant and Myron Kunin, Trustee, (Incorporated by reference to Exhibit 10(r) as part of the Company’s Report on Form 10-K dated September 27, 1993, for the year ended June 30, 1993.)
10(g)	Survivor benefit agreement dated June 27, 1994 between the Company and Myron Kunin. (Incorporated by reference to Exhibit 10(t) part of the Company’s Report on Form 10-K dated September 28, 1994, for the year ended June 30, 1994.)
10(h)	Series A Senior Note drawn from Private Shelf Agreement dated as of February 21, 1996, between the Registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(s) of the Company’s Report on Form 10-Q dated May 3, 1996, for the quarter ended March 31, 1996.)
10(i)	Series B Senior Note drawn from Private Shelf Agreement dated as of June 10, 1996, between the Registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(v) of the Company’s Report on Form 10-K dated September 16, 1996, for the year ended June 30, 1996.)
10(j)	Series C Senior Note drawn from Private Shelf Agreement dated as of October 28, 1996, between the Registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(x) of the Company’s Report on Form 10-K dated November 5, 1996, for the quarter ended September 30, 1996.)
10(k)	Term Note A Agreement between the Registrant and LaSalle National Bank dated October 28, 1996. (Incorporated by reference to Exhibit 10(y) of the Company’s Report on Form 10-Q dated November 5, 1996, for the quarter ended September 30, 1996.)
10(l)	Series E Senior Note drawn from Private Shelf Agreement dated as of April 7, 1997, between the Registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(y) of the Company’s Report on Form 10-K dated September 24, 1997, for the year ended June 30, 1997.)
10(m)	Compensation and non-competition agreement dated May 7, 1997, between the Company and Myron Kunin. (Incorporated by reference to Exhibit 10(z) of the Company’s Report on Form 10-K dated September 24, 1997, for the year ended June 30, 1997.)
10(n)	Series F Senior Note drawn from Private Shelf Agreement dated as of July 28, 1997, between the Registrant and the Prudential Insurance Company of America. (Incorporated by reference to Exhibit 10(cc) of the Company’s Report on Form 10-K dated September 24, 1997, for the year ended June 30, 1997.)
10(o)	Private Shelf Agreement dated as of December 19, 1997 between the Registrant and ING Investment Management, Inc. (Incorporated by reference to Exhibit 10(gg) of the Company’s Report on Form 10-Q dated February 9, 1998, for the quarter ended December 31, 1997.)

88

Exhibit Number	Description
10(p)	Series R-1 Senior Note drawn from Private Shelf dated as of December 19, 1997, between Registrant and ING Investment Management, Inc. (Incorporated by reference to Exhibit 10(hh) of the Company’s Report on Form 10-Q dated February 9, 1998, for the quarter ended December 31, 1997.)
10(q)	Series R-2 Senior Note drawn from Private Shelf dated as of December 19, 1997, between Registrant and ING Investment Management, Inc. (Incorporated by reference to Exhibit 10(ii) of the Company’s Report on Form 10-Q dated February 9, 1998, for the quarter ended December 31, 1997.)
10(r)	Series G Senior Note dated as of July 10, 1998 between the Registrant and Prudential Insurance Company of America. (Incorporated by reference to the Company’s Report on Form 10-K dated September 17, 1998, for the year ended June 30, 1998.)
10(s)	Term Note C Agreement between the Registrant and LaSalle National Bank dated September 1, 1998. (Incorporated by reference to Exhibit 10(mm) of the Company’s Report on Form 10-Q dated November 9, 1998, for the quarter ended September 30, 1998.)
10(t)	Term Note H-1 Agreement between the Registrant and Prudential Insurance Company of America dated March 26, 1999. (Incorporated by reference to Exhibit 10(oo) of the Company’s Report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.)
10(u)	Term Note H-2 Agreement between the Registrant and Prudential Insurance Company of America dated March 26, 1999. (Incorporated by reference to Exhibit 10(pp) of the Company’s Report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.)
10(v)	Term Note H-3 Agreement between the Registrant and Prudential Insurance Company of America dated March 26, 1999. (Incorporated by reference to Exhibit 10(qq) of the Company’s Report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.)
10(w)	Term Note H-4 Agreement between the Registrant and Prudential Insurance Company of America dated March 26, 1999. (Incorporated by reference to Exhibit 10(rr) of the Company’s Report on Form 10-Q dated May 11, 1999, for the quarter ended March 31, 1999.)
10(x)	Revolving Credit Agreement dated November 12, 2002 between the Registrant, Bank of America, National Association, LaSalle Bank, N.A. and other financial institutions arranged by Bank of America Securities LLC. (Incorporated by reference to Exhibit 10 (jj) of the Company’s Report on Form 10-K dated September 17, 1999, for the year ended June 30, 1999).
10(y)	Private Shelf Agreement dated October 3, 2000. (Incorporated by reference to Exhibit 10(ff) of the Company’s Report on Form 10-Q dated November 13, 2000, for the quarter ended September 30, 2000.)
10(z)	Term Note I-1 agreement between the Registrant and Prudential Insurance Company of America dated October 3, 2000. (Incorporated by reference to Exhibit 10(aa) of the Company’s Report on Form 10-K dated September 12, 2001, for the year ended June 30, 2001.)
10(aa)	Note purchase agreement for $125,000,000 between the Registrant and purchasers listed in the attached Schedule A dated March 1, 2002. (Incorporated by reference to Exhibit 10(aa) of the Company’s Report on Form 10-K dated September 24, 2002, for the year ended June 30, 2002.)

89

Exhibit Number	Description
10(bb)	Series A Senior Note between the Registrant and purchasers listed in the attached schedule A as referred to in 10(aa). (Incorporated by reference to Exhibit 10(bb) of the Company’s Report on Form 10-K dated September 24, 2002, for the year ended June 30, 2002.)
10(cc)	Series B Senior Note between the Registrant and purchasers listed in the attached schedule A as referred to in 10(aa). (Incorporated by reference to Exhibit 10(cc) of the Company’s Report on Form 10-K dated September 24, 2002, for the year ended June 30, 2002.)
10(dd)	Series J Senior Notes between the Registrant and purchasers listed in the attached purchaser schedule. (Incorporated by reference to Exhibit 10(dd) of the Company’s Report on Form 10-K dated September 17, 2003, for the year ended June 30, 2003.)
10(ee)	$11.9 million term loan between the Registrant and ILC, dated November 26, 2003.
10(ff)	2004 Long Term Incentive Plan (Draft)
23	Consent of PricewaterhouseCoopers LLP
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.
31.2	Executive Vice President, Chief Financial and Administrative Officer of Regis Corporation: Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.
32.2	Executive Vice President, Chief Financial and Administrative Officer of Regis Corporation: Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

90

EX-10.(EE)

EXHIBIT 10(ee)

PROMISSORY NOTE

$11,860,758 November 26, 2003
Salt Lake City, Utah

     FOR VALUE RECEIVED, REGIS CORPORATION, a Minnesota corporation (the “Borrower”) hereby promises to pay to the order of INFORMATION LEASING CORPORATION, an Ohio corporation, for Itself and as Agent for Certain Participants (the “Lender”), in lawful money of the United States of America and in immediately available funds, the principal sum of ELEVEN MILLION EIGHT HUNDRED SIXTY THOUSAND SEVEN HUNDRED FIFTY-EIGHT DOLLARS ($11,860,758) (hereinafter, the “Principal Sum” or the “Loan”), together with interest on the Principal Sum outstanding from time to time at the rate or rates hereinafter described, all upon the terms and conditions hereinafter set forth (computed on the basis of a 360-day year consisting of twelve (12) 30-day months).

     1. Defined Terms. All capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Loan Agreement (as hereinafter defined).

     2. Repayment of the Loan. The Borrower shall pay the principal amount of the Loan, together with interest thereon, until maturity (whether by acceleration, extension or otherwise) at the rate of 7.16% per annum over a period of 7 years in 28 consecutive quarterly installments of principal and interest, payable on the first of February, May, August and November in each year, commencing on February 1, 2004. Each installment of principal and interest shall be in the amount of $ 539,636.35. The entire unpaid principal balance of the Loan, together with all accrued and unpaid interest thereon (and all other amounts due hereunder and under the other Financing Documents), shall be due and payable on November 1, 2010 (the “Maturity Date”).

