Supercuts 2004 Annual Report Download - page 81

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Table of Contents
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:
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.
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
(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
7.
Litigation