Commitments and Contingencies

Leases

The Company operates most of its retail stores under various leasing arrangements. The Company also occupies various office and warehouse facilities and uses certain equipment under numerous lease agreements. Such leasing arrangements are accounted for as either operating leases or capital leases. In this context, capital leases include leases whereby the Company is considered to have the substantive risks of ownership during construction of a leased property. Information on the Company's operating and capital leasing activities is set forth below.

Operating Leases

The Company is typically required to make minimum rental payments, and often contingent rental payments, under its operating leases. Many of the Company's retail store leases provide for contingent rental payments based upon sales, and certain rental agreements require payment based solely on a percentage of sales. Terms of the Company's leases generally contain renewal options, rent escalation clauses, and landlord incentives. Rent expense, net of sublease income, was $460.5 million, $472.4 million, and $465.9 million in Fiscal 2017, Fiscal 2016, and Fiscal 2015, respectively. Such amounts include contingent rental charges of $164.0 million, $163.4 million, and $172.2 million in Fiscal 2017, Fiscal 2016, and Fiscal 2015, respectively. In addition to such amounts, the Company is normally required to pay taxes, insurance, and certain occupancy costs relating to the leased real estate properties.

As of April 1, 2017, future minimum rental payments under noncancelable operating leases with lease terms in excess of one year were as follows:



	Minimum Operating Lease Payments^(a)(b)
	(millions)
Fiscal 2018	$	318.1
Fiscal 2019	311.2
Fiscal 2020	284.9
Fiscal 2021	232.2
Fiscal 2022	189.2
Fiscal 2023 and thereafter	533.4
Total net minimum rental payments	$	1,869.0


^(a)	Net of sublease income, which is not significant in any period.


^(b)	Includes a $49.5 million operating lease obligation related to the land portion of the build-to-suit lease agreement for the Company's former Polo store on Fifth Avenue in New York City, as further described below.

Capital Leases

Assets under capital leases, including build-to-suit leases, amounted to $264.9 million and $278.4 million at the end of Fiscal 2017 and Fiscal 2016, respectively, net of accumulated depreciation of $77.6 million and $52.9 million, respectively. Such assets are classified within property and equipment, net in the consolidated balance sheets based on their nature.

As of April 1, 2017, future minimum rental payments under noncancelable capital leases, including build-to-suit leases, with lease terms in excess of one year were as follows:



	Minimum Capital Lease Payments^(a)(b)
	(millions)
Fiscal 2018	$	29.8
Fiscal 2019	28.3
Fiscal 2020	30.5
Fiscal 2021	28.3
Fiscal 2022	24.9
Fiscal 2023 and thereafter	81.2
Total net minimum rental payments	223.0
Less: amount representing interest	(49.5		)
Present value of net minimum rental payments	$	173.5


^(a)	Net of sublease income, which is not significant in any period.

^(b)

Includes lease payments related to the Company's build-to-suit lease agreement for its former Polo store on Fifth Avenue in New York City, which was closed during the first quarter of Fiscal 2018. The total remaining commitment related to this lease was $160.2 million as of April 1, 2017, comprised of a $49.5 million operating lease obligation related to the land portion of the lease (included in the minimum operating lease payments table above) and a $110.7 million obligation related to the building portion of the lease (included in this minimum capital lease payments table).

Employee Agreements

The Company has employment agreements with certain executives in the normal course of business which provide for compensation and certain other benefits. These agreements also provide for severance payments under certain circumstances.

Other Commitments

Other off-balance sheet firm commitments amounted to $854.8 million as of April 1, 2017, including inventory purchase commitments of $674.8 million, outstanding letters of credit of $9.7 million, interest payments related to the Company's Senior Notes of $37.1 million, and other commitments of $133.2 million, comprised of the Company's legally-binding obligations under sponsorship, licensing, and other marketing and advertising agreements, distribution-related agreements, information technology-related service agreements, and pension-related obligations.

Customs Audit

In September 2014, one of the Company's international subsidiaries received a pre-assessment notice from the relevant customs officials concerning the method used to determine the dutiable value of imported inventory. The notice communicated the customs officials' assertion that the Company should have applied an alternative duty method, which could result in up to $46 million in incremental duty and non-creditable value-added tax, including $11 million in interest and penalties. The Company believes that the alternative duty method claimed by the customs officials is not applicable to the Company's facts and circumstances and is vigorously contesting their asserted methodology.

In October 2014, the Company filed an appeal of the pre-assessment notice in accordance with the standard procedures established by the relevant customs authorities. In response to the filing of the Company's appeal of the pre-assessment notice, the review committee instructed the customs officials to reconsider their assertion of the alternative duty method and conduct a re-audit to evaluate the facts and circumstances noted in the pre-assessment notice. In December 2015, the Company received the results of the re-audit conducted and a customs audit assessment notice in the amount of $34.1 million, which the Company recorded within restructuring and other charges in its consolidated statements of operations during the third quarter of Fiscal 2016 (see Note 10). Although the Company disagrees with the assessment notice, in order to secure the Company's rights, the Company was required to pay the assessment amount and then subsequently file an appeal with the customs authorities. The Company continues to maintain its original filing position and will vigorously contest any other proposed methodology asserted by the customs officials. Should the Company be successful in its merits, a full refund for the amounts paid plus interest will be required to be paid by the customs authorities. If the Company is unsuccessful in its current appeal with the customs authorities, it may further appeal this decision within the courts. At this time, while the Company believes that the customs officials' claims are not meritorious and that the Company should prevail, the outcome of the appeals process is subject to risk and uncertainty.

Other Matters

The Company is involved, from time to time, in litigation, other legal claims, and proceedings involving matters associated with or incidental to its business, including, among other things, matters involving credit card fraud, trademark and other intellectual property, licensing, importation and exportation of its products, taxation, unclaimed property, and employee relations. The Company believes at present that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on its consolidated financial statements. However, the Company's assessment of the current litigation or other legal claims could potentially change in light of the discovery of facts not presently known 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 claims.

In the normal course of business, the Company enters into agreements that provide general indemnifications. The Company has not made any significant indemnification payments under such agreements in the past, and does not currently anticipate incurring any material indemnification payments.