     3. Default Rate. In the event any payment is not made when due (whether at maturity, by acceleration or otherwise, or on demand) such payment shall thereafter bear interest from the date such payment was due until such payment is received at the Default Rate. Upon the occurrence of a Default, the entire unpaid principal balance of this Note shall bear interest at the Default Rate.

     4. Prepayments. The Borrower may prepay this Note in whole, but not in part, at any time on or after November 1, 2005, subject to the provisions of this paragraph 4. If Borrower is required or allowed to prepay this Note for any reason under the terms hereof or under any other Financing Document, including (without limitation) damage, destruction, condemnation or acceleration, Borrower shall pay to Lender a prepayment fee in an amount equal to the greater of (a) three percent of the amount prepaid or (b) an amount equal to the excess, if any, of (i) the present value, in the aggregate, of the then remaining monthly principal and interest payments due under this Note from the date of prepayment through the Maturity Date for this Note, absent the prepayment, using a discount rate equal to the yield to maturity of the U.S. Treasury Note with a maturity date closest to the remaining term of this Note, as published in the Wall Street Journal on the Business Day immediately preceding the date of the prepayment plus 175 basis points over (ii) the then outstanding principal balance of this Note, absent the prepayment. Notwithstanding the aforegoing, in the event that the Borrower elects to repay the Loan simultaneously with the consummation of a refinancing which involves the sale of real estate holdings of the Borrower and/or its subsidiaries (including the Property), the Borrower may prepay the Loan in whole, but not in part, at any time after November 1, 2005 upon payment to the Lender of a prepayment fee in an amount equal to the Swap Breakage (hereinafter defined) plus an amount equal to (a) 2.25% of the original amount of the Loan if the prepayment occurs between November 1, 2005 and October 31, 2006, (b) 1.625% of the original amount of the Loan if the prepayment occurs between November 1, 2006

and October 31, 2007, (c) 1.065% of the original amount of the Loan if the prepayment occurs between November 1, 2007 and October 31, 2008, (d) 0.6% of the original amount of the Loan if the prepayment occurs between November 1, 2008 and October 31, 2009, and (e) 0.25% of the original principal amount of the Loan if the prepayment occurs at any time thereafter prior to the Maturity Date. As used herein, the term “Swap Breakage” means any loss sustained by the Lender (or any of its participants) which is directly incurred or incurred through a payable or in any other way arises out of the termination of any interest rate swap agreement entered into in connection with the funding of the Loan. The amount of the loss, if any, resulting from the termination of such interest rate swap agreement will be directly born by the Borrower. The Lender (and its participants) will provide to the Borrower written documentation regarding the calculation of the specific amount of any such loss upon the written request of the Borrower, which documentation shall be conclusive and binding on the Borrower in the absence of manifest error.

     5. Manner of Making Payments. Unless otherwise instructed by the Lender, all payments of principal and interest due hereunder shall be made to the Lender, in immediately available funds during regular business hours, at the Lender’s office or such other place as so designated by Lender, and such payments shall be effective only upon receipt. All payments made hereunder shall be applied first to accrued and unpaid interest and then to principal and shall be made in U.S. Dollars, which shall be the exclusive currency for payment of the obligations hereunder, free of any restrictions or deductions whatsoever for present or future taxes, charges, assessments, withholdings or costs, the payment of which shall be the sole responsibility of the Borrower.

     6. Loan Agreement and Other Financing Documents. This Note is the “Note” referred to in the Loan Agreement of even date herewith by and between the Borrower and the Lender (as the same may from time to time be amended, restated, supplemented or otherwise modified being hereinafter called the “Loan Agreement”). The Lender is entitled to all of the benefits of the Loan Agreement and the other Financing Documents.

     7. Defaults. In the event the Borrower fails to pay any amount payable hereunder or under the Loan Agreement within ten (10) days of the date due and payable or upon the occurrence of any other Default (as defined in the Loan Agreement), after giving effect to any applicable grace or cure period, then the Lender may, by notice to the Borrower, declare the outstanding Principal Sum, together with all accrued but unpaid interest due thereon, any prepayment fee, and all other amounts payable hereunder to be forthwith due and payable, whereupon all such sums shall become immediately due and payable without further demand, notice, presentment or protest, all of which are hereby waived by the Borrower; provided, however, that in the case of a default under Sections 6.11 or 6.12 of the Loan Agreement, the balance of this Note, together with all interest accrued thereon and all other amounts payable hereunder shall become automatically due and payable, without in each instance having given the Borrower any notice. In addition, the Borrower shall be liable to the Lender for all reasonable costs of collection including, without limitation, all court costs, attorney’s fees and expenses. Upon a Default hereunder or under any other Financing Document, the Lender may exercise all rights and remedies under the Financing Documents.

     8. Late Charge. In addition, and without waiving any of its other rights and remedies, if the Borrower fails to make any payment of principal or interest as and when due hereunder, the Lender, at its option, may charge a late charge equal to 5% of the amount delinquent if not paid within ten (10) days after the same was due. The late charge may be collected only once for each late payment.

     9. Waiver of Presentment, Etc. The Borrower hereby waives presentment for payment, demand, notice of demand, notice of non-payment or dishonor, protest and notice of protest of this Note,

and all other notices in connection with the delivery, acceptance, performance, default or enforcement of the payment of this Note.

     10. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER AND THE LENDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE BORROWER AND THE LENDER MAY BE PARTIES ARISING OUT OF OR IN ANY WAY PERTAINING TO THE FINANCING DOCUMENTS AND SUCH WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THE FINANCING DOCUMENTS. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE BORROWER AND THE LENDER AND THE BORROWER AND THE LENDER HEREBY ACKNOWLEDGE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. THE BORROWER AND THE LENDER FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED IN THE SIGNING OF THE FINANCING DOCUMENTS AND IN THE MAKING OF THIS WAIVER BY LEGAL COUNSEL, SELECTED OF THEIR OWN FREE WILL, AND THAT THEY HAVE HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH THEIR COUNSEL.

     11. Remedies. The remedies of the Lender as provided herein and in the Loan Agreement and in the other Financing Documents shall be cumulative and concurrent and may be pursued singly, successively or together, at the sole discretion of the Lender, and may be exercised as often as occasion therefor shall occur; and the failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof.

     12. GOVERNING LAW. THE PARTIES AGREE THAT THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.

     13. Submission to Jurisdiction. The Borrower hereby irrevocably submits itself to the non-exclusive jurisdiction of the appropriate Federal and state courts located in the State of New York for the purposes of any suit, action or other proceeding arising out of this Note or with respect to the subject matter hereof, and, to the extent permitted by applicable law, hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding any claim that it is not personally subject to the jurisdiction of the above-named courts, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper, or that this Note or the subject matter hereof may not be enforced in or by such court.

     14. Partial Invalidity. In the event any one or more of the provisions of this Note shall for any reason be held to be invalid, illegal or unenforceable, in whole or in part or in any respect, or in the event that any one or more of the provisions of this Note operates or would prospectively operate to invalidate this Note, then and in any of those events, such provision or provisions only shall be deemed null and void and shall not affect any other provision of this Note and the remaining provisions of this Note shall remain operative and in full force and effect and shall in no way be effected, prejudiced or disturbed thereby.

     15. Notices. Unless otherwise specifically provided herein, all notices (excluding billings and other communications in the ordinary course of business) required or permitted by the terms hereof shall be given in the manner and with the effect provided for in the Loan Agreement.

     16. Conflicts. In the event of any conflict between the provisions of this Note and those of the Loan Agreement, the terms of the Loan Agreement shall control.

[SIGNATURE FOLLOWS ON NEXT PAGE]

     IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed as of the date first written above.

