COMMITMENTS AND CONTINGENCIES

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 $34.0, $31.5 and $31.4 million in fiscal years 2018, 2017 and 2016, respectively. Rent expense on premises subleased was $33.6, $31.1 and $30.9 million in fiscal years 2018, 2017 and 2016, 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 $0.4, $0.4, and $0.5 million for fiscal years 2018, 2017 and 2016, 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 $3.5 million. The amount of rental income approximates the amount of rent expense, thereby having no material impact on rent expense or net income (loss).

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



	Fiscal Years
	2018		2017		2016
	(Dollars in thousands)
Minimum rent (1)	$	157,828	$	154,417	$	156,601
Percentage rent based on sales	4,324		4,058		4,337
Real estate taxes and other expenses	20,944		22,003		23,212
	$	183,096	$	180,478	$	184,150

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(1)	Fiscal year 2018 includes lease termination and other related closure costs of $27.3 million and a deferred rent benefit of $3.3 million related to the restructuring of the company-owned SmartStyle portfolio that occurred in January 2018.

As of June 30, 2018, future minimum lease payments (excluding percentage rents based on sales) due under existing noncancelable operating leases are as follows:



Fiscal Year	Corporate leases		Franchisee leases
	(Dollars in thousands)
2019	$	129,804	$	102,406
2020	103,652		77,748
2021	71,993		56,186
2022	41,196		37,202
2023	17,723		20,215
Thereafter	7,735		22,617
Total minimum lease payments	$	372,103	$	316,374

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.