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Commitments and Contingencies | 9 Months Ended
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Sep. 30, 2012
Commitments and Contingencies [Abstract] |
Commitments and Contingencies | Note 11. Commitments and Contingencies Indemnification Agreements We enter into standard indemnification arrangements with our customers in the ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless, and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, generally their business partners or customers, in connection with any U.S. patent, or any copyright or other intellectual property infringement claim by any third party with respect to our products. The term of these indemnification agreements is generally perpetual anytime after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these agreements is unlimited. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the estimated fair value of these agreements is minimal. We have entered into indemnification agreements with our directors and officers that require us to indemnify our directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of a culpable nature; to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified; and to obtain directors' and officers' insurance if available on reasonable terms, which we currently have in place.
| Product Warranty
We warrant our products for a specific period of time, generally twelve months, against material defects. We provide for the estimated future costs of warranty obligations in cost of sales when the related revenue is recognized. The accrued warranty costs represent the best estimate at the time of sale of the total costs that we expect to incur to repair or replace product parts that fail while still under warranty. The amount of accrued estimated warranty costs are primarily based on historical experience as to product failures as well as current information on repair costs. On a quarterly basis, we review the accrued balances and update these based on the historical warranty cost trends. The following table reflects the change in our warranty accrual which is included in "accrued liabilities" on the condensed consolidated balance sheets during the three and nine months ended September 30, 2012 and 2011 (in thousands):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2012 |  |  | 2011 |  |  | 2012 |  |  | 2011 |
Beginning accrued warranty and related costs |  | $ | 740 |  |  | $ | 877 |  |  | $ | 1,003 |  |  | $ | 740 |
Benefits to cost of revenue |  |  | (135 | ) |  |  | (139 | ) |  |  | (637 | ) |  |  | (410 | )
Actual warranty expenditures |  |  | 92 |  |  |  | 74 |  |  |  | 331 |  |  |  | 482 |
Ending accrued warranty and related costs |  | $ | 697 |  |  | $ | 812 |  |  | $ | 697 |  |  | $ | 812 |
Contractual Obligations We lease certain office space, manufacturing facilities and equipment under long-term operating leases expiring at various dates through February 2016. The lease agreement for the facility at Fremont, California with approximately 27,760 square feet commenced on December 1, 2008 for a term of seven years, with an option by us to cancel the lease after five years, upon forfeiture of the security deposit and payment of one-half of the fifth year's rent. We entered into a royalty agreement with a vendor effective December 3, 2010 with a term of eight years, terminating December 31, 2018. We and our related companies are granted a worldwide, nonexclusive, royalty bearing, irrevocable license to certain patents for the term on the agreement. We shall pay a total of $7.0 million in royalty payments over eight years that began in 2011 based on future royalty bearing sales. Outstanding contractual obligations as of September 30, 2012 are summarized as follows (in thousands):
|  | Payments due by period |
Contractual Obligations |  | Total |  |  | Less than 1 year |  |  | 1-3 years |  |  | 3-5 years |  |  | More than 5 years |
Operating leases |  | $ | 1,114 |  |  | $ | 395 |  |  | $ | 664 |  |  | $ | 55 |  |  | $ | - |
Royalty agreement |  |  | 4,439 |  |  |  | 913 |  |  |  | 1,600 |  |  |  | 1,207 |  |  |  | 719 |
Total |  | $ | 5,553 |  |  | $ | 1,308 |  |  | $ | 2,264 |  |  | $ | 1,262 |  |  | $ | 719 |
Purchase Obligations Through the normal course of business, we purchase or place orders for the necessary materials for our products from various suppliers and we commit to purchase products where we may incur a penalty if the agreement is canceled. As of September 30, 2012, we did not have any outstanding material purchase obligations. Legal Proceedings From time to time we may be involved in judicial or administrative proceedings concerning matters arising in the ordinary course of business. We do not expect that any of these matters, individually or in the aggregate, will have a material adverse effect on our business, financial condition, cash flows or results of operation.

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