Reserve for Product Warranties
|12 Months Ended|
Dec. 31, 2016
|Reserve for Product Warranties||
RESERVE FOR PRODUCT WARRANTIES
The Company provides a warranty for products that is generally one year in length and in some cases, regulations may require them to provide repair or remediation beyond the typical warranty period. If any of the products contain defects, the Company may be required to incur additional repair and remediation costs. Service for domestic customers is provided by Company-owned service centers that perform all service, repair and calibration services. Service for international customers is provided by a combination of Company-owned facilities and vendors on a contract basis.
A warranty reserve is included in accrued liabilities for the expected future costs of servicing products. Additions to the reserve are based on management's best estimate of probable liability. The Company considers a combination of factors including material and labor costs, regulatory requirements, and other judgments in determining the amount of reserve. The reserve is reduced as costs are incurred to honor existing warranty and regulatory obligations.
As of December 31, 2016 the Company has accrued $6.6 million to bring certain NeoBLUE® phototherapy products into U.S. regulatory compliance. The Company's estimate of the costs associated with bringing the NeoBLUE® phototherapy products into compliance is primarily based upon the number of units outstanding that may require the repair, costs associated with shipping and repairing the product, and the assumption that the FDA will approve the Company's plan for compliance. The Company expects that costs associated with bringing the products back into compliance will not be incurred until the second quarter of 2017.
The details of activity in the warranty reserve are as follows (in thousands):
The estimates the Company uses in projecting future product warranty costs may prove to be incorrect. Any future determination that product warranty reserves are understated could result in increases to cost of sales and reductions in operating profits and results of operations.
The entire disclosure for standard and extended product warranties and other product guarantee contracts, including a tabular reconciliation of the changes in the guarantor's aggregate product warranty liability for the reporting period.
Reference 1: http://www.xbrl.org/2003/role/presentationRef