15. COMMITMENTS, CONTINGENCIES AND INDEMNIFICATIONS

Future minimum rental commitments under non-cancelable operating leases were as follows:


	As of June 30, 2013
2014	$	5.7
2015		5.1
2016		3.6
2017		1.5
2018		0.8
Thereafter		7.3

	$	24.0

Rent expense for fiscal 2013, 2012 and 2011 was $5.0 million, $4.7 million and $6.2 million, respectively. We include stated scheduled rent increases in calculating future minimum lease payments under non-cancellable operating leases and the minimum lease payments are recognized as rent expense on a straight-line basis over the minimum lease term.

We routinely enter into license agreements with others for the use of brands, intellectual properties and technologies in our products. These agreements generally provide for royalty advances and license fee payments when the agreements are signed and minimum commitments, which are cancellable in certain circumstances.

In June 2009, we entered into the 2009 License with Hasbro to license certain intellectual property and proprietary rights owned or controlled by Hasbro in brands, such as MONOPOLY, BATTLESHIP, GAME OF LIFE and CLUE, for use in our gaming machines. The 2009 License, which is not assignable without Hasbro’s consent, was effective April 1, 2009 and has an initial term through December 31, 2016. Hasbro has consented to our Merger with Scientific Games. We have the right to extend the 2009 License for an additional three-year term if certain conditions are satisfied. We are required to make minimum increasing annual guaranteed royalty payments during the term of the 2009 License. See Note 13. “Stockholder’s Equity—Warrants.”

At June 30, 2013, we had total royalty and license fee commitments, advances and payments made and potential future royalty and license fee payments as follows:


	Minimum Commitments
Total royalty and license fee commitments	$	205.6
Advances and payments made		(144.8	)

Potential future payments	$	60.8

The total potential royalty and license fee commitments decreased to $60.8 million at June 30, 2013 from $73.8 million at June 30, 2012, due to advances and payments made on existing commitments exceeding commitments under new agreements we entered into for intellectual property, technology or brand licenses. Potential royalty and license fee commitments could increase in the future as we enter into new intellectual property, technology or brand licensing agreements. See Note 9. “Intangible Assets” for the related assets that are recorded on our Consolidated Balance Sheets.

As of June 30, 2013, we estimate that potential future royalty payments in each fiscal year will be as follows:


	Minimum Commitments
2014	$	20.0
2015		16.8
2016		15.7
2017		7.7
2018		0.5
Thereafter		0.1

Total	$	60.8

Non-Cancelable Raw Material Purchase Orders

Commitments under non-cancelable raw materials purchase orders increased to $13.8 million as of June 30, 2013 from $2.7 million as of June 30, 2012 primarily relating to an increase in materials to support the launch of the new Blade and Gamefield xD gaming machines.

Performance Bonds and Other Loan Guarantees

We have performance bonds and other loan guarantees outstanding of $10.7 million at June 30, 2013, related to product sales, and for the performance bonds we are liable to the issuer in the event of exercise due to our non-performance under the contract. Events of non-performance do not include the financial performance of our products.

Indemnifications

We have agreements in which we may be obligated to indemnify other parties with respect to certain matters. Generally, these indemnification provisions are included in sales orders and agreements arising in the normal course of business under which we customarily agree to hold the indemnified party harmless against claims arising from a breach of representations related to matters such as title to assets sold and licensed, defective equipment or certain intellectual property rights. Payments by us under such indemnification provisions are generally conditioned on the other party making a claim. Such claims are typically subject to challenge by us and to dispute resolution procedures specified in the particular sales order or contract. Further, our obligations under these agreements may be limited in terms of time and/or amount and, in some instances, we may have recourse against third parties. It is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of the obligations and the unique facts of each particular agreement. Historically, we have not made any payments under these agreements that have been material individually or in the aggregate. As of June 30, 2013, we were not aware of any obligations arising under indemnification agreements that would require material payments.

We have agreements with our directors and certain officers that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. We have also agreed to indemnify certain former officers and directors of acquired companies. We maintain director and officer insurance, which may cover our liabilities arising from these indemnification obligations in certain circumstances. As of June 30, 2013, we were not aware of any obligations arising under these agreements that would require material payments. Although we are providing indemnification of officers and directors named in securities cases described in Note 16. “Litigation”, it is too early in these claims to ascertain the extent of any such indemnification. Under the Merger Agreement, at the effective time of the Merger, Scientific Games will purchase a directors and officers insurance policy to cover six future years.

Special Purpose Entities and Derivative Instruments

We do not have any special purpose entities for investment or the conduct of our operations. We have not entered into any derivative financial instruments, although we have granted stock options, restricted stock, equity based performance units and deferred stock units to our employees, officers, directors and consultants and warrants to a licensor. See Note 13. “Stockholders Equity—Warrants” and Note 14. “Equity Compensation Plan”.

Letters of Credit

Outstanding letters of credit issued under our revolving credit facility to ensure payment to certain vendors and government agencies totaled $1.0 million at June 30, 2013. As of June 30, 2013, after consideration of $1.0 million outstanding letters of credit, there was approximately $314.0 million of available borrowings under the revolving credit facility. Availability under the revolving credit facility is reduced by the outstanding letters of credit.

WMS Licensor Arrangements

Our sales agreements that include software and intellectual property licensing arrangements provide a clause whereby we indemnify the third-party licensee against liability and damages (including legal defense costs) arising from any claims of patent, copyright, trademark or trade secret infringement. Should such a claim occur, we could be required to make payments to the licensee for any liabilities or damages incurred. Historically, we have not incurred any significant cost due to infringement claims. As we consider the likelihood of incurring future costs to be remote, no liability has been accrued.

Insurance Deductibles and Retentions

Under our various insurance policies, we are liable for contractual deductibles or retentions of up to $1.0 million per insurance policy, including directors and officers, fiduciary, property, crime, workers’ compensation, electronic errors and omissions, employment practices and automobile insurance. In addition, we are self-insured up to $0.25 million per covered family, after the employee’s pay annual deductibles, for medical, dental, prescription drug and disability coverage. We purchase annual stop-loss coverage to limit our loss to $0.25 million for employee medical, dental, prescription drug and disability claims. Accrued worker’s compensation claims and employee related medical, dental, prescription drug and disability reserves include estimated settlements for known claims and estimates of claims incurred but not reported.

Product Warranty

We generally warrant our new gaming machines sold in the U.S. for a period of 365 days, while we warrant our gaming machines sold internationally for a period of 180 days to one year. Our warranty costs have not been significant.