Note K - Contingencies
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Jun. 30, 2012
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Commitments and Contingencies Disclosure [Text Block] |
Note
K: Contingencies
Fuel
Tech issues a standard product warranty with the sale of its
products to customers. Our recognition of warranty
liability is based primarily on analyses of warranty claims
experienced in the preceding years as the nature of our
historical product sales for which we offer a warranty are
substantially unchanged. This approach provides an aggregate
warranty accrual that is historically aligned with actual
warranty claims experienced.
Changes
in the warranty liability for the six-months ended June 30,
2012 and 2011 are summarized below:
In
2009 the Company recorded a contingent consideration accrual
representing the fair value of the future consideration to be
paid in connection with its acquisition of substantially all
of the assets of Advanced Combustion Technology, Inc.
(ACT). The contingent consideration arrangement
required the Company to pay ACT a pro-rata amount of up to
$4,000 annually for the achievement of a minimum annual gross
margin dollar level (the Hurdle) of $10,000, $11,000, and
$12,000 in fiscal 2009, 2010, and 2011,
respectively. In addition, the agreement required
the Company to pay ACT thirty-five percent of all qualifying
gross margin dollars above the annual Hurdle rate for each of
the three years. The potential undiscounted amount
of all future payments that the Company could have been
required to make was between $0 and $4,000 in any one year,
and $0 and $12,000 in total, not including the amount related
to the thirty-five percent sharing of qualifying gross margin
dollars above the pre-determined Hurdle. The fair
value of the contingent consideration at inception was
$2,307, which was recorded as a liability when the business
combination was initially recorded.
The
Company periodically evaluated the probability that payment
of the contingent consideration accrual is probable based on
a range of outcomes and assumptions used to develop the fair
value estimate. Based upon this analysis,
management concluded during the quarter ended June 30, 2011
that the payout for 2011 was not probable of being
made. Thus, the Company recorded a gain of $758
from the revaluation of the contingent
liability. A similar adjustment was made in the
two preceding years for $781 and $768, respectively. As of
June 30, 2012 and 2011, there is no contingent liability
accrual remaining.
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