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Commitments and Contingencies | 12 Months Ended
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Jan. 28, 2012
Commitments and Contingencies |
Commitments and Contingencies |
(12) Commitments and Contingencies Leases The Company leases its showrooms and retail store locations under operating lease agreements expiring on various dates through September 2031. Some of these leases require the Company to make periodic payments for property taxes, utilities and common area operating expenses. Certain retail store leases provide for rents based upon the minimum annual rental amount and a percentage of annual sales volume, generally ranging from 3% to 11%, when specific sales volumes are exceeded. Some leases include lease incentives, rent abatements and fixed rent escalations, which are amortized and recorded over the initial lease term on a straight-line basis. The Company also leases some of its equipment under operating lease agreements expiring at various dates through January 2017. As discussed in further detail in Note 8, the Company leases a building in Florence, Italy under a capital lease. Future minimum property and equipment lease payments under the capital lease and non-cancelable operating leases at January 28, 2012 are as follows (in thousands):
|  |  |  | Operating Leases |  |  |
--- | --- | --- | --- | --- | --- | --- | ---
|  | Capital Lease |  | Non- Related Parties |  | Related Parties |  | Total |
Fiscal 2013 |  | $ | 2,197 |  | $ | 175,537 |  | $ | 5,021 |  | $ | 182,755 |
Fiscal 2014 |  |  | 2,118 |  |  | 163,762 |  |  | 4,969 |  |  | 170,849 |
Fiscal 2015 |  |  | 2,096 |  |  | 152,149 |  |  | 4,965 |  |  | 159,210 |
Fiscal 2016 |  |  | 2,073 |  |  | 132,383 |  |  | 4,918 |  |  | 139,374 |
Fiscal 2017 |  |  | 4,943 |  |  | 113,660 |  |  | 4,397 |  |  | 123,000 |
Thereafter |  |  | — |  |  | 321,994 |  |  | 15,182 |  |  | 337,176 |
Total minimum lease payments |  | $ | 13,427 |  | $ | 1,059,485 |  | $ | 39,452 |  | $ | 1,112,364 |
Less interest |  |  | (1,502 | ) |  |  |  |  |  |  |  |  |
Capital lease obligations |  | $ | 11,925 |  |  |  |  |  |  |  |  |  |
Less current portion |  |  | (1,719 | ) |  |  |  |  |  |  |  |  |
Long-term capital lease obligations |  | $ | 10,206 |  |  |  |  |  |  |  |  |  |
Rental expense for all property and equipment operating leases during fiscal 2012, fiscal 2011 and fiscal 2010 aggregated $252.4 million, $217.8 million and $180.5 million, respectively, including percentage rent of $71.7 million, $57.6 million and $33.8 million, respectively. Purchase Commitments Inventory purchase commitments as of January 28, 2012 were $184.7 million. These purchase commitments can be impacted by various factors, including the scheduling of market weeks, the timing of issuing orders, the timing of the shipment of orders and currency fluctuations. Accordingly, a comparison of purchase orders from period to period is not necessarily meaningful. Incentive Bonuses Certain officers and key employees of the Company are eligible to receive annual cash incentive bonuses based on the achievement of certain performance criteria. These bonuses are based on performance measures such as earnings per share and earnings from operations of the Company or particular segments thereof, as well as other objective and subjective criteria as determined by the Compensation Committee of the Board of Directors. In addition to such annual incentive opportunities, Paul Marciano, Chief Executive Officer and Vice Chairman of the Company, is entitled to receive a $3.5 million special cash bonus in December 2012 related to the Company's receipt of a fixed cash rights payment of $35.0 million in January 2012 from one of its licensees. In connection with this special bonus, the Company will accrue an aggregate expense of $3.5 million, plus applicable payroll taxes, through December 2012, $2.7 million of which was accrued as of January 28, 2012. Service Provider Transition During fiscal 2012, the Company experienced a temporary disruption in service with one of its third party logistics service providers in Europe. Following this disruption in service, on July 29, 2011, the Company entered into a settlement agreement with this service provider to facilitate a transition to a new service provider and recorded a settlement charge of $19.5 million related to amounts paid in