Supercuts 2009 Annual Report Download - page 122

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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. LEASE TERMINATION COSTS (Continued)
dependent on successfully completing lease termination agreements and was therefore subject to change. The Company offered employment to
associates affected by such closings at nearby Regis-owned salons. The decision was a result of a comprehensive evaluation of the Company's
salon portfolio, further continuing the Company's initiatives to enhance profitability.
As of June 30, 2009, 69 stores ceased using the right to use the leased property or negotiated a lease termination agreement with the lessor
in which the Company will cease using the right to the leased property subsequent to June 30, 2009. Of the 69 stores, 63 stores were within the
North America reportable segment, one store within the international segment, and five stores within discontinued operations. Lease termination
costs from continuing operations are presented as a separate line item in the Condensed Consolidated Statement of Operations. Lease termination
costs related to the Trade Secret salon concept are reported within discontinued operations. As lease settlements were negotiated the Company
found that some lessors were willing to negotiate rent reductions which allowed the Company to keep operating certain stores. As a result, the
number of stores to be closed is less than the 160 stores per the approved plan in July 2008.
In June 2009, the Company approved a plan to close up to 80 underperforming U.K. company-owned salons in fiscal year 2010, the
majority of which are expected to occur in the first half of fiscal year 2010. The Company believes the closure of these salons will add to future
profitability. The Company recorded a write-off of salon assets in the fourth quarter of fiscal year 2009 of approximately $2.9 million related to
the closures. The Company ceased using the right to use the leased property or negotiated a lease termination agreement with the lessor prior to
June 30, 2009 for seven U.K. company-owned salons, incurring lease termination costs of $0.6 million during fiscal year 2009.
Lease termination expense represents either the lease settlement or the net present value of remaining contractual lease payments related to
closed stores, after reduction by estimated sublease rentals. The activity reflected in the accrual for lease termination costs is as follows:
During the twelve months ended June 30, 2009, the Company incurred $6.2 million of lease termination expense of which $0.5 million of
relates to five salons within the Trade Secret concept and is accounted for within the loss on discontinued operations as of June 30, 2009. Cash
payments of $0.5 million have been made on all five of the salons within the Trade Secret concept.
12. 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 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
120
Accrual for lease
terminations
(Dollars in thousands)
Balance at July 1, 2008
$
—
Provisions associated with lease terminations
6,221
Cash payments
(4,101
)
Balance at June 30, 2009
$
2,120