Supercuts 2011 Annual Report Download - page 127

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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
The table below sets forth the gain or (loss) on the Company's derivative instruments for the years ended June 30, 2011 and 2010 recorded
within interest income and other, net in the Consolidated Statement of Operations.
10. COMMITMENTS AND CONTINGENCIES:
Operating Leases:
The Company is committed under long-term operating leases for the rental of most of its company-owned salon and hair restoration center
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.
During fiscal year 2005, the Company entered into a lease agreement for a 102,448 square foot building, located in Edina, Minnesota. The
Company began to recognize rent expense related to this property during the three months ended September 30, 2005, which was the date that it
obtained the legal right to use and control the property. The original lease term ends in May 2016 and the aggregate amount of lease payments to
be made over the remaining original lease term are approximately $5.6 million. The lease agreement includes an option to purchase the property
or extend the original term for two successive periods of five years.
In addition, the Company leases an 89,900 square foot building near the company-owned distribution center located in Chattanooga,
Tennessee. The original lease term ends in August 2013 and the aggregate amount of lease payments to be made over the remaining original
lease term are approximately $0.5 million
Sublease income was $28.4, $29.2, and $29.9 million in fiscal years 2011, 2010 and 2009, respectively. Rent expense on premises
subleased was $27.9, $28.8, and $29.5 million in fiscal years 2011, 2010 and 2009, respectively. Rent expense and the related rental income on
the sublease arrangements with franchisees is netted within the rent expense line item on the Consolidated
122
Derivatives Impact on Income (Loss) at June 30,
Type
Classification 2011 2010 2009
(In thousands)
Designated as hedging instruments
—
Fair Value Hedges:
Fair value interest rate swap
Interest income and other, net
$
—
$
—
$
335
Freestanding derivative contracts
—
not designated as hedging
instruments:
Forward foreign currency contracts
Interest income and other, net
$
613
$
(811
)
$
1,147
Total
$
613
$
(811
)
$
1,482