WITNESS:	REGIS CORPORATION
	By:
	Name:
	Title:

EX-10.(FF)

EXHIBIT 10 (ff)

DRAFT Dated August 4, 2004
SUBJECT TO REVIEW BY LEGAL COUNSEL

Regis Corporation

2004 Long Term Incentive Plan

TABLE OF CONTENTS

	Page
ARTICLE I            ESTABLISHMENT AND PURPOSE		1
1.1 Establishment		1
1.2 Purpose		1
ARTICLE II           DEFINITIONS		1
2.1 Affiliate		1
2.2 Agreement		1
2.3 Award		1
2.4 Beneficiary		1
2.5 Board of Directors or Board		1
2.6 Cause		2
2.7 Change in Control		2
2.8 Code		2
2.9 Commission		2
2.10 Committee		2
2.11 Common Stock		3
2.12 Company		3
2.13 Covered Employees		3
2.14 Disability		3
2.15 Effective Date		3
2.16 Exchange Act		3
2.17 Exercise Price		3
2.18 Fair Market Value		3
2.19 Grant Date		4
2.20 Incentive Stock Option		4
2.21 Non-Qualified Stock Option		4
2.22 Option Period		4
2.23 Participant		4
2.24 Performance Unit		4
2.25 Plan		4
2.26 Representative		4
2.27 Restricted Stock		5
2.28 Rule 16b-3		5
2.29 Stock Appreciate Right		5
2.30 Stock Option or Option		5
2.31 Termination of Employment		5
ARTICLE III           ADMINISTRATION		6
3.1 Committee Structure and Actions		6
3.2 Committee Authority		6

- i -

	Page
ARTICLE IV           SHARES SUBJECT TO PLAN		7
4.1 Number of Shares		7
4.2 Release of Shares		7
4.3 Restrictions on Shares		8
4.4 Shareholder Rights		8
4.5 Effect of Certain Changes		8
ARTICLE V            ELIGIBILITY		9
5.1 Eligibility		9
ARTICLE VI           STOCK OPTIONS		9
6.1 General		9
6.2 Grant		9
6.3 Terms and Conditions		9
6.4 Termination by Reason of Death		10
6.5 Termination by Reason of Disability		11
6.6 Other Termination		11
ARTICLE VII          STOCK APPRECIATION RIGHTS		11
7.1 General		11
7.2 Grant		11
7.3 Terms and Conditions		11
ARTICLE VIII         RESTRICTED STOCK		12
8.1 General		12
8.2 Grant, Awards and Certificates		12
8.3 Terms and Conditions		13
ARTICLE IX            PERFORMANCE AWARDS		14
9.1 General		14
9.2 Earning Performance Unit Awards		14
9.3 Termination of Employment Due to Death, Disability or Retirement or at the Request of the Company without Cause		14
9.4 Nontransferability		14
9.5 Election to Defer		14
ARTICLE X            CHANGE IN CONTROL PROVISIONS		15
10.1 Impact of Event		15
10.2 Additional Discretion		15

- ii -

	Page
ARTICLE XI             PROVISIONS APPLICABLE TO SHARES ACQUIRED UNDER THIS PLAN		15
11.1 No Company Obligation		15
ARTICLE XII            MISCELLANEOUS		15
12.1 Amendments and Termination		15
12.2 Unfunded Status of Plan		16
12.3 Provisions Relating to Internal Revenue Code Section 162(m)		16
12.4 No Additional Obligation		18
12.5 Withholding		18
12.6 Controlling Law		18
12.7 Offset		18
12.8 Nontransferability; Beneficiaries		18
12.9 Gross-Up for Excise Tax		19
12.10 No Rights with Respect to Continuance of Employment		19
12.11 Awards in Substitution for Awards Granted by Other Corporations		19
12.12 Foreign Alternatives		20
12.13 Delivery of Stock Certificates		20
12.14 Headings		20
12.15 Severability		20
12.16 Successors and Assigns		20
12.17 Entire Agreement		20

- iii -

REGIS CORPORATION
2004 LONG TERM INCENTIVE PLAN

ARTICLE I

ESTABLISHMENT AND PURPOSE

     1.1 Establishment. The Regis Corporation 2004 Long Term Incentive Plan (“Plan”) is hereby established by Regis Corporation (“Company”), effective as of the Effective Date.

     1.2 Purposes. The purpose of the Plan is to foster and promote the long-term financial success of the Company and materially increase shareholder value by motivating performance through incentive compensation. The Plan also is intended to encourage Participant ownership in the Company, attract and retain talent, and enable Participants to participate in the long-term growth and financial success of the Company. The Plan and the grant of Awards thereunder are expressly conditioned upon the Plan’s approval by the shareholders of the Company.

ARTICLE II

DEFINITIONS

     For purposes of the Plan, the following terms are defined as set forth below:

     2.1 “Affiliate” means any individual, corporation, partnership, association, limited liability company, joint-stock company, trust, unincorporated association or other entity (other than the Company) that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Company.

     2.2 “Agreement” means any agreement entered into pursuant to the Plan by which an Award is granted to a Participant

     2.3 “Award” means any Stock Option, Stock Appreciation Right, Restricted Stock or Performance Unit granted to a Participant under the Plan. Awards shall be subject to the terms and conditions of the Plan and shall be evidenced by an Agreement containing such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem desirable.

     2.4 “Beneficiary” means any person or other entity, which has been designated by a Participant in his or her most recent written beneficiary designation filed with the Committee to receive the compensation, specified under the Plan to the extent permitted. If there is no designated beneficiary, then the term means any person or other entity entitled by will or the laws of descent and distribution to receive such compensation.

     2.5 “Board of Directors” or “Board” means the Board of Directors of the Company.

- 1 -

     2.6 “Cause” means, for purposes of determining whether and when a Participant has incurred a Termination of Employment for Cause, any act or omission which permits the Company to terminate the written agreement or arrangement between the Participant and the Company or an Affiliate for “cause” as defined in such agreement or arrangement, or in the event there is no such agreement or arrangement or the agreement or arrangement does not define the term “Cause,” then “Cause” means the Participant’s intentional participation in illegal conduct which (i) is materially and directly detrimental to the financial interests of the Company or an Affiliate and (ii) results in the Participant’s conviction of a felony.

     2.7 “Change in Control” means the first to occur of any of the following events:

     (1) the acquisition by any “person,” as that term is used in Sections 13(d) and 14(d) of the Exchange Act of “beneficial ownership,” as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of 20% or more of the shares of the Company’s capital stock;

     (2) the first day on which less than two-thirds of the total membership of the Board of Directors shall be Continuing Directors (as that term is defined in Article VII of the Company’s Articles of Incorporation);

     (3) the approval by the shareholders of the Company of a merger, share exchange, or consolidation of the Company (a “Transaction”), other than a Transaction which would result in the Voting Stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the Voting Stock of the Company or such surviving entity immediately after such Transaction; or

     (4) the approval by the shareholders of the Company of a complete liquidation of the Company or a sale or disposition of all or substantially all the assets of the Company.

     2.8 “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor, along with related rules, regulations and interpretations.

     2.9 “Commission” means the Securities and Exchange Commission or any successor thereto.

     2.10 “Committee” means the committee of the Board responsible for granting Awards under the Plan, which shall initially be the Compensation Committee of the Board, until such time as the Board may designate a different committee. The Committee shall consist solely of two or more directors, each of whom is a “Non-Employee Director” within the meaning of Rule 16b-3 and each of whom is also an “outside director” under Section 162(m) of the Code. In addition, each member of the Committee must be an “independent director” as determined under the corporate governance rules of the New York Stock Exchange, as amended from time to time.

- 2 -

     2.11 “Common Stock” means the shares of the Company’s common stock, $0.05 par value, whether presently or hereafter issued, and any other stock or security resulting from adjustment thereof as described hereinafter, or the common stock of any successor to the Company which is designated for the purpose of the Plan.

     2.12 “Company” means Regis Corporation, a Minnesota corporation, and includes any successor or assignee corporation or corporations into which the Company may be merged, changed or consolidated; any corporation for whose securities the securities of the Company shall be exchanged; and any assignee of or successor to substantially all of the assets of the Company.

     2.13 “Covered Employee” means a Participant who is a “covered employee” within the meaning of Section 162(m) of the Code.

     2.14 “Disability” means a mental or physical illness that entitles the Participant to receive benefits under the long-term disability plan of the Company or an Affiliate, or if there is no such plan or the Participant is not covered by such a plan or the Participant is not an employee of the Company or an Affiliate, a mental or physical illness that renders a Participant totally and permanently incapable of performing the Participant’s duties for the Company or an Affiliate. Notwithstanding the foregoing, a Disability shall not qualify under this Plan if it is the result of (i) a willfully self-inflicted injury or willfully self-induced sickness; or (ii) an injury or disease contracted, suffered, or incurred while participating in a criminal offense. The determination of Disability for purposes of this Plan shall be made by the Committee and shall not be construed to be an admission of disability for any other purpose.

