In addition, certain customers have acceptance provisions and revenue is
deferred until the customers provide the necessary acceptance. At June 30, 2013
and 2012, we had deferred revenue of $1.0 million and $0.9 million and related
deferred product costs of $0.7 million and $0.8 million, respectively, related
to shipments to customers pending acceptances.
Probability of collection is assessed on a customer-by-customer basis. Customers
are subjected to a credit review process that evaluates the customers' financial
position and ability to pay. If it is determined from the outset of an
arrangement that collection is not probable based upon the review process, the
customers are required to pay cash in advance of shipment. We also make
estimates of the uncollectibility of accounts receivables, analyzing accounts
receivable and historical bad debts, customer concentrations,
customer-credit-worthiness, current economic trends and changes in customer
payment terms to evaluate the adequacy of the allowance for doubtful accounts.
On a quarterly basis, we evaluate aged items in the accounts receivable aging
report and provide an allowance in an amount we deem adequate for doubtful
accounts. If management were to make different judgments or utilize different
estimates, material differences in the amount of our reported operating expenses
could result. We provide for price protection to certain distributors. We assess
the market competition and product technology obsolescence, and make price
adjustments based on our judgment. Upon each announcement of price reductions,
the accrual for price protection is calculated based on our distributors'
inventory on hand. Such reserves are recorded as a reduction to revenue at the
time we reduce the product prices.
We have an immaterial amount of service revenue relating to non-warranty
repairs, which is recognized upon shipment of the repaired units to customers.
Service revenue has been less than 10% of net sales for all periods presented
and is not separately disclosed.
Product warranties. We offer product warranties ranging from 15 to 39 months
against any defective product. We accrue for estimated returns of defective
products at the time revenue is recognized, based on historical warranty
experience and recent trends. We monitor warranty obligations and may make
revisions to our warranty reserve if actual costs of product repair and
replacement are significantly higher or lower than estimated. Accruals for
anticipated future warranty costs are charged to cost of sales and included in
accrued liabilities. The liability for product warranties was $6.5 million as of
June 30, 2013, compared with $5.5 million as of June 30, 2012. The provision for
warranty reserve was $13.4 million, $12.2 million and $9.6 million in fiscal
years 2013, 2012 and 2011, respectively. Our estimates and assumptions used have
been historically close to actual. The change in estimated liability for
pre-existing warranties was ($1,000), $0.7 million and ($0.9) million in fiscal
years 2013, 2012 and 2011, respectively. As a result of our increase in cost of
servicing warranty claims from our increase in net sales in fiscal year 2013,
the provision for warranty reserve increased $1.2 million compared to fiscal
year 2012. As we experienced an increase in warranty claims and cost of
servicing warranty claims from our increase in net sales in fiscal year 2012,
the provision for warranty reserve increased $2.6 million compared to fiscal
year 2011. If in future periods, we experience or anticipate an increase or
decrease in warranty claims as a result of new product introductions or change
in unit volumes compared with our historical experience, or if the cost of
servicing warranty claims is greater or lesser than expected, we intend to
adjust our estimates appropriately.