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 2016 were as follows (in thousands):




2017	$	49,353
2018	44,817
2019	39,420
2020	35,337
2021	30,730
Thereafter	89,718
Minimum non-cancelable lease payments, net	$	289,375

The table above includes $8.8 million in related party lease payments. No assets of the Company were subject to capital leases at fiscal year-end 2016 or 2015. 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):



	2016		2015		2014
Minimum rent	$	49,010	$	49,540	$	51,603
Percentage rent	59		62		60
Sublease income	—		—		(12		)
Rent paid to related parties	1,420		1,381		1,479
Total rent expense	$	50,489	$	50,983	$	53,130

In February of 2016, the Superior Court of the State of California, County of San Diego, approved the settlement, on an individual and class-wide basis, of a complaint brought by a California former hourly employee who alleged that the Company failed to properly pay overtime to California employees who earned bonuses or commissions in violations of certain provisions of California Labor Code and the California Business and Professional Code. The aggregate obligation, including settlement funds, plaintiff’s attorneys’ fees and costs and settlement administration costs had no material impact on our financial statements. The Court approved the 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 2016. Management believes that the ultimate resolution of these matters will not have a material effect on the Company’s 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 December 31, 2016, accrued liabilities included a loss contingency accrual of $0.9 million related to all pending legal, regulatory and administrative claims. At January 2, 2016, accrued liabilities included a loss contingency accrual of $0.3 million related to all pending legal, regulatory and administrative claims.