Avid 2011 Annual Report Download - page 79

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74
Further, certain of the Company's arrangements with customers include clauses whereby the Company may be subject to penalties
for failure to meet certain performance obligations; however, the Company has not recorded any related material penalties to date.
Opengate SpA (“Opengate”), an entity in liquidation represented by the Trustee in Bankruptcy, Dr. Marco Fiorentini, brought a
claim against the Company's subsidiary, Pinnacle Systems GmbH (“Pinnacle GmbH”), in the Varese, Italy Tribunal on July 21,
2009. The Trustee in Bankruptcy sought to recover €2.7 million in payments made by Opengate to Pinnacle GmbH between 2002
and 2003, the year prior to Opengate being placed into administration. In June 2011, the Company and Opengate agreed to settle
the claim, and an immaterial settlement amount was paid to Opengate during the third quarter of 2011.
On May 24, 2007, David Engelke and Bryan Engelke filed a complaint in Pinellas County (Florida) Circuit Court against our
Pinnacle subsidiary claiming damages of approximately $15 million for the alleged breach of two contracts by Pinnacle and that
the Engelkes were entitled to indemnification for damages, attorneys fees and accrued interest assessed against them in litigation
with a third party, Athle-Tech Computer Systems, Inc. (“Athle-Tech”). The parties reached a settlement in this matter on
September 24, 2010 pursuant to which Pinnacle paid $5.6 million, which was recorded in the Company’s general and
administrative expenses, and obtained a full release of claims from each of the Engelkes and Athle-Tech. The lawsuit was
dismissed with prejudice on September 24, 2010.
The Company's Canadian subsidiary, Avid Technology Canada Corporation, was assessed and paid to the Ministry of Revenue
Quebec (“MRQ”) approximately CAN $1.7 million for social tax assessments on Canadian employee stock-based compensation
related to the Company's stock plans. The Company is currently attempting to recover the payments against these assessments
through litigation with the MRQ. The payment amounts were recorded in “other current assets” in the Company's consolidated
balance sheets at December 31, 2011 and 2010. Because the Company cannot predict the outcome of the litigation at this time or
the amount of potential losses, if any, no costs have been accrued for any loss contingency; however, this matter is not expected to
have a material effect on the Company's financial position or results of operations.
As permitted under Delaware law and pursuant to the Company's Third Amended and Restated Certificate of Incorporation, as
amended, the Company is obligated to indemnify its current and former officers and directors for certain events that occur or
occurred while the officer or director is or was serving in such capacity. The term of the indemnification period is for each
respective officer's or director's lifetime. The maximum potential amount of future payments the Company could be required to
make under these indemnification obligations is unlimited; however, the Company has mitigated the exposure through the
purchase of directors and officers insurance, which is intended to limit the risk and, in most cases, enable the Company to recover
all or a portion of any future amounts paid. As a result of this insurance coverage, the Company believes the estimated fair value
of these indemnification obligations is minimal.
The Company provides warranties on externally sourced and internally developed hardware. For internally developed hardware
and in cases where the warranty granted to customers for externally sourced hardware is greater than that provided by the
manufacturer, the Company records an accrual for the related liability based on historical trends and actual material and labor
costs. The warranty period for all of the Company's products is generally 90 days to one year, but can extend up to five years
depending on the manufacturer's warranty or local law.
The following table sets forth the activity in the product warranty accrual account for the years ended December 31, 2011 and
2010 (in thousands):
Accrual balance at December 31, 2009
Acquired product warranty
Accruals for product warranties
Cost of warranty claims
Accrual balance at December 31, 2010
Accruals for product warranties
Cost of warranty claims
Accrual balance at December 31, 2011
$ 4,454
339
5,046
(5,347)
4,492
7,023
(6,094)
$ 5,421
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