12. Commitments and guarantees:

Guarantees and Indemnification Obligations

Our standard OEM and supply agreements entered into in the ordinary course of business typically contain an indemnification provision pursuant to which we indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with any United States patent, or any copyright or other intellectual property infringement claim by any third party with respect to our products. Such provisions generally survive termination or expiration of the agreements. The potential amount of future payments we could be required to make under these indemnification provisions is, in some instances, unlimited. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe that our estimated exposure on these agreements is currently minimal. Accordingly, we have no liabilities recorded for these agreements as of January 31, 2013.

Generally, we warrant that our products will perform in all material respects in accordance with our standard published specifications in effect at the time of delivery of the products to the customer for a period ranging from 12 to 26 months from the date of delivery. We provide for the estimated cost of product and service warranties based on specific warranty claims, claim history, and engineering estimates, where applicable.

The following table presents our product warranty liability for the six months ended January 31, 2013 and 2012:


	Three Months Ended January,						Six Months Ended January,
	2013			2012			2013			2012
Balance at the beginning of the period	$	5,443		$	5,250		$	5,634		$	5,174
Accrual		1,595			1,867			2,879			3,829
Settlements made in cash or in kind during the period		(1,581	)		(1,350	)		(3,056	)		(3,236	)
Balance at the end of the period	$	5,457		$	5,767		$	5,457		$	5,767

At January 31, 2013 and July 31, 2012, we had deferred revenue for product extended warranty contracts of $7,075 and $7,207, respectively.

Revolving Credit Agreements

On October 11, 2011, we entered into a five-year revolving credit agreement with three banks for which Sovereign Bank acts as Administrative Agent, which we refer to as the Credit Agreement. The Credit Agreement provides $100,000 in available credit and expires on October 10, 2016, when all outstanding borrowings will be payable in full. Borrowings under the Credit Agreement may be used for general corporate purposes, including permitted acquisitions. The amount of available credit can be increased under specified circumstances up to $150,000 in aggregate and obligations under the new credit facility are guaranteed by our material domestic subsidiaries and are supported by a pledge of 65% of the capital stock and equity equivalents of our principal international subsidiary. The Credit Agreement requires us to maintain a certain leverage ratio and a certain interest coverage ratio. We were in full compliance with these requirements at January 31, 2013. We currently also have approximately $4,000 in other revolving credit facilities with banks available for direct borrowings. We did not have any borrowing outstanding under credit facilities at January 31, 2013 and July 31, 2012.

Investigation Regarding our Danish Subsidiary

As initially disclosed in our annual report on Form 10-K for the fiscal year ended July 31, 2011, we have identified transactions involving our Danish subsidiary, BK Medical, and certain of our foreign distributors, with respect to which we have raised questions concerning compliance with law, including Danish law and the United States Foreign Corrupt Practices Act, and our business policies. We have voluntarily disclosed this matter to the Danish government, the United States Department of Justice, and the Securities and Exchange Commission, and are cooperating with an inquiry by the DOJ and the SEC. We are unable to estimate the potential penalties and/or sanctions, if any, that might be assessed in connection with these matters. We have concluded that the identified transactions have been properly accounted for in our reported financial statements in all material respects and have terminated the employment of BK Medical employees that were involved in the transactions. We have also wound down, or are in the process of winding down, our relationship with the BK Medical distributors that were involved in the transactions. Replacing these employees and distributors could have an adverse impact on BK Medical’s distributor sales until their replacements are in place and productive. Revenue from sales to the BK Medical distributors with whom we have decided to wind down BK Medical’s relationship represented less than 0.3% and 2.5% of our total revenue in each of the three and six months ended January 31, 2013 and 2012, respectively. During the second quarter of fiscal years 2013 and 2012, we incurred inquiry-related costs of $330 and $207 in connection with this matter, respectively. During the six months ended January 31, 2013, we incurred inquiry-related costs of $405 in connection with this matter. During the six months ended January 31, 2012, the Company incurred employee termination costs of approximately $400 and inquiry-related costs of approximately $1,204 in connection with this matter.