     2.15 “Effective Date” means May 26, 2004, subject to shareholder approval at the Company’s annual meeting of shareholders on October 28, 2004.

     2.16 “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

     2.17 “Exercise Price” means the price at which the Common Stock may be purchased under an Option or may be obtained under a Stock Appreciation Right. In no event may the Exercise Price per share of Common Stock covered by an Option, or the Exercise Price of a Stock Appreciation Right, be reduced through the technique commonly known as “repricing.”

     2.18 “Fair Market Value” means the value of one share of Common Stock, determined pursuant to the applicable method described below, without regard to whether the Common Stock is restricted or represents a minority interest:

     (1) if the Common Stock is listed on a securities exchange or quoted on The Nasdaq Stock Market (“Nasdaq”), the closing price of a share of Common Stock on the relevant date (or, if such date is not a business day or a day on which quotations are reported, then on the immediately preceding date on which quotations were reported), as reported by the principal national exchange on which such shares are traded (in the case of an exchange) or by Nasdaq, as the case may be;

- 3 -

     (2) if the Common Stock is not listed on a national securities exchange or quoted on Nasdaq, but is actively traded in the over-the-counter market, the average of the closing bid and asked prices for a share of the Common Stock on the relevant date (or, if such date is not a business day or a day on which quotations are reported, then on the immediately preceding date on which quotations were reported), or the most recent preceding date for which such quotations are reported; and

     (3) if, on the relevant date, the Common Stock is not publicly traded or reported as described in (a) or (b) above, the value determined in good faith by the Board as of the last day of the Company’s most recently ended fiscal year (except as otherwise provided herein or in an Agreement), based on an annual valuation of the Company from a review of the Company’s financial statements (or such other approach deemed appropriate) prepared by an independent valuation or auditing firm selected by the Board.

     2.19 Grant Date” means the date as of which an Award is granted pursuant to the Plan.

     2.20 “Incentive Stock Option” means any Stock Option intended to be and designated as an “incentive stock option” within the meaning of Section 422 of the Code. Members of the Board who are not otherwise employees of the Company do not qualify for Incentive Stock Options.

     2.21 “Non-Qualified Stock Option” means an Option to purchase Common Stock in the Company granted under the Plan, the taxation of which is pursuant to Section 83 of the Code.

     2.22 “Option Period” means the period during which the Option shall be exercisable in accordance with an Agreement and Article VI.

     2.23 “Participant” means a person who satisfies the eligibility conditions of Article V and to whom an Award has been granted by the Committee under the Plan. In the event that a Representative is appointed for a Participant, then the term “Participant” shall mean such appointed Representative. Notwithstanding the appointment of a Representative, the term “Termination of Employment” shall mean the Termination of Employment of the Participant.

     2.24 “Performance Unit” shall have the meaning set forth in Section 9.1 hereof.

     2.25 “Plan” means the Regis Corporation 2004 Long Term Incentive Plan, as herein set forth and as may be amended from time to time.

     2.26 “Representative” means (a) the person or entity acting as the executor or administrator of a Participant’s estate pursuant to the last will and testament of a Participant or pursuant to the laws of the jurisdiction in which the Participant had the Participant’s primary residence at the date of the Participant’s death; (b) the person or entity acting as the guardian or temporary guardian of a Participant; (c) the person or entity which is the beneficiary of the Participant upon or following the Participant’s death; or (d) the person to whom an Award has been

- 4 -

permissibly transferred; provided that only one of the foregoing shall be the Representative at any point in time as determined under applicable law and recognized by the Committee.

     2.27 “Restricted Stock” means Common Stock granted to a Participant under Section 8.1 hereof and which is subject to certain restrictions and to a risk of forfeiture or repurchase by the Company.

     2.28 “Rule 16b-3” means Rule 16b-3, as from time to time in effect and applicable to the Plan and Participants, promulgated by the Commission under Section 16 of the Exchange Act.

     2.29 “Stock Appreciation Right” means a right granted under Article VII.

     2.30 “Stock Option” or “Option” means a right, granted to a Participant under Section 6.1 hereof, to purchase Common Stock at a specified price during specified time periods.

     2.31 “Termination of Employment” means the occurrence of any act or event whether pursuant to an employment agreement or otherwise that actually or effectively causes or results in the person’s ceasing, for whatever reason, to be any and all of an officer or employee of the Company or of any Affiliate, or to be any and all of an officer or employee of any entity that provides services to the Company or an Affiliate, including, without limitation, death, Disability, dismissal, severance at the election of the Participant, retirement, or severance as a result of the discontinuance, liquidation, sale or transfer by the Company or its Affiliates of a business owned or operated by the Company or its Affiliates. With respect to any person who is not an employee with respect to the Company or an Affiliate (such as a non-employee member of the Board), the Agreement shall establish what act or event shall constitute a Termination of Employment for purposes of the Plan. A Termination of Employment shall occur with respect to an employee who is employed by an Affiliate if the Affiliate shall cease to be an Affiliate and the Participant shall not immediately thereafter become an employee of the Company or an Affiliate.

     In addition, certain other terms used herein have definitions given to them in the first place in which they are used.

- 5 -

ARTICLE III

ADMINISTRATION

     3.1 Committee Structure and Actions. The Plan shall be administered by the Committee in accordance with the rules and responsibilities of the Committee.

     3.2 Committee Authority. Subject to the terms of the Plan, the Committee shall have the authority:

     (1) to select those persons to whom Awards may be granted from time to time;

     (2) to determine whether and to what extent Awards are to be granted hereunder;

     (3) to determine the number of shares of Common Stock to be covered by each Award granted hereunder;

     (4) to determine the terms and conditions of any Award granted hereunder, provided that the Exercise Price of any Option or Stock Appreciation Right shall not be less than the Fair Market Value per share as of the Grant Date;

     (5) to adjust the terms and conditions, at any time or from time to time, of any Award, subject to the limitations of Section 12.1;

     (6) to determine to what extent and under what circumstances shares of Common Stock and other amounts payable with respect to an Award shall be deferred;

     (7) to provide for the forms of Agreement to be utilized in connection with this Plan;

     (8) to determine what legal requirements are applicable to the Plan, Awards, and the issuance of Common Stock, and to require of a Participant that appropriate action be taken with respect to such requirements;

     (9) to cancel, with the consent of the Participant or as otherwise provided in the Plan or an Agreement, outstanding Awards;

     (10) to require as a condition of the exercise of an Award or the issuance or transfer of a certificate (or other representation of title) of Common Stock, the withholding from a Participant of the amount of any taxes as may be necessary in order for the Company or any other employer to obtain a deduction or as may be otherwise required by law;

     (11) to determine whether and with what effect an individual has incurred a Termination of Employment;

- 6 -

     (12) to determine the restrictions or limitations on the transfer of Common Stock;

     (13) to determine whether an Award is to be adjusted, modified or purchased, or is to become fully exercisable, under the Plan or the terms of an Agreement;

     (14) to determine the permissible methods of Award exercise and payment within the terms and conditions of the Plan and the particular Agreement;

     (15) to adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of this Plan; and

     (16) to appoint and compensate agents, counsel, auditors or other specialists to aid it in the discharge of its duties.

     The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable, to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any Agreement) and to otherwise supervise the administration of the Plan. The Committee’s policies and procedures may differ with respect to Awards granted at different times and may differ with respect to a Participant from time to time, or with respect to different Participants at the same or different times.

     Any determination made by the Committee pursuant to the provisions of the Plan shall be made in its sole discretion, and in the case of any determination relating to an Award may be made at the time of the grant of the Award or, unless in contravention of any express term of the Plan or an Agreement, at any time thereafter. All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Participants. Any determination shall not be subject to de novo review if challenged in court.

ARTICLE IV

SHARES SUBJECT TO PLAN

     4.1 Number of Shares. Subject to the adjustment under Section 4.5, the total number of Common Stock reserved and available for distribution pursuant to Awards under the Plan shall be [2,500,000] shares of Common Stock which are hereby authorized for issuance on the Effective Date. Such shares may consist, in whole or in part, of authorized and unissued shares or shares acquired from a third party.