connection with this agreement. The settlement charge is included within operating expenses of the Europe segment for fiscal 2012. Litigation On May 6, 2009, Gucci America, Inc. filed a complaint in the U.S. District Court for the Southern District of New York against Guess?, Inc. and certain third-party licensees for the Company asserting, among other things, trademark and trade dress law violations and unfair competition. The complaint seeks injunctive relief, compensatory damages, including treble damages, and certain other relief. A similar complaint has also been filed against the Company and one of its Italian subsidiaries in the Court of Milan, Italy. On February 14, 2012, the court in the U.S. matter granted the Company's motion for summary judgment with respect to certain of the claims made by the plaintiff. However, summary judgment was not granted for a majority of the claims. A trial date for the remaining U.S. claims is scheduled for March 26, 2012. In its Opinion and Order with respect to the motion for summary judgment, the court indicated that the plaintiff is seeking compensation in the U.S. matter in the form of damages of $26 million and an accounting of profits of $99 million, in each case from all defendants in the aggregate. Although the Company believes that it has a strong position and will continue to vigorously defend these matters, it is unable to predict with certainty whether or not these efforts will ultimately be successful or whether the outcome will have a material impact on the Company's financial position or results of operations. The Company is also involved in various other claims and other matters incidental to the Company's business, the resolution of which is not expected to have a material adverse effect on the Company's financial position or results of operations. No material amounts were accrued as of January 28, 2012 or January 29, 2011 related to any of the Company's legal proceedings. Redeemable Noncontrolling Interests In connection with the acquisition of two majority-owned subsidiaries, the Company is party to put arrangements with respect to the common securities that represent the remaining noncontrolling interests of the acquired companies. Each put arrangement is exercisable by the counter-party outside the control of the Company by requiring the Company to redeem the counterparty's entire equity stake in the subsidiary at a put price based on a multiple of earnings formula. Each put arrangement is recorded on the balance sheet at its redemption value and classified as a redeemable noncontrolling interest outside of permanent equity. As of January 28, 2012, the redeemable noncontrolling interests of $8.3 million was composed of redemption values related to the Focus Europe S.r.l. ("Focus") and Guess Sud SAS ("Guess Sud") put arrangements of $4.2 million and $4.1 million, respectively. As of January 29, 2011, the redeemable noncontrolling interests of $14.7 million was composed of redemption values related to the Focus and Guess Sud put arrangements of $10.7 million and $4.0 million, respectively. The put arrangement for Focus, representing 25% of the total outstanding equity interest of that subsidiary, may be exercised at the discretion of the minority owner by providing written notice to the Company no later than June 27, 2012. The redemption value of the Focus put arrangement is based on a multiple of Focus's net earnings. The put arrangement for Guess Sud, representing 40% of the total outstanding equity interest of that subsidiary, may be exercised at the discretion of the minority owners by providing written notice to the Company anytime after January 30, 2012. The redemption value of the Guess Sud put arrangement is based on a multiple of Guess Sud's earnings before interest, taxes, depreciation and amortization. A reconciliation of the total carrying amount of redeemable noncontrolling interests for fiscal 2012 and fiscal 2011 is as follows (in thousands):
|  | Year Ended Jan. 28, 2012 |  | Year Ended Jan. 29, 2011 |
--- | --- | --- | --- | --- | ---
Beginning balance |  | $ | 14,711 |  | $ | 13,813 |
Foreign currency translation adjustment |  |  | (646 | ) |  | (245 | )
Redeemable noncontrolling interest redemption value adjustments |  |  | (5,772 | ) |  | 1,143 |
Ending balance |  | $ | 8,293 |  | $ | 14,711 |

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