Commitments and Contingencies - Note 6

6 Months Ended

Jul. 03, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies Disclosure

6.  Commitments and Contingencies

Product Warranty Disclosure

Warranty

The following table summarizes changes in the product warranty accrual for the three and six months ended July 3, 2011 and June 27, 2010:

	Three Months Ended		Six Months Ended
	July 3,	June 27,	July 3,	June 27,
	2011	2010	2011	2010
	(thousands)		(thousands)
Beginning balance	$ 2,954	$ 1,808	$ 2,539	$ 1,310
Warranties issued in the period	988	775	2,077	1,611
Costs to service warranties	(617)	(634)	(1,610)	(928)
Warranty accrual adjustments	760	145	1,079	101
Ending balance	$ 4,085	$ 2,094	$ 4,085	$ 2,094

Guarantor Obligations Disclosure

Guarantees

In the ordinary course of business, the Company's bank provides standby letters of credit or other guarantee instruments on behalf of the Company to certain parties as required. The standby letters of credit are secured by certificates of deposit, which are classified as restricted cash in the accompanying condensed consolidated balance sheets. The Company has never recorded any liability in connection with these guarantee arrangements beyond what is required to appropriately account for the underlying transaction being guaranteed. The Company does not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under such guarantee arrangements. As of July 3, 2011, the maximum potential amount that the Company could be required to pay was $2.8 million, the total amount of outstanding standby letters of credit, which were secured by $2.8 million of certificates of deposit.

In connection with the Company's acquisition of Vortek Industries, Ltd ("Vortek") in 2004, the Company became party to an agreement between Vortek and the Canadian Minister of Industry (the "Ministry") relating to an investment in Vortek by Technology Partnerships Canada. Under the agreement, as amended, the Company or Vortek (renamed Mattson Technology, Canada, Inc. or "MTC") agreed to various conditions, including (i) payment by the Company of a royalty to the Ministry of 1.4 percent of revenues from certain Flash RTP products, up to a total of CAD 14.3 million (approximately $14.9 million based on the applicable exchange rate as of July 3, 2011), (ii) MTC maintaining a specified average workforce of employees in Canada through October 27, 2009, (iii) investment of a certain amount by October 27, 2009 and (iv) certain other provisions concerning protection of intellectual property rights and other terms. Under the provisions of this agreement, if the Company, or MTC, did not materially satisfy its obligations pursuant to the covenants, the Ministry could have demanded payment of liquidated damages in the amount of CAD 14.3 million less any royalties paid by MTC or the Company to the Ministry. The Company is no longer subject to the conditions under (ii) and (iii), as discussed above; but is still subject to the payment of royalties on revenues from the sale of Flash RTP products through 2020. If MTC is dissolved, files for bankruptcy, or MTC or the Company do not materially comply with certain material terms and conditions of the contract prior to its termination on February 15, 2021 or upon earlier payment of the maximum royalty obligations, the Company could be subject to liquidated damages in the amount of CAD 14.3 million less any royalties paid by MTC or the Company to the Ministry.

The Company is a party to various agreements, pursuant to which it may be obligated to indemnify other parties with respect to certain matters. Typically, these obligations arise in the context of contracts under which the Company may agree to hold other parties harmless against losses arising from a breach of representations or with respect to certain intellectual property, operations or tax-related matters. The Company's obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have defenses to asserted claims and/or recourse against third parties for payments made by the Company. It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the Company's obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material effect on the Company's financial position, results of operations or cash flows. The Company believes if it were to incur a loss in any of these matters, such loss would not have a material effect on its financial position, results of operations or cash flows.

Government Agencies

As an exporter, the Company must comply with various laws and regulations relating to the export of products and technology from the U.S. and other countries having jurisdiction over the Company's operations. In the U.S. these laws include the International Traffic in Arms Regulations ("ITAR"), the Export Administration Regulations ("EAR") administered by the Bureau of Industry and Security ("BIS"), and trade sanctions against embargoed countries and destinations administered by the U.S. Department of Treasury, Office of Foreign Assets Control ("OFAC"). These laws govern products, parts, technology and software which present military or weapons proliferation concerns, so-called "dual use" items. Prior to shipping certain items, the Company must obtain an export license or verify that license exemptions are available. In addition, the Company must comply with certain requirements related to documentation, record keeping, plant visits and hiring of foreign nationals. In 2008, the Company self-disclosed to BIS certain inadvertent EAR violations and this matter is pending with BIS. Any failures to comply with these laws and regulations could result in fines, adverse publicity and restrictions on the Company's ability to export its products, and repeat failures could carry more significant penalties. While at this time the Company is unable to estimate the extent of any fines or penalties or other potential losses that it may incur with respect to this matter, the Company believes that it is unlikely that the ultimate outcome would have a material adverse effect on the Company.

Litigation Disclosure

Litigation

In the ordinary course of business, the Company is subject to claims and litigation, including claims that it infringes third party patents, trademarks and other intellectual property rights. Although the Company believes that it is unlikely that any current claims or actions will have a material adverse impact on its operating results or its financial position, given the uncertainty of litigation, the Company cannot be certain of this. The defense of claims or actions against the Company, even if not meritorious, could result in the expenditure of significant financial and managerial resources.

The Company records a legal liability when it believes it is both probable that a liability has been incurred, and the amount can be reasonably estimated. The Company monitors developments in its legal matters that could affect the estimate it has previously accrued. Significant judgment is required to determine both probability and the estimated amount.