     4.2 Release of Shares. Subject to Section 4.1, the Committee shall have full authority to determine the number of shares of Common Stock available for Awards, and in its discretion may include (without limitation) as available for distribution any shares of Common Stock that have ceased to be subject to an Award; any shares of Common Stock subject to any Award that have been previously forfeited; any shares under an Award that otherwise terminates without issuance of Common Stock being made to a Participant; or any shares of Common Stock that are

- 7 -

received by the Company in connection with the exercise of an Award, including the satisfaction of any tax liability or tax withholding obligation. Any shares that are available immediately prior to the termination of the Plan, or any shares of Common Stock returned to the Company for any reason subsequent to the termination of the Plan, may be transferred to a successor plan.

     4.3 Restrictions on Shares. Common Stock issued upon exercise of an Award shall be subject to the terms and conditions specified herein and to such other terms, conditions and restrictions as the Committee in its discretion may determine or provide in the Award Agreement. The Company shall not be required to issue or deliver any certificates for Common Stock, cash or other property prior to (i) the completion of any registration or qualification of such shares under federal, state or other law, or any ruling or regulation of any government body which the Committee determines to be necessary or advisable; and (ii) the satisfaction of any applicable withholding obligation in order for the Company or an Affiliate to obtain a deduction or discharge its legal obligation with respect to the exercise of an Award. The Company may cause any certificate (or other representation of title) for any shares of Common Stock to be delivered to be properly marked with a legend or other notation reflecting the limitations on transfer of such Common Stock as provided in this Plan or as the Committee may otherwise require. The Committee may require any person exercising an Award to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of the Common Stock in compliance with applicable law or otherwise. Fractional shares shall not be delivered, but shall be rounded to the next lower whole number of shares.

     4.4 Shareholder Rights. No person shall have any rights of a shareholder as to Common Stock subject to an Award until, after proper exercise of the Award or other action required, such shares shall have been recorded on the Company’s official shareholder records as having been issued and transferred. Upon exercise of the Award or any portion thereof, the Company will have a reasonable period in which to issue and transfer the shares, and the Participant will not be treated as a shareholder for any purpose whatsoever prior to such issuance and transfer. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date such shares are recorded as issued and transferred in the Company’s official shareholder records, except as provided herein or in an Agreement.

     4.5 Effect of Certain Changes. In the event of any Company share dividend, share split, combination or exchange of shares, recapitalization or other change in the capital structure of the Company, corporate separation or division of the Company (including, but not limited to, a split-up, spin-off, split-off or distribution to Company shareholders other than a normal cash dividend), reorganization, rights offering, a partial or complete liquidation, or any other corporate transaction, Company share offering or event involving the Company and having an effect similar to any of the foregoing, then the Committee may adjust or substitute, as the case may be, the number of Common Stock available for Awards under the Plan, the number of shares of Common Stock covered by outstanding Awards, the exercise price per share of outstanding Awards, and any other characteristics or terms of the Awards as the Committee may deem necessary or appropriate to reflect equitably the effects of such changes to the Participants; provided, however, that any fractional shares resulting from such adjustment shall be eliminated by rounding to the next lower whole number of shares with appropriate payment for such fractional share as shall reasonably be determined by the Committee.

- 8 -

ARTICLE V

ELIGIBILITY

     5.1 Eligibility. Except as herein provided, the persons who shall be eligible to participate in the Plan and be granted Awards shall be those persons who are common law employees of the Company or any Affiliate, non-employee members of the Board, or other individuals selected by the Committee. Of those persons described in the preceding sentence, the Committee may, from time to time, select persons to be granted Awards and shall determine the terms and conditions with respect thereto. In making any such selection and in determining the form of the Award, the Committee shall give consideration to such factors deemed appropriate by the Committee.

ARTICLE VI

STOCK OPTIONS

     6.1 General. The Committee shall have authority to grant Options under the Plan at any time or from time to time. An Option shall entitle the Participant to receive Common Stock upon exercise of such Option, subject to the Participant’s satisfaction in full of any conditions, restrictions or limitations imposed in accordance with the Plan or an Agreement (the terms and provisions of which may differ from other Agreements) including, without limitation, payment of the Option Price.

     6.2 Grant. The grant of an Option shall occur as of the Grant Date determined by the Committee. Stock Options may be granted alone or in connection with other Awards. An Award of Options shall be evidenced by, and subject to the terms of, an Agreement. Only a person who is a common-law employee of the Company, any parent corporation of the Company, or a subsidiary (as such terms are defined in Section 424 of the Code) on the date of grant shall be eligible to be granted an Incentive Stock Option. To the extent that any Option is not designated as an Incentive Stock Option or even if so designated does not qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock Option.

     6.3 Terms and Conditions. Options shall be subject to such terms and conditions as shall be determined by the Committee, including the following:

     (1) Exercise Price. The Exercise Price per share shall not be less than the Fair Market Value per share as of the Grant Date. If an Option is intended to qualify as an Incentive Stock Option, the Exercise Price per share shall be not less than the Fair Market Value per share on the Grant Date. If an Option is intended to qualify as an Incentive Stock Option is granted to an individual who owns or who is deemed to own shares possessing more than ten percent (10%) of the combined voting power of all classes of share of the Company, a corporation which is a parent corporation of the Company, or any subsidiary of

- 9 -

the Company (each as defined in Section 424 of the Code), the Exercise Price per share shall not be less than one hundred ten percent (110%) of such Fair Market Value per share (a “10% Owner”).

     (2) Option Period. The Option Period of each Option shall be fixed by the Committee, provided that no Option shall be exercisable more than ten (10) years after the date the Option is granted. In the case of an Incentive Stock Option granted to a 10% Owner, the Option Period shall not exceed five (5) years. No Option which is intended to be an Incentive Stock Option shall be granted more than ten (10) years from the date the Plan is adopted by the Company or the date the Plan is approved by the shareholders of the Company, whichever is earlier.

     (3) Exercisability. Subject to Section 10.1 and the terms set by the Committee, Options shall be exercisable at the rate of twenty percent (20%) of the total number of shares as of each anniversary of the Grant Date. In addition, the Committee may at any time accelerate the exercisability of all or part of any Option. If the Committee intends that an Option be able to qualify as an Incentive Stock Option, the Committee may, in its discretion, provide that the aggregate Fair Market Value (determined at the date of grant of the Option) of the Common Stock as to which such Incentive Stock Option which is exercisable for the first time during any calendar year shall not exceed $100,000.

     (4) Method of Exercise. Subject to the provisions of this Article VI and the Agreement, a Participant may exercise Options, in whole or in part, during the Option Period by giving written notice of exercise on a form provided by the Committee to the Company specifying the number of shares of Common Stock subject to the Option to be purchased. Such notice shall be accompanied by payment in full of the purchase price by cash or certified check or such other form of payment as the Company may accept. If permitted by the Committee, payment in full or in part may also be made by (i) delivering Common Stock already owned by the Participant having a total Fair Market Value on the date of such delivery equal to the Option Price; (ii) the delivery of cash by a broker-dealer as a “cashless” exercise, provided such method of payment may not be used by a director or executive officer of the Company to the extent it would violate the Sarbanes-Oxley Act of 2002; or (iii) any combination of the foregoing.

     (5) Non-transferability of Options. No Option shall be sold, assigned, margined, transferred, encumbered, conveyed, gifted, alienated, hypothecated, pledged, or otherwise disposed of, other than by will or by the laws of descent and distribution, and all Options shall be exercisable during the Participant’s lifetime only by the Participant.

     6.4 Termination by Reason of Death. Unless otherwise provided in an Agreement or determined by the Committee, if a Participant incurs a Termination of Employment due to death or dies within three (3) months after a termination described in Section 6.6, any unexpired and unexercised Option held by such Participant shall thereafter be fully exercisable for a period of one (1) year immediately following the date of such death or until the expiration of the Option Period, whichever period is the shorter.

- 10 -

     6.5 Termination by Reason of Disability. Unless otherwise provided in an Agreement or determined by the Committee, if a Participant incurs a Termination of Employment due to a Disability, any unexpired and unexercised Option held by such Participant shall thereafter be fully exercisable by the Participant for a period of one (1) year immediately following the date of such Disability or until the expiration of the Option Period, whichever period is the shorter, and the Participant’s death at any time following such Termination of Employment due to Disability shall not affect the foregoing.

