Operating Leases:

The Company leases most of its company-owned salons and some of its corporate facilities and distribution centers under operating leases. The original terms of the salon leases range from one to 20 years, with many leases renewable for additional five to ten year terms at the option of the Company. For most leases, the Company is required to pay real estate taxes and other occupancy expenses. Rent expense for the Company's international department store salons is based primarily on a percentage of sales.

The Company also leases the premises in which the majority of its franchisees operate and has entered into corresponding sublease arrangements with 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.

Sublease income was $31.4, $30.9 and $29.5 million in fiscal years 2016, 2015 and 2014, respectively. Rent expense on premises subleased was $30.9, $30.5 and $29.1 million in fiscal years 2016, 2015 and 2014, respectively. Rent expense and related rental income on sublease arrangements with franchisees is netted within the rent expense line item on the Consolidated Statement of Operations. 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 (loss) income. However, in limited cases, the Company charges a 10.0% mark-up in its sublease arrangements. The net rental income resulting from such arrangements totaled $0.5, $0.4, and $0.4 million for fiscal years 2016, 2015 and 2014, respectively, and was classified in the royalties and fees caption of the Consolidated Statement of Operations.

The Company has a sublease arrangement for a leased building the Company previously occupied. The aggregate amount of lease payments to be made over the remaining lease term are approximately $5.8 million.

Total rent expense, excluding rent expense on premises subleased to franchisees, includes the following:



	Fiscal Years
	2016		2015		2014
	(Dollars in thousands)
Minimum rent	$	228,580	$	236,137	$	246,844
Percentage rent based on sales	8,256		8,238		7,164
Real estate taxes and other expenses	60,435		64,750		68,254
	$	297,271	$	309,125	$	322,262

As of June 30, 2016, future minimum lease payments (excluding percentage rents based on sales) due under existing noncancelable operating leases with remaining terms of greater than one year are as follows:



Fiscal Year	Corporate leases		Franchisee leases
	(Dollars in thousands)
2017	$	225,782	$	64,839
2018	175,970		55,405
2019	130,487		44,649
2020	88,439		31,673
2021	46,269		18,032
Thereafter	30,951		17,828
Total minimum lease payments	$	697,898	$	232,426

Contingencies:

The Company is self-insured for most workers' compensation, employment practice liability and general liability. Workers' compensation and general liability losses are 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.

Litigation and Settlements:

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 the actions are being vigorously defended, the Company 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.

See Note 9 to the Consolidated Financial Statements for discussion regarding certain issues that have resulted from the IRS' audit of fiscal year 2010 through 2013. Final resolution of these issues is not expected to have a material impact on the Company’s financial position.