Quarterly report pursuant to Section 13 or 15(d)

Reserve for Product Warranties

v3.7.0.1
Reserve for Product Warranties
6 Months Ended
Jun. 30, 2017
Product Warranties Disclosures [Abstract]  
Reserve for Product Warranties
Reserve for Product Warranties
The Company provides a warranty for products that is generally one year in length, but 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, vendors on a contract basis, and distributors.
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 the reserve. The reserve is reduced as costs are incurred to honor existing warranty and regulatory obligations.
As of June 30, 2017, the Company had accrued $8.0 million of estimated costs to bring certain NeoBLUE® phototherapy products into U.S. regulatory compliance. The Company's estimate of these costs is primarily based upon the number of units outstanding that may require repair and costs associated with shipping and replacing or repairing the product. During the second quarter of 2017, the Company began to incur costs associated with bringing the products back into compliance.
During the first quarter of 2017, the Company accrued $1.0 million for a product related recall. The Company expects that costs associated with the recall will be incurred starting in the third quarter of 2017.
The details of activity in the warranty reserve are as follows (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2017
 
2016
 
2017
 
2016
Balance, beginning of period
$
12,721

 
$
10,577

 
$
10,670

 
$
10,386

Assumed through acquisitions

 

 
1,166

 

Additions charged to expense
2,902

 
1,383

 
5,708

 
2,312

Reductions
(1,484
)
 
(1,102
)
 
(3,405
)
 
(1,840
)
Balance, end of period
$
14,139

 
$
10,858

 
$
14,139

 
$
10,858


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.