     6.6 Other Termination. Unless otherwise provided in an Agreement or determined by the Committee, if a Participant incurs a Termination of Employment that is involuntary on the part of the Participant (but is not due to death, Disability or with Cause) or is voluntary on the part of the Participant, any Option held by such Participant shall thereupon terminate, except that such Option, to the extent then exercisable, may be exercised for the lesser of the ninety (90) consecutive day period commencing with the date of such Termination of Employment or until the expiration of the Option Period whichever period is the shorter. If the Participant incurs a Termination of Employment for Cause, the Option shall terminate immediately. Unless otherwise provided in an Agreement, the death or Disability of a Participant after a Termination of Employment otherwise provided herein shall not extend the time permitted to exercise an Option.

ARTICLE VII

STOCK APPRECIATION RIGHTS

     7.1 General. The Committee shall have authority to grant Stock Appreciation Rights under the Plan at any time or from time to time. Stock Appreciation Rights may be awarded either alone or in addition to other Awards granted under the Plan. Subject to the Participant’s satisfaction in full of any conditions, restrictions or limitations imposed in accordance with the Plan or an Agreement, a Stock Appreciation Right shall entitle the Participant to surrender to the Company the Stock Appreciation Right and to be paid therefore in Common Stock the amount described in Section 7.3(2).

     7.2 Grant. The grant of a Stock Appreciation Right shall occur as of the Grant Date determined by the Committee. A Stock Appreciation Right entitles a Participant to receive Common Stock as described in Section 7.3(2). An Award of Stock Appreciation Rights shall be evidenced by, and subject to the terms of an Agreement, which shall become effective upon execution by the Participant.

     7.3 Terms and Conditions. Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined by the Committee, including the following:

     (1) Period and Exercise. The term of a Stock Appreciation Right shall be established by the Committee. A Stock Appreciation Right shall be for such period and shall be exercisable at such times and to the extent provided in the Agreement. Subject to Section 10.1 and the terms set by the Committee, Stock Appreciation Rights shall be exercisable at the rate of twenty percent (20%) as of each anniversary of the Grant Date. In

- 11 -

addition, the Committee may at any time accelerate the exercisability of all or part of any Stock Appreciation Right. Stock Appreciation Rights shall be exercised by the Participant’s giving written notice of exercise on a form provided by the Committee (if available) to the Company specifying the portion of the Stock Appreciation Right to be exercised.

     (2) Amount. Upon the exercise of a Stock Appreciation Right, a Participant shall be entitled to receive an amount in Common Stock equal in value to the excess of the Fair Market Value per share of Common Stock over the Exercise Price per share of Common Stock specified in the related Agreement, multiplied by the number of shares in respect of which the Stock Appreciation Right is exercised The aggregate Fair Market Value per share of Common Stock shall be determined as of the date of exercise of such Stock Appreciation Right.

     (3) Non-transferability of Stock Appreciation Rights. Except as provided in the Plan or in an Agreement, no Stock Appreciation Rights shall be sold, assigned, margined, transferred, encumbered, conveyed, gifted, alienated, hypothecated, pledged or otherwise disposed of, other than by will or the laws of descent and distribution, and all Stock Appreciation Rights shall be exercisable during the Participant’s life time only by the Participant.

     (4) Termination. A Stock Appreciation Right shall be forfeited or terminated at such time as an Option would be forfeited or terminated under the Plan, unless otherwise provided in an Agreement.

ARTICLE VIII

RESTRICTED STOCK

     8.1 General. The Committee shall have authority to grant Restricted Stock under the Plan at any time or from time to time. The Committee shall determine the number of shares of Restricted Stock to be awarded to any Participant, the time or times within which such Awards may be subject to forfeiture, and any other terms and conditions of the Awards. Each Award shall be confirmed by, and be subject to the terms of, an Agreement which shall become effective upon execution by the Participant.

     8.2 Grant, Awards and Certificates. The grant of an Award of Restricted Stock shall occur as of the Grant Date determined by the Committee. Restricted Stock may be awarded either alone or in addition to other Awards granted under the Plan. Notwithstanding the limitations on issuance of Common Stock otherwise provided in the Plan, each Participant receiving an Award of Restricted Stock shall be issued a certificate (or other representation of title) in respect of such Restricted Stock. Such certificate shall be registered in the name of such Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award as determined by the Committee. The Committee may require that the certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed and that,

- 12 -

as a condition of any Award of Restricted Stock, the Participant shall have delivered a share power, endorsed in blank, relating to the Common Stock covered by such Award.

     8.3 Terms and Conditions. Restricted Stock shall be subject to such terms and conditions as shall be determined by the Committee, including the following:

     (1) Limitations on Transferability. The issue prices for Restricted Stock shall be set by the Committee and may be zero. Subject to the provisions of the Plan and the Agreement, during a period set by the Committee, commencing with the date of such Award (the “Restriction Period”), the Participant shall not be permitted to sell, assign, margin, transfer, encumber, convey, gift, alienate, hypothecate, pledge or otherwise dispose of Restricted Stock.

     (2) Rights. Except as provided in Section 8.3(1), the Participant shall have, with respect to the Restricted Stock, all of the rights of a shareholder of the Company holding the class of Common Stock that is the subject of the Restricted Stock, including, if applicable, the right to vote the shares and the right to receive any cash dividends. Unless otherwise determined by the Committee and subject to the Plan, cash dividends on Common Stock that are the subject of the Restricted Stock shall be automatically reinvested in additional shares of Restricted Stock, and dividends on Common Stock that are Restricted Stock payable in Common Stock shall be paid in the form of Restricted Stock.

     (3) Criteria. Based on service, performance by the Participant or by the Company or the Affiliate, including any division or department for which the Participant is employed or such other factors or criteria as the Committee may determine, the Committee may provide for the lapse of restrictions in installments and may accelerate the vesting of all or any part of any Award and waive the restrictions for all or any part of such Award.

     (4) Forfeiture. Unless otherwise provided in an Agreement or determined by the Committee, if the Participant incurs a Termination of Employment due to death or Disability during the Restriction Period, the restrictions shall lapse and the Participant shall be fully vested in the Restricted Stock. Except to the extent otherwise provided in the applicable Agreement and the Plan, upon a Participant’s Termination of Employment for any reason during the Restriction Period other than a Termination of Employment due to death or Disability, all shares of Restricted Stock still subject to restriction shall be forfeited by the Participant, except the Committee shall have the discretion to waive in whole or in part any or all remaining restrictions with respect to any or all of such Participant’s Restricted Stock.

     (5) Delivery. If a share certificate is issued in respect of Restricted Stock, the certificate shall be registered in the name of the Participant but shall be held by the Company for the account of the Participant until the end of the Restricted Period. If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock subject to such Restriction Period, unlegended certificates (or other representation of title) for such shares shall be delivered to the Participant.

- 13 -

     (6) Election. A Participant may elect to further defer receipt of the Restricted Stock for a specified period or until a specified event, subject to the Committee’s approval and to such terms as are determined by the Committee. Subject to any exceptions adopted by the Committee, such election must be made one at least (1) year prior to completion of the Restriction Period.

ARTICLE IX

PERFORMANCE UNITS

     9.1 General. The Committee shall have authority to grant Performance Units under the Plan at any time or from time to time. A Performance Unit (“Performance Unit”) consists of the right to receive cash upon achievement of certain goals relating to performance (“Performance Goals”) and may be awarded either alone or in addition to other Awards granted under the Plan. The Committee shall have complete discretion to determine the number of Performance Units granted to each Participant. Each Performance Unit Award shall be evidenced by, and be subject to the terms of, an Agreement which will become effective upon execution by the Participant. The time period during which a Performance Unit Award shall be earned shall be the “Performance Period,” and shall be at least one (1) fiscal year in length. Performance Units may be subject to Performance Goals which shall be established by the Committee.

     9.2 Earning Performance Unit Awards. After the applicable Performance Period shall have ended, the Committee shall determine the extent to which the established Performance Goals have been achieved.

     9.3 Termination of Employment Due to Death, Disability or Retirement or at the Request of the Company without Cause. In the event of a Termination of Employment due to death or Disability during a Performance Period, the Participant shall receive a pro rata share of the cash award earned with respect to the Participant’s Performance Units relating to such Performance Period. Unless otherwise determined by the Committee, in the event that a Participant’s employment terminates for any other reason, all Performance Units shall be forfeited by the Participant to the Company. Distribution of earned Performance Units may be made at the same time payments are made to Participants who did not incur a Termination of Employment during the applicable Performance Period.

