NOTE 14 – COMMITMENTS AND CONTINGENCIES

Contractual Obligations

The following table summarizes scheduled maturities of the Company’s contractual obligations for which cash flows are fixed and determinable as of June 30, 2018:

			Payments Due in Fiscal
(In millions)	Total		2019		2020		2021		2022		2023		Thereafter

Debt service (1)	$	5,679	$	301	$	624	$	558	$	101	$	348	$	3,747
Operating lease commitments (2)	3,320		397		368		322		300		297		1,636
Unconditional purchase obligations (3)	5,514		1,695		689		630		605		694		1,201
Gross unrecognized tax benefits and interest – current (4)	4		4		—		—		—		—		—

Total contractual obligations	$	14,517	$	2,397	$	1,681	$	1,510	$	1,006	$	1,339	$	6,584

⁽¹⁾

Includes long-term and current debt and the related projected interest costs, and to a lesser extent, capital lease commitments. Interest costs on long-term and current debt in fiscal 2019, 2020, 2021, 2022, 2023 and thereafter are projected to be $118 million, $117 million, $108 million, $101 million, $98 million and $1,547 million, respectively. Projected interest costs on variable rate instruments were calculated using market rates at June 30, 2018.

⁽²⁾

Minimum operating lease commitments only include base rent. Certain leases provide for contingent rents that are not measurable at inception and primarily include rents based on a percentage of sales in excess of stipulated levels, as well as common area maintenance. These amounts are excluded from minimum operating lease commitments and are included in the determination of total rent expense when it is probable that the expense has been incurred and the amount is reasonably measurable. Such amounts have not been material to total rent expense. Total rental expense included in the accompanying consolidated statements of earnings was $489 million, $457 million and $442 million in fiscal 2018, 2017 and 2016, respectively.

⁽³⁾

Unconditional purchase obligations primarily include: inventory commitments, contingent consideration which resulted from the fiscal 2016 and 2015 acquisitions, earn-out payments related to the acquisition of Bobbi Brown, royalty payments pursuant to license agreements, advertising commitments, capital improvement commitments and non-discretionary planned funding of pension and other post-retirement benefit obligations. Future contingent consideration, earn-out payments and royalty and advertising commitments were estimated based on planned future sales for the term that was in effect at June 30, 2018, without consideration for potential renewal periods.

⁽⁴⁾

Refer to Note 8 – Income Taxes for information regarding unrecognized tax benefits. As of June 30, 2018, the noncurrent portion of the Company’s unrecognized tax benefits, including related accrued interest and penalties was $58 million. At this time, the settlement period for the noncurrent portion of the unrecognized tax benefits, including related accrued interest and penalties, cannot be determined and therefore was not included.

Legal Proceedings

The Company is involved, from time to time, in litigation and other legal proceedings incidental to its business. Management believes that the outcome of current litigation and legal proceedings will not have a material adverse effect upon the Company’s business, results of operations, financial condition or cash flows. However, management’s assessment of the Company’s current litigation and other legal proceedings could change in light of the discovery of facts with respect to legal actions or other proceedings pending against the Company not presently known to the Company or determinations by judges, juries or other finders of fact which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or proceedings. Reasonably possible losses in addition to the amounts accrued for such litigation and legal proceedings are not material to the Company’s consolidated financial statements.

Contingencies

During the fiscal 2018 third quarter, the Company learned that some of its testing related to certain product advertising claims did not meet the Company’s standards, necessitating further validation. As a result of this ongoing review, certain advertising claims are being modified. This is not a product safety issue and does not relate to the quality of the ingredients or the manufacturing of the Company’s products. Based on the Company’s review to date, it does not believe that this matter will be material to the Company, and no accrual has been recorded.