Avid 2014 Annual Report Download - page 81

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The Company records a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss
can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations,
settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. At December 31, 2014,
the Company recorded a liability and a receivable from the insurance company for the $2.5 million settlement related to the securities
class action discussed above.
The Company believes that, other than as set forth in this note, no other provision for liability nor disclosure is required related to any
claims because: (a) there is no reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with
respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial.
Additionally, the Company provides indemnification to certain customers for losses incurred in connection with intellectual property
infringement claims brought by third parties with respect to the Company’s products. These indemnification provisions generally
offer perpetual coverage for infringement claims based upon the products covered by the agreement and the maximum potential
amount of future payments the Company could be required to make under these indemnification provisions is theoretically unlimited.
To date, the Company has not incurred material costs related to these indemnification provisions; accordingly, the Company believes
the estimated fair value of these indemnification provisions is immaterial. 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.
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 following
table sets forth the activity in the product warranty accrual account for the years ended December 31, 2014, 2013 and 2012 (in
thousands):
Accrual balance at January 1, 2012 $ 5,100
Accruals for product warranties 7,737
Cost of warranty claims (7,854)
Allocation to divested consumer business (507)
Accrual balance at December 31, 2012 4,476
Accruals for product warranties 5,346
Cost of warranty claims (6,321)
Accrual balance at December 31, 2013 3,501
Accruals for product warranties 3,985
Cost of warranty claims (4,694)
Accrual balance at December 31, 2014 $ 2,792
L. CAPITAL STOCK
Preferred Stock
The Company has authorized up to one million shares of preferred stock, $0.01 par value per share, for issuance. Each series of
preferred stock shall have such rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion
rights, redemption privileges and liquidation preferences, as may be determined by the Company’s board of directors (the “Board”).