Lexmark 2015 Annual Report Download - page 121

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future requirements, should these components not be available from any one of these suppliers, there can be no assurance that
production of certain of the Company’s products would not be disrupted.
19. COMMITMENTS AND CONTINGENCIES
Commitments
Lexmark is committed under operating leases (containing various renewal options) for rental of office and manufacturing space and
equipment. Rent expense (net of rental income) was $43.2 million, $41.9 million and $41.7 million in 2015, 2014 and 2013,
respectively. Future minimum rentals under terms of non-cancelable operating leases (net of sublease rental income commitments) as
of December 31, 2015, were as follows:
2016
2017
2018
2019
2020
Thereafter
Minimum lease payments (net of sublease rental
income)
$
34.6
$
26.4
$
18.7
$
12.5
$
11.3
$
11.6
Guarantees and Indemnifications
In the ordinary course of business, the Company may provide performance guarantees to certain customers pursuant to which
Lexmark has guaranteed the performance obligation of third parties. Some of those agreements may be backed by bank guarantees
provided by the third parties. In general, Lexmark would be obligated to perform over the term of the guarantee in the event a
specified triggering event occurs as defined by the guarantee. The Company believes the likelihood of having to perform under a
guarantee is remote.
In most transactions with customers of the Company’s products, software, services or solutions, including resellers, the Company
enters into contractual arrangements under which the Company may agree to indemnify the customer from certain events as defined
within the particular contract, which may include, for example, litigation or claims relating to patent or copyright infringement. These
indemnities do not always include limits on the claims, provided the claim is made pursuant to the procedures required in the contract.
Historically, payments made related to these indemnifications have been immaterial.
Contingencies
The Company is involved in lawsuits, claims, investigations and proceedings, including those identified below, consisting of
intellectual property, commercial, employment, employee benefits and environmental matters that arise in the ordinary course of
business. In addition, various governmental authorities have from time to time initiated inquiries and investigations, some of which are
ongoing. The Company intends to continue to cooperate fully with those governmental authorities in these matters.
Pursuant to the accounting guidance for contingencies, the Company regularly evaluates the probability of a potential loss of its
material litigation, claims or assessments to determine whether a liability has been incurred and whether it is probable that one or more
future events will occur confirming the loss. If a potential loss is determined by the Company to be probable, and the amount of the
loss can be reasonably estimated, the Company establishes an accrual for the litigation, claim or assessment. If it is determined that a
potential loss for the litigation, claim or assessment is less than probable, the Company assesses whether a potential loss is reasonably
possible, and will disclose an estimate of the possible loss or range of loss; provided, however, if a reasonable estimate cannot be
made, the Company will provide disclosure to that effect. On at least a quarterly basis, management confers with outside counsel to
evaluate all current litigation, claims or assessments in which the Company is involved. Management then meets internally to evaluate
all of the Company’s current litigation, claims or assessments. During these meetings, management discusses all existing and new
matters, including, but not limited to, (i) the nature of the proceeding; (ii) the status of each proceeding; (iii) the opinions of legal
counsel and other advisors related to each proceeding; (iv) the Company’s experience or experience of other entities in similar
proceedings; (v) the damages sought for each proceeding; (vi) whether the damages are unsupported and/or exaggerated;
(vii) substantive rulings by the court; (viii) information gleaned through settlement discussions; (ix) whether there is uncertainty as to
the outcome of pending appeals or motions; (x) whether there are significant factual issues to be resolved; and/or (xi) whether the
matters involve novel legal issues or unsettled legal theories. At these meetings, management concludes whether accruals are required
for each matter because a potential loss is determined to be probable and the amount of loss can be reasonably estimated; whether an
estimate of the possible loss or range of loss can be made for matters in which a potential loss is not probable, but reasonably possible;
or whether a reasonable estimate cannot be made for a matter.
Litigation is inherently unpredictable and may result in adverse rulings or decisions. In the event that any one or more of these
litigation matters, claims or assessments result in a substantial judgment against, or settlement by, the Company, the resulting liability
could also have a material effect on the Company’s financial condition, cash flows and results of operations.