     9.4 Nontransferability. Unless otherwise provided in an Agreement, Performance Units may not be sold, assigned, margined, transferred, encumbered, conveyed, gifted, alienated, hypothecated, pledged, or otherwise disposed of, other than by will or by the laws of descent and distribution.

     9.5 Election to Defer. A Participant may elect to defer receipt of the cash award with respect to Performance Units for a specified period or until a specified event, subject to the Committee’s approval and to such terms are determined by the Committee. Subject to any exceptions adopted by the Committee, such election must be made at least one (1) year prior to completion of the Performance Period.

- 14 -

ARTICLE X

CHANGE IN CONTROL PROVISIONS

     10.1 Impact of Event. Notwithstanding any other provision of the Plan to the contrary and unless otherwise provided in an Agreement, in the event of a Change in Control:

     (1) Any Stock Options and Stock Appreciation Rights outstanding as of the date of such Change in Control and not then exercisable shall become fully exercisable to the full extent of the original grant;

     (2) The restrictions applicable to any Restricted Stock Awards shall lapse, and such Restricted Stock shall become free of all restrictions and become fully vested and transferable to the full extent of the original grant; and

     (3) Any Performance Goal or other condition with respect to any Performance Units shall be deemed to have been satisfied in full, and such Award shall be fully distributable.

     10.2 Additional Discretion. The Committee shall have full discretion, notwithstanding anything herein or in an Agreement to the contrary, with respect to an outstanding Award upon a Change in Control to provide that the securities of another entity be substituted hereunder for the Common Stock and to make equitable adjustment with respect thereto.

ARTICLE XI

PROVISIONS APPLICABLE TO SHARES ACQUIRED UNDER THIS PLAN

     11.1 No Company Obligation. Except to the extent required by applicable securities laws, none of the Company, an Affiliate or the Committee shall have any duty or obligation to affirmatively disclose material information to a record or beneficial holder of Common Stock or an Award, and such holder shall have no right to be advised of any material information regarding the Company or any Affiliate at any time prior to, upon, or in connection with receipt or the exercise or distribution of an Award. The Company makes no representation or warranty as to the future value of the Common Stock issued or acquired in accordance with the provisions of the Plan.

ARTICLE XII

MISCELLANEOUS

     12.1 Amendments and Termination. The Board may amend, alter, or discontinue the Plan at any time, but no amendment, alteration or discontinuation shall be made which would

- 15 -

impair the rights of a Participant under an Award theretofore granted without the Participant’s consent, except such an amendment (a) made to cause the Plan to comply with applicable law or (b) made to permit the Company or an Affiliate a tax deduction under applicable law. The Committee may amend, alter or discontinue the terms of any Award theretofore granted, prospectively or retroactively, on the same conditions and limitations (and exceptions to limitations) as apply to the Board, and further subject to any approval or limitations the Board may impose. Notwithstanding the foregoing, any material amendments (as determined under the rules of the New York Stock Exchange, as amended from time to time) to the Plan shall require shareholder approval.

     12.2 Unfunded Status of Plan. It is intended that the Plan be an “unfunded” plan for incentive compensation. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Common Stock or make payments; provided, however, that, unless the Committee otherwise determines, the existence of such trusts or other arrangements is consistent with the “unfunded” status of the Plan.

     12.3 Provisions Relating to Internal Revenue Code Section 162(m). It is the intent of the Company that Awards granted to persons who are Covered Employees within the meaning of Section 162(m) of the Code shall constitute “qualified performance-based compensation” satisfying the requirements of Code Section 162(m). Accordingly, the Plan shall be administered and the provisions of the Plan shall be interpreted in a manner consistent with Code Section 162(m). If any provision of the Plan or any Agreement relating to such an Award does not comply or is inconsistent with the requirements of Code Section 162(m), such provision shall be construed or deemed amended to the extent necessary to conform to such requirements. In addition, the following provisions shall apply to the Plan or an Award to the extent necessary to obtain a tax deduction for the Company or an Affiliate:

     (1) Not later than the date required or permitted for “qualified performance-based compensation” under Code Section 162(m), the Committee shall determine the Participants who are Covered Employees who will receive Awards that are intended as qualified performance-based compensation and the amount or method for determining the amount of such compensation.

     (2) During any three-consecutive calendar year period, the maximum number of shares of Common Stock for which Options and Stock Appreciation Rights, in the aggregate, may be granted to any Participant shall not exceed [800,000] shares. For Performance Unit Awards that are intended to be “performance-based compensation” (as that term is used in Code Section 162(m), no more than [$2,000,000] may be subject to such Awards granted to any Participant during any three-consecutive calendar year period. If, after amounts have been earned with respect to Performance Unit Awards, the payment of such amounts is deferred, any additional amounts attributable to earnings during the deferral period shall be disregarded for purposes of this limit.

     (3) Performance Goals. Awards may be subject to Performance Goals (as defined in Section 9.1) which shall be measured in a specific Performance Period (as defined in Section 9.1) established by the Committee which shall be based on any of the following performance criteria, either alone or in any combination, and on either a

- 16 -

consolidated or business unit level, as the Committee may determine: sales; cash flow; cash flow from operations; operating profit or income; net income; operating margin; net income margin; return on net assets; economic value added; return on total assets; return on common equity; return on total capital; total shareholder return; revenue; revenue growth; earnings before interest, taxes, depreciation and amortization (“EBITDA”); EBITDA growth; funds from operations per share and per share growth; cash available for distribution; cash available for distribution per share and per share growth; share price performance on an absolute basis and relative to an index of earnings per share or improvements in the Company’s attainment of expense levels; and implementing or completion of critical projects. The foregoing criteria shall have any reasonable definitions that the Committee may specify, which may include or exclude any or all of the following items as the Committee may specify: extraordinary, unusual or non-recurring items; effects of accounting changes; effects of financing activities (e.g., effect on earnings per share of issuance of convertible debt securities); expenses for restructuring or productivity initiatives; other non-operating items; spending for acquisitions; effects of divestitures; and effects of litigation activities and settlements. Any such performance criterion or combination of such criteria may apply to the Participant’s Award opportunity in its entirety or to any designated portion or portions of the Award opportunity, as the Committee may specify. Unless the Committee determines otherwise for any Performance Period, extraordinary items, such as capital gains and losses, which affect any performance criterion applicable to the Award (including but not limited to the criterion of net income) shall be excluded or included in determining on the extent to which the corresponding performance goal has been achieved, whichever will produce the higher Award. In the event applicable tax or other laws change to permit the Committee discretion to alter the governing performance measures without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval.

     (4) Earning Performance Awards. After the applicable Performance Period shall have ended, the Committee shall certify the extent to which the established Performance Goals have been achieved. Payment with respect to Performance Units for Covered Employees shall be a direct function of the extent to which the Company’s Performance Goals have been achieved. A Performance Unit Award to a Participant who is a Covered Employee shall (unless the Committee determines otherwise) provide that in the event of the Participant’s Termination of Employment prior to the end of the Performance Period for any reason, such Award will be payable only (a) if the applicable Performance Goals are achieved and (b) to the extent, if any, as the Committee shall determine.

     (5) Other Section 162(m) Provisions. In the manner required by Section 162(m) of the Code, the Committee shall, promptly after the date on which the necessary financial and other information for a particular Performance Period becomes available, certify the extent to which Performance Goals have been achieved with respect to any Performance Unit Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code. The Committee may not increase the amount of any Performance Unit Award payable to any Participant above the amount established in

- 17 -

accordance with the relevant Performance Goals with respect to any Performance Unit Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code

     12.4 No Additional Obligation. Nothing contained in the Plan shall prevent the Company or an Affiliate from adopting other or additional compensation or benefit arrangements for its employees.

     12.5 Withholding. No later than the date as of which an amount first becomes includible in the gross income of the Participant for federal income tax purposes with respect to any Award, the Participant shall pay to the Company (or other entity identified by the Committee), or make arrangements satisfactory to the Company or other entity identified by the Committee regarding the payment of, any federal, state, or local taxes of any kind required by law to be withheld with respect to such income. Unless otherwise determined by the Committee, withholding obligations may be settled with Common Stock, including shares of Common Stock that are part of the Award that give rise to the withholding requirement. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Participant. Subject to approval by the Committee, a Participant may elect to have such tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Common Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the required statutory minimum (but no more than such required minimum) with respect to the Company’s withholding obligation, or (ii) transferring to the Company shares of Common Stock owned by the Participant with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the required statutory minimum (but no more than such required minimum) with respect to the Company’s withholding obligation.

