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 approximately $466 million, $455 million, and $430 million in Fiscal 2015, Fiscal 2014, and Fiscal 2013, respectively. Such amounts include contingent rental charges of approximately $172 million, $176 million, and $174 million in Fiscal 2015, Fiscal 2014, and Fiscal 2013, 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 March 28, 2015, 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 2016	$	322
Fiscal 2017	297
Fiscal 2018	282
Fiscal 2019	257
Fiscal 2020	229
Fiscal 2021 and thereafter	733
Total net minimum rental payments	$	2,120


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


^(b)	Includes a $66 million operating lease obligation related to the land portion of the build-to-suit lease agreement for the Company's Polo flagship 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 approximately $251 million and $259 million at the end of Fiscal 2015 and Fiscal 2014, respectively, net of accumulated depreciation of approximately $30 million and $19 million, respectively. Such assets are classified within property and equipment, net in the consolidated balance sheets based on their nature. As of March 28, 2015, 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 2016	$	26
Fiscal 2017	25
Fiscal 2018	24
Fiscal 2019	22
Fiscal 2020	24
Fiscal 2021 and thereafter	69
Total net minimum rental payments	190
Less: amount representing interest	(34		)
Present value of net minimum rental payments	$	156


^(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 Polo flagship store on Fifth Avenue in New York City. The total remaining commitment related to this lease was $210 million as of March 28, 2015, comprised of a $66 million operating lease obligation related to the land portion of the lease (included in the minimum operating lease payments table above) and a $144 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 approximately $1.034 billion as of March 28, 2015, including inventory purchase commitments of approximately $840 million, outstanding letters of credit of approximately $9 million, interest payments related to the Company's 2.125% Senior Notes of approximately $22 million, and other commitments of approximately $163 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 approximately $46 million in incremental duty and non-creditable value-added tax, including approximately $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. Subsequent 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. If the Company is unsuccessful in its appeals, 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 will ultimately prevail, the outcome of the appeals process and potential court proceedings is subject to risk and uncertainty and the ultimate resolution of this examination in favor of the customs authority could have a material adverse effect on the Company's financial condition, results of operations, and cash flows.

Litigation

Wathne Imports Litigation

On September 13, 2005, Wathne Imports, Ltd. ("Wathne"), the Company’s former domestic licensee for luggage and handbags, filed suit against the Company and Mr. Ralph Lauren, its Chairman and Chief Executive Officer, in the Supreme Court of the State of New York, County of New York, alleging, among other things, that the Company had breached a 1999 License Agreement and Design Services Agreement with Wathne and had engaged in deceptive trade practices, fraud, and negligent misrepresentation. The complaint originally sought, among other things, injunctive relief, compensatory damages in excess of $250 million, and punitive damages in excess of $750 million. Following a motion to dismiss, a motion for summary judgment, and several appeals, only the following three claims remain, all related to an alleged breach of the License Agreement: (i) that the Company discontinued the Polo Sport trademark on handbags without providing a replacement mark; (ii) that the Company discontinued the Ralph Lauren trademark and/or usurped Wathne's right to manufacture and sell certain high-end handbags under the Ralph Lauren trademark; and (iii) that the Company deceived Wathne into giving up its right to manufacture and sell certain children’s backpacks. Wathne currently seeks damages of approximately $98 million, plus interest.

On January 7, 2015, the Court granted the Company’s motion to strike Wathne's jury demand, which Wathne appealed on February 2, 2015. This appeal is currently pending. There is also some discovery still outstanding on the issue of damages. No trial date has been set, but the Company expects the Court to hold a pre-trial conference and set a trial date shortly after the appeal is decided. The Company will continue to vigorously contest the remaining claims and dispute any alleged damages. Management does not expect that the ultimate resolution of this matter will have a material adverse effect on the Company’s consolidated financial statements.

Other Matters

The Company is otherwise 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, other than those separately discussed above, 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.