Supercuts 2010 Annual Report Download - page 29

Table of Contents
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company's corporate offices are headquartered in a 270,000 square foot, four building complex in Edina, Minnesota owned or leased
by the Company. The Company also operates small offices in Toronto, Canada; Coventry and London, England; and Boca Raton, Florida.
These offices are occupied under long-term leases.
The Company owns 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 may be expanded to
290,000 square feet to accommodate future growth.
The Company operates all of its salon locations and hair replacement centers 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 one or more additional five year periods. Salons operating within department stores in Canada and Europe operate under license
agreements, while freestanding or shopping center locations in those countries have real property leases comparable to the Company's domestic
locations.
The Company also leases the 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 is 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 10 to the Consolidated Financial Statements in Part II, Item 8 of this
Form 10-K.
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 consumer and wage and hour violations. Litigation is
inherently unpredictable and the outcome of these matters cannot presently be determined. Although company counsel believes that the
Company has valid defenses in these matters, it could in the future incur judgments or enter into settlements of claims that could have a
material adverse effect on its results of operations in any particular period.
During fiscal year 2010, the Company recorded a $5.2 million charge related to the settlement of two legal claims regarding certain
customer and employee matters. Additionally, the Company has commitment to provide discount coupons. As of June 30, 2010, there was a
$4.3 million remaining liability recorded within accrued expenses related to the settlements.
Item 4. Reserved
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