Note 12. Commitments and Contingencies

General Litigation

The Company is from time to time party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract and/or property damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. Based upon information currently available, the Company believes that the ultimate outcome of all current litigation and other claims, individually and taken together, and except as described herein, are not expected to have a material adverse effect on the Company’s business, prospects, financial condition or results of operations. For the three and nine months ended September 30, 2015, there were no material claims or legal proceedings.

Concentration of Credit Risk

As a result of the merger between AT&T Inc. and DIRECTV on July 24, 2015, a significant portion of the Company’s revenue is derived from a single significant customer.

The following table reflects the percentage of total revenue from such customer for the three and nine months ended September 30, 2014 and 2015:

	Three months ended September 30,						Nine months ended September 30,
	2014			2015			2014			2015
Subsidiaries of AT&T Inc.		70.7	%		45.0	%		65.7	%		56.3	%
DIRECTV		18.7	%		43.6	%		20.5	%		33.6	%
Total from AT&T Inc., including DIRECTV		89.4	%		88.6	%		86.2	%		89.9	%

Other		10.6	%		11.1	%		13.8	%		10.1	%

Amounts due from these significant customers at December 31, 2014 and September 30, 2015 were as follows (in thousands):

	December 31, 2014		September 30, 2015
Subsidiaries of AT&T Inc., other than DIRECTV	$	37,955	$	6,499
DIRECTV		13,315		20,423
Total	$	51,270	$	26,922

A loss of AT&T and its subsidiaries as a customer would have a material adverse effect on the financial condition of the Company.

Indemnities

The Company generally indemnifies its customers for services it provides under its contracts which may subject the Company to indemnity claims, liability and related litigations. For the nine months ended September 30, 2015, the Company was not aware of any material asserted or unasserted claims in connection with these indemnity obligations.

Guarantees

In 2011, the Company issued a letter of credit to a company owned by a relative of the Company’s former Executive Chairman as a guarantee of a related party’s line of credit. The Company’s exposure with respect to the letter of credit is supported by a reimbursement agreement from the related party, secured by a pledge of assets and stock of the related party. A liability in the amount of $4.0 million was recorded within other operating expense and accrued liabilities in the Company’s consolidated financial statements. On January 16, 2015, the guarantee liability for the full amount of $4.0 million was paid in full. The liability related to the guarantee was released and the Company no longer maintains any exposure related to the letter of credit.

The Company entered into an agreement with the related party in 2014 whereby the Company agreed not to pursue the pledged collateral for a period of time not extending beyond May 5, 2016 (the “Forbearance Period”) in exchange for the related party’s pledge to the Company of 15,625 shares of Goodman Networks common stock. In addition, the Company agreed to discharge and deem paid-in-full all obligations of the related party to the Company if, prior to the end of the Forbearance Period, the related party makes a cash payment to the Company in the amount of $1.5 million plus interest at a rate of 2.0% per annum from September 25, 2014 and satisfy certain other contingencies. In October 2015, the related party made a cash payment to the Company in the amount of $1.5 million. However, the related party did not satisfy all conditions necessary to discharge the related party’s obligations. As of September 30, 2015, the Company holds the pledged stock as additional paid-in capital in the consolidated balance sheet.

State Sales Tax

The Company is routinely subject to sales tax audits that could result in additional sales taxes and related interest owed to various taxing authorities. Any additional sales taxes against the Company will be invoiced to the appropriate customer. However, no assurances can be made that such customers would be willing to pay the additional sales tax.

Contract-Related Contingencies and Fair Value Measurements

The Company has certain contingent liabilities related to the Design Build Technologies, LLC (“DBT”) and CSG acquisitions. The Company adjusts these liabilities to fair value at each reporting period. The Company values contingent consideration related to acquisitions on a recurring basis using Level 3 inputs such as forecasted net revenue and earnings before interest, taxes, depreciation and amortization, and discount rates. The liability related to these contingent consideration arrangements was $0.7 million as of December 31, 2014. During the nine months ended September 30, 2015, the Company reduced the fair value of the CSG contingent consideration liability to zero based upon the results of CSG’s operations for the three months ended March 31, 2015 and further changes in management’s forecast for CSG’s operations for the remainder of the earn-out period.

The changes in contingent liabilities are as follows for the nine months ended September 30, 2015 (in thousands):

Balance at December 31, 2014	$	726
Change in fair value of contingent consideration		(726	)
Balance at September 30, 2015	$	-