Supercuts 2005 Annual Report Download - page 86

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Rent expense in the Consolidated Statement of Operations excludes $31.1, $31.0 and $31.9 million in fiscal years 2005, 2004 and 2003,
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, $0.5 and $0.6 million in fiscal years 2005, 2004 and 2003, respectively, and was classified in the
royalties and fees caption of the Consolidated Statement of Operations.
Total rent expense, excluding rent expense on premises subleased to franchisees, includes the following:
Future Minimum Lease Payments:
As of June 30, 2005, 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:
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 $2.2 million at June 30, 2005, 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.
85
2005
2004
2003
(Dollars in thousands)
Minimum rent
$
229,180
$
194,730
$
168,981
Percentage rent based on sales
16,468
17,314
15,166
Real estate taxes and other expenses
65,336
57,385
51,501
$
310,984
$
269,429
$
235,648
Corporate
Reimbursable
Fiscal year
leases
franchisee leases
(Dollars in thousands)
2006
$
233,017
$
41,085
2007
203,861
34,235
2008
170,524
27,302
2009
136,202
19,796
2010
99,120
11,434
Thereafter
218,706
12,108
Total minimum lease payments
$
1,061,430
$
145,960