Commitments and Contingencies

Long-Term Debt

See Note F herein for a discussion of our long-term debt.

Leases

We lease certain offices, facilities and equipment under operating leases expiring at various dates through 2023. We also sublease certain facilities that we are no longer occupying. Our sublease terms do not fully cover the existing rental commitments on certain facilities.

At September 30, 2018, the future minimum annual rental commitments and expected receipts under non-cancelable operating leases having terms in excess of one year were as follows (in thousands):



Years Ended September 30,	Operating Leases Payments		Operating Sublease Income
2019	$	3,002	$	(1,259	)
2020	2,135		(38		)
2021	2,000		—
2022	1,875		—
2023	1,298		—
Thereafter	—		—
Total lease commitments	$	10,310	$	(1,297	)

Lease expense and sublease income from third parties was as follows (in thousands):



	Year Ended September 30,
	2018			2017			2016
Rental expense	$	3,432		$	3,734		$	4,469
Sublease income from third parties	(1,487		)	(1,389		)	(986		)

In Fiscal 2018, we incurred approximately $0.8 million due to anticipated losses on the sublet of a Canadian facility we exited in a prior period. In Fiscal 2016, we incurred approximately $0.5 million of restructuring costs related to a Canadian facility that we leased and exited in the third quarter of Fiscal 2016.

Letters of Credit, Bank Guarantees and Bonds

Certain customers require us to post letters of credit, bank guarantees or surety bonds. These security instruments assure that we will perform under the terms of our contract. In the event of default, the counterparty may demand payment from the bank under a letter of credit or bank guarantee, or performance by the surety under a bond. To date, there have been no significant expenses related to security instruments for the periods reported. We were contingently liable for letters of credit and bank guarantees of $26.4 million as of September 30, 2018. We also had outstanding surety bonds totaling $160.6 million, with additional bonding capacity of $589.4 million available, at September 30, 2018.

We have a $6.5 million facility agreement (Facility Agreement) between Powell (UK) Limited and a large international bank. This Facility Agreement provides Powell (UK) Limited the ability to enter into bank guarantees as well as forward exchange contracts and currency options. At September 30, 2018, we had outstanding guarantees totaling $3.3 million under this Facility Agreement and amounts available under this Facility Agreement were $3.2 million. The Facility Agreement expires in May 2019 and provides for financial covenants and customary events of default, and carries cross-default provisions with our U.S. Revolver. If an event of default (as defined in the Facility Agreement) occurs and is continuing, per the terms and subject to the conditions set forth therein, obligations outstanding under the Facility Agreement may be accelerated and may become or be declared immediately due and payable. As of September 30, 2018, we were in compliance with all of the financial covenants of the Facility Agreement.

Litigation

We are involved in various legal proceedings, claims and other disputes arising from our commercial operations, projects, employees and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. Although we can give no assurances about the resolution of pending claims, litigation or other disputes and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided or covered by insurance, will not have a material adverse effect on our consolidated financial position or results of operations or liquidity.

Liquidated Damages

Certain of our customer contracts have schedule and performance obligation clauses that, if we fail to meet them, could require us to pay liquidated damages. Each individual contract defines the conditions under which the customer may make a claim against us. As of September 30, 2018, our exposure to possible liquidated damages was $2.4 million, of which approximately $0.7 million was probable. Based on our actual or projected failure to meet these various contractual commitments, $0.7 million has been recorded as a reduction to revenue. We will attempt to obtain change orders, contract extensions or accelerate project completion, which may resolve the potential for any unaccrued liquidated damage. Should we fail to achieve relief on some or all of these contractual obligations, we could be required to pay additional liquidated damages, which could negatively impact our future operating results.