Commitments and Contingencies

12 Months Ended

Dec. 25, 2011

Commitments and Contingencies

Commitments and Contingencies

Note 15. Commitments and Contingencies

The Company periodically evaluates all pending or threatened contingencies and any commitments, if any, that are reasonably likely to have a material adverse effect on its operations or financial position. The Company assesses the probability of an adverse outcome and determines if it is remote, reasonably possible or probable as defined in accordance with the provisions of FASB ASC Topic 450 Contingencies (“Topic 450”). If information available prior to the issuance of the Company’s financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the Company’s financial statements, and the amount of the loss, or the range of probable loss can be reasonably estimated, then such loss is accrued and charged to operations. If no accrual is made for a loss contingency because one or both of the conditions pursuant to Topic 450 are not met, but the probability of an adverse outcome is at least reasonably possible, the Company will disclose the nature of the contingency and provide an estimate of the possible loss or range of loss, or state that such an estimate cannot be made.

(a)Legal Matters

IPO Securities Litigation

The Company and certain of its officers and directors were previously defendants in several parallel class action shareholder complaints filed in the U.S. District Court for the Southern District of New York, consolidated under the caption In re Wireless Facilities, Inc. Initial Public Offering Securities Litigation, Case 01-CV-4779. These complaints were consolidated into an action captioned In re Initial Public Offering Securities Litigation, 21 MC 92 (the “IPO Cases”).

On April 2, 2009, a stipulation and agreement of settlement among the plaintiffs, issuer defendants and underwriter defendants was submitted to the court for preliminary approval. The court granted the plaintiffs’ motion for preliminary approval and preliminarily certified the settlement classes on June 10, 2009. The settlement fairness hearing was held on September 10, 2009. On October 6, 2009, the Court entered an opinion granting final approval to the settlement and directing that the Clerk of the Court close the IPO Cases. Notices of appeal of this decision were filed. In January 2012, the last objection to the decision was settled. All remaining appeal rights have expired without any financial obligation having been incurred by the Company.

Integral Systems, Inc.

Integral, which the Company acquired on July 27, 2011, was previously the subject of a SEC investigation. On July 30, 2009, the SEC and Integral each announced that an administrative settlement had been reached concluding the SEC’s investigation.

In conjunction with its announcement of the administrative settlement, the SEC disclosed that it was instituting separate civil actions against three former officers of Integral, Steven R. Chamberlain (now deceased), Elaine M. Brown and Gary A. Prince in a case captioned United States Securities and Exchange Commission v. Steven R. Chamberlain, Elaine M. Brown, and Gary A. Prince, Case No. 09-CV-01423, pending in the United States District Court for the District of Columbia. The SEC seeks permanent injunctions against each defendant, as well as court orders imposing officer and director bars and civil penalties. Integral has indemnification obligations to these individuals, as well as other former directors and officers of Integral who may incur indemnifiable costs in connection with these actions, pursuant to the terms of separate indemnification agreements entered into with each of them effective as of December 4, 2002. As a result of the acquisition of Integral, the Company assumed these indemnification obligations. The indemnification agreements each provide, subject to certain terms and conditions, that the Company indemnify the individual to the fullest extent permissible by Maryland law against judgments, penalties, fines, settlements and reasonable expenses actually incurred in the event that the individual is made a party to a legal proceeding by reason of his or her present or prior service as an officer or employee of Integral, and shall also advance reasonable litigation expenses actually incurred subject to, among other conditions, receipt of a written undertaking to repay any costs or expenses advanced if it shall ultimately be determined that the individual has not met the standard of conduct required for indemnification under Maryland law. Certain costs and expenses were previously covered under Integral’s applicable directors and officers liability insurance policy. The policy limits were exhausted in December 2011, and the Company is advancing payment of indemnifiable costs pursuant to the indemnification agreements.

From time to time, the Company may become involved in various claims, lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. The Company is currently not aware of any such legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition, operating results or cash flows. The aggregate amounts accrued related to these matters are not material to the total liabilities of the Company.

(b)U.S. Government Cost Claims

From time to time, the Company is advised of claims and penalties concerning potential disallowed costs. When such findings are presented, the Company and the U.S. Government representatives engage in discussions to enable the Company to evaluate the merits of these claims, as well as to assess the amounts being claimed. Where appropriate, provisions are made to reflect the Company’s expected exposure to the matters raised by the U.S. Government representatives and such provisions are reviewed on a quarterly basis for sufficiency based on the most recent information available. The Company believes that it has adequately reserved for any disputed amounts and that the outcome of any such matters would not have a material adverse effect on its consolidated financial position as of December 25, 2011 or its annual results of operations or cash flows.

(c)Warranty

Certain of the Company’s products, product finishes, and services are covered by a warranty to be free from defects in material and workmanship for periods ranging from one to ten years. Optional extended warranty contracts can also be purchased with the revenue deferred and amortized over the extended warranty period. The Company accrues a warranty liability for estimated costs to provide products, parts or services to repair or replace products in satisfaction of warranty obligations. Warranty revenues related to extended warranty contracts are amortized to income, over the life of the contract, using the straight-line method. Costs under extended warranty contracts are expensed as incurred.

The Company’s estimate of costs to service its warranty obligations is based upon historical experience and expectations of future conditions. To the extent that the Company experiences any changes in warranty claim activity or costs associated with servicing those claims, its warranty liability is adjusted accordingly.

The changes in the Company’s aggregate product warranty liabilities, which are included in other current liabilities and other long term-liabilities on the Company’s balance sheets, were as follows (in millions):

	Years ended
	December 26, 2010		December 25, 2011
Balance at beginning of the period	$	—	$	1.1
Warranty liabilities assumed from acquisitions	1.1		2.5
Accruals for warranties issued	—		1.6
Adjustments to preexisting warranties	—		(0.8		)
Settlements of warranty claims	—		(0.6		)
Balance at end of the period	$	1.1	$	3.8

(d)Self-Insured Medical Plans

The Company has health plans which are self-insured and also has liabilities related to its self-insured worker’s compensation plans for its discontinued wireless business. The liabilities related to the health plans are a component of total accrued expenses and the liabilities related to the worker’s compensation plans are a component of current liabilities of discontinued operations in the consolidated balance sheets. Management determines the adequacy of these accruals based on an evaluation of the Company’s historical experience and trends related to both medical and workers compensation claims and payments, information provided to the Company by the Company’s insurance broker, industry experience and the average lag period in which claims are paid. If such information indicates that the Company’s accruals require adjustment, the Company will, correspondingly, revise the assumptions utilized in the Company’s methodologies and reduce or provide for additional accruals as deemed appropriate.

As of December 27, 2009, December 26, 2010, and December 25, 2011, the accrual for the Company’s partial self-insurance programs approximated $0.3 million, $0.9 million and $0.2 million for its health insurance and $0.3 million, $0.3 million and $0.3 million for its workers’ compensation insurance, respectively. The Company also carries stop-loss insurance that provides coverage limiting the Company’s total exposure related to each medical and workers compensation claim incurred, as defined in the applicable insurance policies. The medical annual claim limits are $50,000 - 85,000 and the workers compensation claim limits are $250,000 - $350,000 depending upon the plan year. In 2009, 2010, and 2011, no claims exceeded the limits for workers compensation. In 2009, 2010 and 2011, the Company had two, four, and eight claims, respectively, which exceeded the limits for medical insurance.