Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

v3.3.1.900
Commitments and Contingencies
12 Months Ended
Dec. 31, 2015
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
Lease Commitments
In the first quarter of 2013, we entered into a capital lease agreement for software that expires in 2016. Amortization of the leased assets is recognized on a straight-line basis.
The assets under the capital lease were as follows at December 31, 2015 and 2014:
 
 
December 31,
 
 
2015
 
2014
 
 
(in thousands)
Software
 
$
1,977

 
$
1,977

Less: Accumulated amortization
 
(1,694
)
 
(1,110
)
Assets under capital lease, net
 
$
283

 
$
867


Amortization expense relating to capital leases is included in depreciation expense in the accompanying financial statements. The future minimum lease payments required under the capital lease and the present value of the net minimum lease payments as of December 31, 2015 were as follows, in thousands:
2016
$
294

Thereafter

Total minimum lease payments
294

Less amount representing average interest of 2.2%
(2
)
 
292

Less current portion
(292
)
Long-term portion
$


The Company leases office facilities and equipment for various terms under long-term, non-cancellable operating lease agreements. The leases expire at various dates through 2028 and provide for renewal options. The agreements generally require the Company to pay for executory costs such as real estate taxes, insurance, and repairs. Additionally, the Company has entered into sublease agreements for certain of its leased office facilities. These sublease agreements expire through 2017.
In May 2015, the Company entered into a lease agreement for office space located in Richardson, Texas. The lease is for a term of twelve years, beginning in 2016, and includes optional extension periods. The lease agreement contains provisions for rent escalations over the term of the lease and leasehold improvement incentives. At December 31, 2015, we had a receivable for incentives under this lease of $19.4 million, which is included in other current assets in the accompanying Consolidated Balance Sheets. Deferred rent related to these incentives and other provisions of the lease totaled $21.5 million and is classified as current or long term in the balance sheet based upon when the deferred amounts are expected to be recognized. Similar to our other operating leases, the agreement requires the Company to pay for executory costs such as real estate taxes, insurance, and utilities. In July 2015, the Company entered into an amendment to the lease agreement which increased the amount of leased space.
During 2015, the Company vacated our leased office space in Westlake Village, California; Chicago, Illinois; and Charlotte, North Carolina. During the same period we entered into a modification agreement related to the leased office space in San Francisco, California whereby the amount of leased space was reduced. These modifications were made to consolidate our operations and reduce operating costs. Related to the above changes, we recognized a cease-use liability in the amount of $0.2 million. The cease-use liability reflects the fair value of the remaining net cash flows related to our continuing obligations under the leases, net of estimated sub-rents. Additionally, we recognized a reduction of our accrued lease liability in the amount of $0.9 million related to lease incentives for the San Francisco office. These adjustments are reflected in the "General and administrative" line in the accompanying Consolidated Statements of Operations.
Minimum annual rental commitments under non-cancellable operating leases and total minimum rentals to be received under non-cancellable subleases were as follows at December 31, 2015:
 
Minimum Lease Commitments
 
Sublease Income
 
Net Lease Commitments
 
(in thousands)
2016
$
10,148

 
$
354

 
$
9,794

2017
9,721

 
140

 
9,581

2018
9,800

 

 
9,800

2019
9,143

 

 
9,143

2020
7,482

 

 
7,482

Thereafter
55,732

 

 
55,732

 
$
102,026

 
$
494

 
$
101,532


Rent expense was $10.9 million, $11.1 million, and $9.7 million for the years ended December 31, 2015, 2014, and 2013, respectively. Income from subleases was $0.4 million for the year ended December 31, 2015. For the years ended December 31, 2014 and 2013, income from subleases was $0.1 million.
Guarantor Arrangements
We have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The term of the indemnification period is for the officer's or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a director and officer insurance policy that limits our exposure and enables us to recover a portion of any future amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. Accordingly, we had no liabilities recorded for these agreements as of December 31, 2015 or 2014.
In the ordinary course of our business, we enter into standard indemnification provisions in our agreements with our customers. Pursuant to these provisions, we indemnify our customers for losses suffered or incurred in connection with third-party claims that our products infringed upon any U.S. patent, copyright, trademark, or other intellectual property right. Where applicable, we generally limit such infringement indemnities to those claims directed solely to our products and not in combination with other software or products. With respect to our products, we also generally reserve the right to resolve such claims by designing a non-infringing alternative, by obtaining a license on reasonable terms, or by terminating our relationship with the customer and refunding the customer’s fees.
The potential amount of future payments to defend lawsuits or settle claims under these indemnification provisions is unlimited in certain agreements; however, we believe the estimated fair value of these indemnity provisions is minimal, and, accordingly, we had no liabilities recorded for these agreements as of December 31, 2015 or 2014.
Litigation
From time to time, in the normal course of our business, we are a party to litigation matters and claims. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and our view of these matters may change in the future as the litigation and events related thereto unfold. We expense legal fees as incurred. Insurance recoveries associated with legal costs incurred are recorded when they are deemed probable of recovery.
In March 2015, we were named in a purported class action lawsuit in the United States District Court for the Eastern District of Pennsylvania, styled Stokes v. RealPage, Inc., Case No. 2:15-cv-01520. On January 25, 2016, the court entered an order placing the case in suspense until the United States Supreme Court issues its decision in Spokeo, Inc. v. Robins. In November 2014, the Company was named in a purported class action lawsuit in the United States District Court for the Eastern District of Virginia, styled Jenkins v. RealPage, Inc., Case No. 3:14cv758. This case has since been transferred to the United States District Court for the Eastern District of Pennsylvania. On January 25, 2016, the court entered an order placing the case in suspense until the United States Supreme Court issues its decision in Spokeo, Inc. v. Robins. We intend to defend each case vigorously.
On February 23, 2015, we received from the FTC a Civil Investigative Demand consisting of interrogatories and a request to produce documents relating to our compliance with the Fair Credit Reporting Act. We have responded to the request. At this time, we do not know the scope of the investigation and we do not have sufficient information to evaluate the likelihood or merits of any potential enforcement action, or to predict the outcome or costs of responding to, or the costs, if any, of resolving this investigation.
At December 31, 2015, we had accrued amounts for estimated settlement losses related to legal matters. No amounts for estimated settlement losses for legal matters, were accrued at December 31, 2014.
During 2014, we expensed $4.7 million, inclusive of the settlements and other associated costs, related to litigation settled during that period. The litigation related to reimbursement claims made against us, each by a primary and an excess layer errors and omissions insurance carrier. The carriers were seeking reimbursement of claims formerly funded by them relating to a litigation matter settled in 2012.
We are involved in other litigation matters not listed above that are not likely to be material either individually or in the aggregate based on information available at this time. Our view of these matters may change as the litigation and events related thereto unfold.