Commitments and Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies

NOTE 18: COMMITMENTS AND CONTINGENCIES

Leases

Harmonic leases its facilities under noncancelable operating leases which expire at various dates through September 2021. In addition, Harmonic leases vehicles in several foreign countries under noncancelable operating leases, the last of which expires in 2015. Total rent expense related to these operating leases was $7.5 million, $7.5 million and $7.3 million for the years ended December 31, 2012, 2011 and 2010, respectively. Future minimum lease payments under noncancelable operating leases at December 31, 2012, are as follows (in thousands):

	Operating Leases
Year ending December 31,
2013	$	10,692
2014		7,553
2015		7,041
2016		7,036
2017		7,157
Thereafter		19,797
Total minimum payments	$	59,276

As of December 31, 2012, $0.9 million of these future lease payments were accrued as part of accrued excess facility costs. See Note 10 “Restructuring and Excess Facilities.”

Warranties

The Company accrues for estimated warranty costs at the time of product shipment. Management periodically reviews the estimated fair value of its warranty liability and records adjustments based on the terms of warranties provided to customers, historical and anticipated warranty claims experience, and estimates of the timing and cost of warranty claims. Activity for the Company’s warranty accrual, which is included in accrued liabilities, is summarized below (in thousands):

	Year ended December 31,
	2012			2011			2010
Balance at beginning of period	$	5,558		$	4,811		$	4,186
Acquired warranty obligation from Omneon acquisition		—			—			949
Accrual for current period warranties		5,798			8,245			4,898
Warranty costs incurred		(7,064	)		(7,498	)		(5,222	)
Balance at end of period	$	4,292		$	5,558		$	4,811

Standby Letters of Credit

As of December 31, 2012, the Company’s financial guarantees consisted of standby letters of credit outstanding, which were principally related to performance bonds and state requirements imposed on employers. The maximum amount of potential future payments under these arrangements was $0.2 million.

Indemnification

Harmonic is obligated to indemnify its officers and the members of its Board pursuant to its bylaws and contractual indemnity agreements. Harmonic also indemnifies some of its suppliers and most of its customers for specified intellectual property matters pursuant to certain contractual arrangements, subject to certain limitations. The scope of these indemnities varies, but, in some instances, includes indemnification for damages and expenses (including reasonable attorneys’ fees). There have been no amounts accrued in respect of the indemnification provisions through December 31, 2012.

Guarantees

The Company has $0.5 million of guarantees in Israel, with the majority related to rent, as of December 31, 2012.

Royalties

Harmonic has licensed certain technologies from various companies. It incorporates these technologies into its own products and is required to pay royalties for such use, usually based on shipment of the related products. In addition, Harmonic has obtained research and development grants under various Israeli government programs that require the payment of royalties on sales of certain products resulting from such research. During the years ended December 31, 2012, 2011 and 2010 royalty expenses were $3.0 million, $2.4 million and $3.3 million, respectively.

Purchase Commitments with Contract Manufacturers and Vendors

The Company relies on a limited number of contract manufacturers and suppliers to provide manufacturing services for a substantial majority of its products. In addition, some components, sub-assemblies and modules are obtained from a sole supplier or limited group of suppliers. During the normal course of business, in order to reduce manufacturing lead times and ensure adequate component supply, the Company enters into agreements with certain contract manufacturers and suppliers that allow them to procure inventory and services based upon criteria as defined by the Company. The Company had $27.6 million of non-cancelable purchase commitments as of December 31, 2012.