COMMITMENTS AND CONTINGENCIES

The Company leases certain equipment, and space for its retail stores, its distribution centers and its support center. The Company also sublets space at various locations with both month-to-month and non-cancelable sublease agreements. The operating leases of certain stores provide for periodic rent adjustments based on store revenues, the consumer price index and contractual rent increases.

The aggregate minimum annual contractual payments under non-cancelable leases, reduced for sublease income, in effect at fiscal year-end 2014 were as follows (in thousands):




2015	$	49,339
2016	44,441
2017	37,501
2018	29,894
2019	25,076
Thereafter	97,572
Minimum non-cancelable lease payments, net	$	283,823

The table above includes $2.4 million in related party leases. No assets of the Company were subject to capital leases at fiscal year-end 2014, 2013 and 2012. All but a limited number of the Company’s purchase commitments, which are not material, are cancelable without payment and, therefore, have been excluded from the table above.

Following is a summary of rent expense by component (in thousands):



	2014			2013			2012
Minimum rent	$	51,603		$	50,218		$	48,131
Percent rent	60			63			91
Sublease income	(12		)	(21		)	(23		)
Rent paid to related parties	1,479			1,561			1,593
Total rent expense	$	53,130		$	51,821		$	49,792

On October 23, 2013, a putative class action lawsuit was filed against the Company in the United States District Court for the Northern District of California by two California former hourly employees. The complaint sought unspecified damages for alleged violations of the California Labor Code, the California Business and Professions Code and the federal Fair Labor Standards Act, as well as civil penalties and attorney’s fees under the Labor Code Private Attorney General Act. The complaint alleged that the Company miscalculated and failed to pay overtime for employees off-the-clock work and certain selling incentive bonuses (or spiffs), issued inaccurate wage statements, failed to provide adequate rest and meal periods and other labor-related complaints. On September 19, 2014, the District Court granted the Company's motion for summary judgment on a number of the asserted claims, including the rest and meal break allegations, but certified the spiff miscalculation class and the derivative wage statement and former employee classes. On October 10, 2014, the Company filed an interlocutory appeal with the United States Court of Appeals for the Ninth Circuit asserting that the District Court erred in certifying the various classes. While the appeal was pending, in January, 2015, the Company entered into a settlement and release agreement for all remaining class and individual claims, without admission of any wrongdoing, and the District Court granted the motion for preliminary approval of the settlement, with the hearing for final approval set for May, 2015. The Company recorded a charge of approximately $0.4 million for the estimated payments, including attorneys’ fees, costs and administrative expenses, in connection with this settlement liability. Such amount had no material impact on our financial statements.

Additionally, on October 8, 2014, a putative class action was filed against the Company in the Superior Court of the State of California, County of San Diego, by a California former hourly employee claiming violations of the California Labor Code and the California Business and Professions Code. The complaint seeks unspecified damages and attorney’s fees, alleging the Company's failure to pay overtime to hourly store employees who earned bonus wages or commissions during pay periods in which they worked overtime, and the derivative claims of failure to provide accurate wage statements and all wages owed upon termination of employment. The Company intends to defend this action vigorously and the outcome of this matter cannot be determined at this time.

The Company currently is under audit for sales taxes in several jurisdictions. The tax periods open to examination by the major taxing jurisdictions for sales and use taxes are fiscal 2010 through fiscal 2014. Management believes that the ultimate resolution of these matters will not have a material effect on the Company’s future financial condition or results of operations.

The Company also is party to various other routine and non-routine legal and administrative proceedings, claims, product recalls, litigation and reviews, audits and investigations by various federal and state governmental regulators arising from normal business activities, including commercial, product and product safety, customer, intellectual property, labor and employment-related claims, custom, tax and environmental claims and proceedings in which private plaintiffs or governmental agencies allege that we violated local, state or federal laws. In addition, certain third-party service suppliers have rights under their contracts with the Company to review and audit its use of their products. Many of these legal and administrative proceedings investigations and audits raise complex factual and legal issues and are subject to uncertainties. The Company cannot predict with assurance the outcome of these matters. Accordingly, material adverse developments, settlements, or resolutions may occur and negatively impact results in the quarter and/or fiscal year in which such developments, settlements or resolutions are reached.

Based on the facts currently available, the Company does not believe that the disposition of matters that are pending or asserted, individually or in the aggregate, will have a material adverse effect on future financial results. However, changes in current facts or circumstances and/or an adverse judgment by a court, administrative or regulatory agency, arbitrator or a settlement could adversely impact the Company’s results of operations in any given period.

The Company accrues a liability for and contingency arising from these claims, audits, legal or administrative proceedings where the Company believes it is probable it will pay some amounts and the amounts can be estimated; in some cases, however, it is too early to predict a final outcome. When the Company has determined that a loss is probable, there is no material difference between the amount accrued and the reasonably possible amount of loss. For any such matters where a loss is reasonably possible, the range of estimated loss is not material, individually and in the aggregate.

At January 3, 2015, accrued liabilities included a loss contingency accrual of $0.5 million related to all pending legal, regulatory and administrative claims, including the settled and pending class action lawsuits. At December 28, 2013, accrued liabilities included a loss contingency accrual of less than $0.1 million related to various minor items.