Litigation, Commitments and Contingencies

Product Warranties

The following table summarizes the warranty liability activity for the six-month period ended June 30, 2013 and the year ended December 31, 2012, respectively (in thousands):



	June 30, 2013			December 31, 2012
Beginning balance	$	7,136		$	4,853
Payments or parts usage	(4,295		)	(5,722		)
Additional provision	3,130			8,005
Ending balance	$	5,971		$	7,136

Warranty liability balances are recorded in Current liabilities on the Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012.

Guarantees and Indemnifications

We have entered into a variety of agreements with third parties that include indemnification clauses, both in the ordinary course of business and in connection with our divestitures of certain product lines. These clauses require us to compensate these third parties for certain liabilities and damages that may be incurred by them. Fair value of guarantees is required to be recorded as a liability. We do not believe that we have any significant exposure related to such guarantees and therefore have not recorded a liability as of June 30, 2013 or December 31, 2012. We have not made any significant indemnification payments as a result of these clauses.

At June 30, 2013, we had letter-of-credit reimbursement agreements totaling $4.7 million, compared to $3.8 million at December 31, 2012. These letter-of-credit agreements relate to performance on contracts with our customers and vendors.

Commitments

During the third quarter of 2012, we shipped products with a total selling price of $9.4 million to a third-party financing company that entered into a three-year operating lease with an end-user customer. We received an up-front payment of $3.9 million and expect to collect payments for the remaining purchase price during 2013 and 2014, contingent on the end user's completion of payments to the third-party financing company. Due to the substantial risks of ownership retained in the assets, we have recognized a financing lease obligation related to the up-front payment. We will recognize operating lease revenue ratably over the three-year lease term. When we no longer retain substantial risks of ownership, we will recognize the remaining payments and profit into income, and will fully depreciate the net book value of the assets sold, which we expect to occur in August 2014. The financing element of the transaction is recorded as interest expense. At June 30, 2013, the carrying amount of the related assets totaled $4.5 million and is recorded within Property, plant and equipment, net on the Condensed Consolidated Balance Sheets. The assets are depreciated using the straight-line method over their useful lives.

Legal Matters

We currently, and from time to time, are subject to disputes, claims, requests for indemnification and lawsuits arising in the ordinary course of business. With the exception of certain cases involving the defense of our patents as described below, the external legal costs incurred in these matters are expensed. These matters include claims by third parties against us for amounts allegedly owed to them as well as counterclaims against us in cases where we have made claims against third parties (which may include claims against us for infringement of such third parties' patents). These matters can also include matters in which we are not a party to a pending law suit, but in connection with which a party to a law suit seeks indemnification from us. In addition to the expense of addressing these matters, resolution of any of these disputes could result in the write down or write off of accounts receivable, the payment of damages, or both. The ultimate resolution of such matters is inherently uncertain. An adverse outcome in certain of these matters could result in a material charge in the period in which the matter is resolved. However, we currently do not expect the ultimate resolution of any currently pending proceedings and disputes to have a material effect on our business, financial condition, results of operations or liquidity.

Our policy is to capitalize external legal costs incurred in litigation concerning our patents when we believe that there is an evident increase in the value of the patent and that the successful outcome of the legal action is probable. During the course of any legal action, the court where the case is pending makes decisions and issues rulings of various kinds, which may be favorable or unfavorable. We monitor developments in the legal action, the legal costs incurred and the anticipated outcome of the legal action, and assess the likelihood of a successful outcome based on the entire action. If changes in the anticipated outcome occur that reduce the likelihood of a successful outcome to less than probable, the capitalized costs would be charged to expense in the period in which the change is determined.

We had capitalized legal costs incurred in litigation concerning our patents of $7.5 million as of June 30, 2013 and $7.5 million as of December 31, 2012. All of these amounts relate to the case Alien Technologies Corporation v. Intermec, Inc., et al., Civil Action No. 3:6-cv-51, United States District Court for the District of North Dakota, Southeastern Division.

Capitalized litigation costs are recorded in Other assets, net on our Condensed Consolidated Balance Sheets. For more information about the accounting treatment of capitalized patent legal fees, refer to Note 1, Significant Accounting Policies, Capitalized Legal Patent Costs, of the Notes to Consolidated Financial Statements in our 2012 Form 10-K.