NOTE 9 — Commitments and Contingencies
We are subject to various proceedings, lawsuits, disputes, and claims arising in the ordinary course of our business. Many of these
actions raise complex factual and legal issues and are subject to uncertainties. Actions filed against us from time to time include commercial, intellectual property, customer, and employment actions, including class action lawsuits. The plaintiffs
in some actions seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages, and some are covered in part by insurance. Given the uncertain nature of litigation generally, we are not able in all cases to estimate
the amount or range of loss that could result from an unfavorable outcome of the litigation to which we are a party. In accordance with U.S. generally accepted accounting principles, we establish accruals to the extent probable future losses are
estimable. Nevertheless, we could incur charges in excess of any currently established accruals and any available insurance. Any such future charges, individually or in the aggregate, could have a material adverse effect on our consolidated results
of operations and consolidated cash flows.
On June 11, 2010, Elva Perez, a former employee, on behalf of herself and a purported class
of all of our other similarly situated California employees, filed a complaint in the Superior Court of California, County of Santa Cruz. The complaint alleges, among other things, that we have forced our in-store employees to work off-the-clock
without compensation; failed to pay overtime wages; failed to provide in-store employees bona fide meal and rest periods; failed to reimburse in-store employees for business expenses they incur; and failed to provide accurate, timely itemized wage
statements, in violation of the California Labor Code, the California Industrial Welfare Commission Wage Orders and the California Business and Professions Code. The complaint seeks, among other things, an order awarding compensatory and liquidated
damages, including unpaid wages; an award of restitution; an order imposing civil penalties; an order enjoining us from committing future violations of the laws allegedly violated; and interest, attorney’s fees and costs. The Company denied the
allegations made by the Plaintiff and asserted various defenses. On June 6, 2012, the Court certified a class of all individuals employed in our California locations as hourly store managers, assistant store managers and sales clerks from
June 11, 2006 to pursue claims related to meal breaks, meal premium pay, work related travel claims, travel expense claims, bag check claims, and pay record claims.
On October 4, 2012, the parties to the litigation agreed to a settlement under which we agreed to pay
$2,750,000 as a gross settlement amount, which will, among other things, be used to provide payments to employees participating in the certified class and to pay for fees and expenses of class counsel. The plaintiff, on behalf of herself and the
employees participating in the certified class, will provide a general release, releasing us from all claims, from June 11, 2006 until the date the Court preliminarily approves the settlement agreement, that were pled or could have been pled
based on the factual allegations set forth in the complaint. Consummation of the settlement is subject to preliminary and final approval of the Court.