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 2015 were as follows (in thousands):




2016	$	49,328
2017	44,447
2018	36,393
2019	30,665
2020	26,754
Thereafter	91,353
Minimum non-cancelable lease payments, net	$	278,940

The table above includes $1.1 million in related party leases. No assets of the Company were subject to capital leases at fiscal year-end 2015 and 2014. 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.

Rent expense is included in the Cost of goods sold line on the Consolidated Statement of Income. Following is a summary of rent expense by component (in thousands):



	2015		2014			2013
Minimum rent	$	49,540	$	51,603		$	50,218
Percent rent	62		60			63
Sublease income	—		(12		)	(21		)
Rent paid to related parties	1,381		1,479			1,561
Total rent expense	$	50,983	$	53,130		$	51,821

In October 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 sought unspecified damages and attorney’s fees, alleging the Company's failure to pay overtime to hourly California 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. Although the Company continued to vigorously defend the claims underlying the lawsuit, on October 16, 2015, the parties agreed in principle to settle this matter on an individual and class-wide basis to avoid the uncertainty and costs associated with protracted litigation. On February 19, 2016, the Court approved this settlement of $0.1 million, which was recorded in accrued expenses and other on the consolidated balance sheet for 2015. The Company's aggregate obligation, including settlement funds, plaintiff’s attorneys’ fees and costs and settlement administration costs had no material impact on its financial statements.

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 2012 through fiscal 2015. 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 2, 2016, accrued liabilities included a loss contingency accrual of $0.3 million related to all pending legal, regulatory and administrative claims. 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.