     12.6 Controlling Law. The Plan and all Awards made and actions taken thereunder shall be governed by and construed in accordance with the laws of Minnesota (other than its law respecting choice of law). The Plan shall be construed to comply with all applicable law and to avoid liability to the Company, an Affiliate or a Participant.

     12.7 Offset. Any amounts owed to the Company or an Affiliate by the Participant of whatever nature may be offset by the Company from the value of any Award to be transferred to the Participant, and no Common Stock, cash or other thing of value under this Plan or an Agreement shall be transferred unless and until all disputes between the Company and the Participant have been fully and finally resolved and the Participant has waived all claims to such against the Company or an Affiliate.

     12.8 Nontransferability; Beneficiaries. No Award shall be assignable or transferable by the Participant, otherwise than by will or the laws of descent and distribution or pursuant to a beneficiary designation, and Awards shall be exercisable during the Participant’s lifetime only by the Participant (or by the Participant’s legal representatives in the event of the Participant’s incapacity). Each Participant may designate a Beneficiary to exercise any Option or Stock Appreciation Right or receive any Award held by the Participant at the time of the Participant’s

- 18 -

death or to be assigned any other Award outstanding at the time of the Participant’s death. If a deceased Participant has named no Beneficiary, any Award held by the Participant at the time of death shall be transferred as provided in his or her will or by the laws of descent and distribution. Except in the case of the holder’s incapacity, only the holder may exercise an Option or Stock Appreciation Right. The Committee may permit the transfer of an Award by a Participant to a Participant’s children, stepchildren, grandchildren, parents, stepparents, grandparents, spouse, siblings, in-laws and persons related by reason of legal adoption.

     12.9 Gross-Up for Excise Tax. If all or any portion of the payments and benefits (including any acceleration of vesting) provided under this Plan, either alone or together with other payments and benefits which a Participant receives or is then entitled to receive from the Company or an Affiliate, would constitute a “parachute payment” within the meaning of Section 280G of the Code, the Company shall pay to the Participant, within ten (10) business days of the determination that the payment would constitute a parachute payment, a tax “gross-up” payment to the extent necessary so that the net after-tax benefit to the Participant shall be equal to the net after-tax benefit if the excise tax associated with the “parachute payment” were not imposed. The “net after-tax benefit” for these purposes shall mean the sum of (i) the total amount payable to the Participant under the Plan, plus (ii) all other payments and benefits which the Participant receives or is then entitled to receive from the Company or any Affiliate that would constitute a “parachute payment” within the meaning of Section 280G of the Code, less (iii) the amount of federal income taxes payable with respect to the foregoing calculated at the maximum marginal income tax rate for each year in which the foregoing shall be paid to the Participant (based upon the rate in effect for such year as set forth in the Code at the time of the payment), less (iv) the amount of excise taxes imposed with respect to the payments and benefits described in (i) and (ii) above by Section 4999 of the Code. The determination on whether or not all or any portion of the payments and benefits provided to the Participant would constitute parachute payments shall be made by a national certified public accounting firm selected by the Company, and such determination shall be conclusive and binding on the Participant.

     12.10 No Rights with Respect to Continuance of Employment. Nothing contained herein shall be deemed to alter the relationship between the Company or an Affiliate and a Participant, or the contractual relationship between a Participant and the Company or an Affiliate if there is a written contract regarding such relationship. Nothing contained herein shall be construed to constitute a contract of employment between the Company or an Affiliate and a Participant. The Company or an Affiliate and each of the Participants continue to have the right to terminate the employment or service relationship at any time for any reason, except as provided in a written contract. The Company or an Affiliate shall have no obligation to retain the Participant in its employ or service as a result of this Plan. There shall be no inference as to the length of employment or service hereby, and the Company or an Affiliate reserves the same rights to terminate the Participant’s employment or service as existed prior to the individual becoming a Participant in this Plan.

     12.11 Awards in Substitution for Awards Granted by Other Corporations. Awards may be granted under the Plan from time to time in substitution for awards held by employees, directors or service providers of other corporations who are about to become officers, directors or employees of the Company or an Affiliate as the result of a merger or consolidation of the employing corporation

- 19 -

with the Company or an Affiliate, or the acquisition by the Company or an Affiliate of the assets of the employing corporation, or the acquisition by the Company or Affiliate of the share of the employing corporation, as the result of which it becomes a designated employer under the Plan. The terms and conditions of the Awards so granted may vary from the terms and conditions set forth in this Plan at the time of such grant as the majority of the members of the Committee may deem appropriate to conform, in whole or in part, to the provisions of the awards in substitution for which they are granted.

     12.12 Foreign Alternatives. Notwithstanding the other provisions of the Plan, in the case of any Award to any Participant who is an employee of a foreign subsidiary or foreign branch of the Company or held by a Participant who is in any other category specified by the Committee, the Committee may specify that such Award shall not be represented by Common Stock or other securities but shall be represented by rights approximately equivalent (as determined by the Committee) to the rights that such Participant would have received if shares of Common Stock or other securities had been issued in the name of such Participant otherwise in accordance with the Plan (such rights being hereinafter called “Share Equivalents”). The Share Equivalents representing any such Award may subsequently, at the option of the Committee, be converted into cash or an equivalent number of shares of Common Stock or other securities under such circumstances and in such manner as the Committee may determine.

     12.13 Delivery of Stock Certificates. To the extent the Company uses certificates to represent shares of Common Stock, certificates to be delivered to Participants under this Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the Participant, at the Participant’s last known address on file with the Company. Any reference in this Section 12.13 or elsewhere in the Plan or an Agreement to actual stock certificates and/or the delivery of actual stock certificates shall be deemed satisfied by the electronic record-keeping and electronic delivery of shares of Common Stock or other mechanism then utilized by the Company and its agents for reflecting ownership of such shares.

     12.14 Headings. The headings contained in this Plan are for reference purposes only and shall not affect the meaning or interpretation of this Plan.

     12.15 Severability. If any provision of this Plan shall for any reason be held to be invalid or unenforceable, such invalidity or unenforceability shall not effect any other provision hereby, and this Plan shall be construed as if such invalid or unenforceable provision were omitted.

     12.16 Successors and Assigns. This Plan shall inure to the benefit of and be binding upon each successor and assign of the Company. All obligations imposed upon a Participant, and all rights granted to the Company hereunder, shall be binding upon the Participant’s heirs, legal representatives and successors.

     12.17 Entire Agreement. This Plan and each Agreement constitute the entire agreement with respect to the subject matter hereof and thereof, provided that in the event of any inconsistency between the Plan and each Agreement, the terms and conditions of this Plan shall control.

- 20 -

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos.333-87482, 333-51094, 333-28511, 333-78793, 333-49165, 333-89279, 333-90809, 333-31874, 333-57092 and 333-72200), and Form S-8 (Nos. 33-44867 and 33-89882) of Regis Corporation of our report dated August 24, 2004, relating to the consolidated financial statements, which appears in the 2004 Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated August 24, 2004, relating to the financial statement schedule, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Minneapolis, Minnesota
September 10, 2004

EX-31.1

Exhibit 31.1

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

I, Paul D. Finkelstein, Chairman of the Board of Directors, President and Chief Executive Officer of Regis Corporation, certify that:

1.	I have reviewed this annual report on Form 10-K 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)	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
(c)	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.

September 10, 2004

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

EX-31.2

Exhibit 31.2

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

I, Randy L. Pearce, Executive Vice President, Chief Financial and Administrative Officer of Regis Corporation, certify that:

1.	I have reviewed this annual report on Form 10-K 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)	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
(c)	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.

September 10, 2004

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

EX-32.1

Exhibit 32.1

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

In connection with the Annual Report of Regis Corporation (the Registrant) on Form 10-K for the fiscal year ending June 30, 2004 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

September 10, 2004

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

EX-32.2

Exhibit 32.2

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

In connection with the Annual Report of Regis Corporation (the Registrant) on Form 10-K for the fiscal year ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof, I, Randy L. Pearce, 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

September 10, 2004

/s/ Randy L. Pearce

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