COMMITMENTS AND CONTINGENCIES

Commitments

Leases

The Company leases its domestic and foreign sales offices under non-cancelable operating leases. These leases contain various expiration dates and renewal options. The Company also leases certain manufacturing equipment and software rights under operating leases. Total rental expense for the years ended December 31, 2015, 2014 and 2013 was $25.8 million, $27.3 million and $24.4 million, respectively.

Aggregate non-cancelable future minimum rental payments under operating leases are as follows:



Years Ending December 31:	Operating Leases
	(in thousands)
2016	$	10,939
2017	8,530
2018	7,199
2019	7,263
2020	6,836
Thereafter	11,606
	$	52,373

Indemnification

As is customary in the Company’s industry, the Company’s standard contracts provide remedies to its customers, such as defense, settlement, or payment of judgment for intellectual property claims related to the use of the Company’s products. From time to time, the Company will indemnify customers against combinations of loss, expense, or liability arising from various trigger events related to the sale and the use of the Company’s products and services, usually up to a specified maximum amount. In addition, as permitted under state laws in the United States, the Company has entered into indemnification agreements with its officers and directors and certain employees, and the Company’s bylaws permit the indemnification of the Company’s agents. The estimated fair value of the liability is not material.

Purchase Commitments

At December 31, 2015, the Company, or its affiliates, had certain non-cancellable commitments that were not included on the consolidated balance sheets at that date. These include the outstanding capital purchase commitments of approximately $2.2 million and wafer purchase commitments of approximately $21.8 million.

Contingencies

Legal Proceedings

The Company is party to various legal proceedings. Management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on the Company's financial position, results of operations and statements of cash flows. If an unfavorable ruling were to occur in any of the legal proceedings described below or other legal proceedings that were not deemed material as of December 31, 2015, there exists the possibility of a material adverse effect on the Company's financial position, results of operations and cash flows. The Company has accrued for losses related to litigation that it considers probable and for which the loss can be reasonably estimated. In the event that a probable loss cannot be reasonably estimated, it has not accrued for such losses. Management makes a determination as to when a potential loss is reasonably possible based on relevant accounting literature and then includes appropriate disclosure of the contingency. As the Company continues to monitor litigation matters, whether deemed material as of December 31, 2015 or not, its determination could change, and the Company may decide, at some future date, to establish an appropriate reserve.

Putative Class Action Litigation. On February 17 and 19, 2016, two substantially identical putative class action lawsuits were filed in the United States District Court for the Southern District of Florida and the United States District Court for the Northern District of California against the Company and various other defendants, including Continental AG and certain affiliates, Honda Motor Co., Ltd. and an affiliate, and (with respect to the Florida action only) Daimler AG and an affiliate. The complaints-which include claims arising under federal and Florida or California state law-allege that class members unknowingly purchased or leased vehicles containing defective airbag control units (allegedly incorporating defective application specific integrated circuits manufactured by the Company between 2006 and 2010), and thereby suffered financial harm, including a loss in the value of their purchased or leased vehicles. The plaintiffs in both suits are seeking unspecified compensatory and exemplary damages, statutory penalties, pre- and post-judgment interest, attorneys’ fees, and injunctive and other relief. The Company intends to contest plaintiffs’ claims vigorously.

Southern District of New York Action by LFoundry Rousset (“LFR”) and LFR Employees. On March 4, 2014, LFR and Jean-Yves Guerrini, individually and on behalf of a putative class of LFR employees, filed an action in the United States District Court for the Southern District of New York (the "District Court") against the Company, our French subsidiary, Atmel Rousset S.A.S. (“Atmel Rousset”), and LFoundry GmbH (“LF”), LFR’s German parent. The case purports to relate to Atmel Rousset’s June 2010 sale of its wafer manufacturing facility in Rousset, France to LF, and LFR’s subsequent insolvency, and later liquidation, more than three years later. The District Court dismissed the case on August 21, 2015, and plaintiffs are appealing the dismissal.

Individual Labor Actions by former LFR Employees. In the wake of LFR's insolvency and liquidation, over 500 former employees of LFR have filed individual labor actions against Atmel Rousset in a French labor court. Atmel Rousset believes that each of these actions is entirely devoid of merit, and, further, that any assertion by any of the Claimants of a co-employment relationship with Atmel Rousset is based substantially on the same specious arguments that the Paris Commercial Court summarily rejected in 2014 in related proceedings. Atmel Rousset therefore intends to defend vigorously against each of these claims.

Other Contingencies

From time to time, the Company is notified of claims that its products may infringe patents, or other intellectual property, issued to or owned by other parties. The Company periodically receives demands for indemnification from its customers with respect to intellectual property matters. The Company also periodically receives claims relating to the quality of its products, including claims for additional labor costs, costs for replacing defective parts, reimbursement to customers for damages incurred in correcting defective products, costs for product recalls or other damages. With respect to the matter of defective products, the Company is evaluating a claim related to purported titanium nitride corrosion contained in an application specific integrated circuit, last sold in 2010, to an original equipment manufacturer in the automotive sector. That claim is subject to legal defenses or limitations on liability, including a liability cap. Based on current circumstances and information available to the Company, the Company has not undertaken an accrual with respect to that matter as of the date of this Form 10-K. In addition, at this point in time, the Company is unable to make an estimate of a range of losses, if any, that might result from this matter. Receipt of this, and similar, claims and requests occurs in the ordinary course of the Company's business, and the Company responds based on the specific circumstances of each event. The Company undertakes an accrual for losses relating to those types of claims when it considers those losses “probable” and when a reasonable estimate of loss can be determined.

Product Warranties

The Company accrues for warranty costs based on historical trends of product failure rates and the expected material and labor costs to provide warranty services. The Company’s products are generally covered by a warranty typically ranging from 30 days to three years. Product warranty liability is included in accrued and other liabilities in the Consolidated Balance Sheets.

The following table summarizes the activity related to the product warranty liability:



	Years Ended
	December 31, 2015			December 31, 2014			December 31, 2013
	(In thousands)
Balance at beginning of period	$	3,945		$	3,686		$	4,832
Accrual for warranties during the period, net	3,639			3,884			2,203
Actual costs incurred	(3,760		)	(3,625		)	(3,349		)
Balance at end of period	$	3,824		$	3,945		$	3,686

Product warranty liability is included in accrued and other liabilities on the consolidated balance sheets.

Guarantees

In the ordinary course of business, the Company may provide standby letters of credit or other guarantee instruments to certain parties as required for certain transactions initiated by either the Company or its subsidiaries. The Company has not recorded any liability in connection with these guarantee arrangements. Based on historical experience and information currently available, the Company believes it will not be required to make any payments under these guarantee arrangements.