XML 52 R19.htm IDEA: XBRL DOCUMENT v3.3.0.814
Commitments and Contingent Liabilities
9 Months Ended
Sep. 30, 2015
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingent Liabilities
Commitments and Contingent Liabilities

The Company is involved in various legal proceedings and claims arising in the normal course of its business and the Company will periodically review the probable outcome of such proceedings, their impact on its operations, the associated costs and expenses incurred and reasonably expected to be incurred, and the amounts accrued. Such legal proceedings and claims are not expected to have a material adverse effect on the Company’s  financial condition.
Audience IPO-Related Litigation
On September 13, 2012, a purported shareholder filed a class action complaint in the Superior Court of the State of California for Santa Clara County against Audience, Inc., the members of its board of directors, two of its executive officers and the underwriters of Audience’s initial public offering ("IPO"). An amended complaint was filed on February 25, 2013, which purported to be brought on behalf of a class of purchasers of Audience’s common stock issued in or traceable to the IPO. On April 3, 2013, the outside members of the board of directors of Audience and the underwriters were dismissed without prejudice. The amended complaint added additional shareholder plaintiffs and contains claims under Sections 11 and 15 of the Securities Act. The complaint seeks, among other things, compensatory damages, rescission and attorney’s fees and costs. On March 1, 2013, defendants responded to the amended complaint by filing a demurrer moving to dismiss the amended complaint on the grounds that the court lacks subject matter jurisdiction. The court overruled that demurrer. On March 27, 2013, defendants filed a demurrer moving to dismiss the amended complaint on other grounds. The court denied the demurrer on September 4, 2013. On January 16, 2015, the court granted plaintiff’s motion to certify a class. A trial has been scheduled for January 25, 2016. On July 23, 2015, an agreement in principle to settle the action was reached. In exchange for broad releases from the Plaintiffs, the settlement provides for the Plaintiffs to receive a cash payment of $6.0 million (the “Settlement Amount”). The Settlement Amount will be paid entirely by Audience’s insurance carriers. None of the individual defendants, Audience or Knowles admitted any wrongdoing in conjunction with the settlement and none of them is responsible for payment of any portion of the Settlement Amount. The settlement is subject to approval by the court and members of the class may opt out of, or object to, the settlement. If the court approves the settlement, Audience’s insurance carriers will pay the Settlement Amount to the class. There can be no assurance that the court will approve the settlement and class members may opt out of the settlement and file individual actions. As of September 30, 2015, the Company has accrued $6.0 million of legal reserves with a corresponding accounts receivable amount of $6.0 million on Knowles Consolidated Balance Sheet.

Audience Acquisition-Related Litigation
Between May 15 and May 29, 2015, five substantially similar class action lawsuits challenging the proposed acquisition of Audience, Inc. were filed in the Superior Court of California, Santa Clara County, against the members of Audience’s board of directors and the Company, among others. The lawsuits were subsequently consolidated into a single action. The complaints allege that the members of Audience’s board of directors breached their fiduciary duties to Audience shareholders in connection with the proposed acquisition and that the Company aided and abetted these alleged violations. The plaintiffs seek to enjoin the acquisition, as well as, among other things, compensatory damages and attorney’s fees and costs.

In June 2015, the parties reached an agreement-in-principle providing for the settlement of the litigation on the terms and conditions set forth in a memorandum of understanding (the “MOU”). Pursuant to the terms of the MOU, without agreeing that any of the claims in the litigation have merit or that any supplemental disclosure was required under any applicable statute, rule, regulation or law, Audience agreed to make certain supplemental and amended disclosures in its statement in support of the acquisition filed with the Securities and Exchange Commission. The MOU further provides that, following the successful completion of confirmatory discovery, among other things: (a) the parties to the MOU will enter into a definitive stipulation of settlement (the “Stipulation”) and will submit the Stipulation to the court for review and approval; (b) the Stipulation will provide for dismissal of the litigation; (c) the Stipulation will include a general release of defendants to the litigation and certain other persons or entities acting for or on behalf of any of them and each of them of claims relating to the transaction; and (d) the proposed settlement is conditioned on final approval by the court after notice to Audience shareholders. The parties completed the confirmatory discovery during the quarter and are now proceeding to finalize the Stipulation. There can be no assurance that the settlement will be finalized or that the court will approve the settlement. As of September 30, 2015, the Company has accrued $0.5 million of legal reserves on Knowles Consolidated Balance Sheet.

Intellectual Property Infringement Claims

The Company may, on a limited customer specific basis, provide contractual indemnities for certain losses that arise out of claims that its products infringe on the intellectual property of others. Historically, the Company has not made significant payments under such indemnity arrangements. Other than the litigation noted above, the Company’s legal reserves were not significant at September 30, 2015 and 2014.