In the limited cases where remaining performance obligations exist after
delivery of the product, the obligation relative to the unit of accounting is
inconsequential or perfunctory and is not essential to the functionality of the
delivered product. This conclusion was reached based on the following facts: the
timing of any remaining obligation is agreed upon with the customer, which in
most cases, is performed immediately after the delivery of the product; the cost
and time involved to complete the remaining obligation is insignificant in
relation to the item sold, and the costs and time do not vary significantly; we
have a demonstrated history of completing the remaining obligations timely; and
finally, failure to complete the remaining obligation does not enable the
customer to receive a full or partial refund of the product or service, and the
timing of the payment for the product is not contingent upon completion of
remaining performance obligations, if any.
Our worldwide inventories are stated at the lower of cost or market, generally using a weighted-average cost method. Our inventories included approximately
$31.6 millionof finished goods and $2.4 millionof raw materials and work-in-progress as of June 1, 2013, as compared to approximately $31.8 millionof finished goods and $2.9 millionof raw materials and work-in-progress as of June 2, 2012. 27
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Provisions for obsolete or slow moving inventories are recorded based upon regular analysis of stock rotation privileges, obsolescence, the exiting of certain market segments, and assumptions about future demand and market conditions. If future demand, changes in the industry, or market conditions differ from management's estimates, additional provisions may be necessary.
We recorded provisions to our inventory reserves of
$0.4 million, $0.4 million, and $1.1 millionduring fiscal 2013, 2012, and 2011, respectively, which were included in cost of sales. The provisions were principally for obsolete and slow moving parts. The parts were written down to estimated realizable value.
Goodwill and Other Intangible Assets
Goodwill is initially recorded based on the premium paid for acquisitions and is subsequently tested for impairment. We test goodwill for impairment annually and whenever events or circumstances indicates an impairment may have occurred, such as a significant adverse change in the business climate, loss of key personnel or a decision to sell or dispose of a reporting unit. As of the fiscal year ended
June 1, 2013, our goodwill balance was $1.5 millionand represents the premium we paid for Powerlink of $1.3 millionduring our second quarter of fiscal 2012, adjusted for foreign currency translation, and the premium we paid for D and C of $0.2 millionduring our second quarter of fiscal 2013. During the fourth quarter of each fiscal year, our goodwill balances are reviewed for impairment through the application of a fair-value based test, using the third quarter as the measurement date. In performing our annual review of goodwill balances for impairment, we estimate the fair value of each of our reporting units based primarily on projected future operating results, discounted cash flows, and other assumptions. Projected future operating results and cash flows used for valuation purposes may reflect considerable improvements relative to historical periods with respect to, among other things, revenue growth and operating margins. Although we believe our projected future operating results and cash flows and related estimates regarding fair values are based on reasonable assumptions, historically, projected operating results and cash flows have not always been achieved. In accordance with ASC 350 "Intangibles - Goodwill and Other", if indicators of impairment are deemed to be present, we would perform an interim impairment test and any resulting impairment loss would be charged to expense in the period identified.