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 $449.3 million, $443.1 million, and $460.5 million in Fiscal 2019, Fiscal 2018, and Fiscal 2017, respectively. Such amounts include contingent rental charges of $192.0 million, $175.9 million, and $164.0 million in Fiscal 2019, Fiscal 2018, and Fiscal 2017, 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 30, 2019, future minimum rental payments under noncancelable operating leases with lease terms in excess of one year were as follows:



	Minimum Operating Lease Payments^(a)
	(millions)
Fiscal 2020	$	339.0
Fiscal 2021	315.4
Fiscal 2022	272.0
Fiscal 2023	235.8
Fiscal 2024	234.8
Fiscal 2025 and thereafter	650.5
Total net minimum rental payments	$	2,047.5


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

Capital Leases

Assets under capital leases, including build-to-suit leases, amounted to $221.3 million and $243.2 million at the end of Fiscal 2019 and Fiscal 2018, respectively, net of accumulated depreciation of $115.5 million and $104.5 million, respectively. Such assets are classified within property and equipment, net in the consolidated balance sheets based on their nature.

As of March 30, 2019, 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)
	(millions)
Fiscal 2020	$	31.8
Fiscal 2021	32.1
Fiscal 2022	36.9
Fiscal 2023	36.4
Fiscal 2024	17.0
Fiscal 2025 and thereafter	159.4
Total net minimum rental payments	313.6
Less: amount representing interest	(91.4		)
Present value of net minimum rental payments	$	222.2


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

U.S. Tax Reform

In connection with the TCJA's provision that subjects previously deferred foreign earnings to a one-time mandatory transition tax, the Company recorded cumulative charges of approximately $241 million within its income tax provision since enactment (as described in Note 10). The remaining related income tax payable obligation of $160.7 million as of March 30, 2019, which was reduced by foreign tax credits and other federal income tax activity, is expected to be paid as follows:



	Mandatory Transition Tax Payments^(a)
	(millions)
Fiscal 2020	$	14.0
Fiscal 2021	14.0
Fiscal 2022	14.0
Fiscal 2023	14.0
Fiscal 2024	26.2
Fiscal 2025 and thereafter	78.5
Total mandatory transition tax payments	$	160.7


^(a)	Included within current and non-current income tax payable in the consolidated balance sheets based upon the estimated timing of payments.

See Note 10 for further discussion of the TCJA and its enactment-related impacts on the Company's consolidated financial statements.

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 $905.9 million as of March 30, 2019, including inventory purchase commitments of $747.8 million, outstanding letters of credit of $11.5 million, interest payments related to the Company's Senior Notes of $109.3 million, and other commitments of $37.3 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 have resulted in up to $46 million in incremental duty and non-creditable value-added tax, including $11 million in interest and penalties. The Company believed that the alternative duty method claimed by the customs officials was not applicable to the Company's facts and circumstances and contested 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. Although the Company disagreed 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.

In October 2017, the tax tribunal presiding over the Company's appeal instructed the customs officials to reconsider their assertions under the alternative duty method and conduct a second re-audit to evaluate the facts and circumstances noted in the pre-assessment notice. In March 2018, the Company received the results of the second re-audit conducted and a related net refund in the amount of $15.6 million. Additionally, in March 2018 and May 2018, the Company filed voluntary disclosure requests to the relevant customs authorities for certain post-audit periods and made related payments of $40.6 million and $7.1 million, respectively, in order to secure its rights to recover value-added tax of $14.8 million and $3.3 million, respectively. In connection with the re-audit refund received and the non-tax portion of the voluntary disclosure payment made, the Company recorded net charges of $10.2 million and $3.8 million, respectively, within restructuring and other charges in its consolidated statements of operations during the fourth quarter of Fiscal 2018 and first quarter of Fiscal 2019, respectively (see Note 9).

Although the Company believes its original filing position was appropriate, in June 2018, the Company decided to resolve the dispute and not further appeal the re-audit decision within the courts for the periods covered by the re-audit in order to avoid incurring additional management time, costs, and uncertainty associated with litigation, as the customs officials' revised methodology results in an incremental annual duty charge that is not material to the Company.

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 any 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.