Supercuts 2010 Annual Report Download - page 124

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
The table below sets forth the (gain) on the Company's derivative instruments for the years ended June 30, 2010 and 2009 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 2016 and the aggregate amount of lease payments to
be made over the remaining original lease term are approximately $6.6 million. The lease agreement includes an option to purchase the
property or extend the original term for two successive periods of five years.
Sublease income was $29.2, $29.9, and $30.3 million in fiscal years 2010, 2009 and 2008, respectively. Rent expense in the Consolidated
Statement of Operations excludes $28.8, $29.5, and $29.9 million in fiscal years 2010, 2009 and 2008, 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 (loss). However, in limited cases, the Company charges a ten
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Derivatives Impact on
Income (Loss) at June 30,
Type
Classification 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
$
(811
)
$
(1,147
)
$
(811
)
$
(1,482
)