Product Warranties

9 Months Ended

Jun. 25, 2011

Product Warranties

Product Warranties

14. Product Warranties

The Company offers a one-year warranty on all Keurig^® Single-Cup brewers it sells. KBU provides for the estimated cost of product warranties, primarily using historical information and repair or replacement costs, at the time product revenue is recognized. The Company continues to experience higher-than-historical rate warranty claims associated with its reservoir brewer models. Management's analysis of these claims remains consistent with its previous diagnosis of a later-stage performance issue caused by a component failing at higher-than-anticipated rates. While not a safety concern, when manifested, brewers with this issue operate inconsistently or cease operation at a later stage of the warranty life. This issue is not presenting itself consistently across all units, and whether or not it occurs depends on a number of variables including brewer usage rate and water quality. Management believes that they have identified the root cause of the component failure in 2010 and units produced since January 2011 incorporate an improved component that is expected to substantially eliminate the issue. While the Company maintains a reserve for product warranty costs based on certain estimates that include the findings relating to this component failure, because this is a later-stage issue, actual warranty costs may exceed the reserve, and there can be no assurance that the Company will not need to increase the reserve or experience additional warranty expense related to this quality issue in future periods. At this time, management believes that the warranty rates used are appropriate. As we have grown, we have added significantly to our product testing, quality control infrastructure and overall quality processes. Nevertheless, as we continue to innovate, and our products become more complex, both in design and componentry, product performance may tend to modulate, causing warranty rates to possibly fluctuate going forward, so that they may be higher or lower than we are currently experiencing and for which we are currently providing for in our warranty reserve.

The changes in the carrying amount of product warranties for the thirteen and thirty-nine weeks ended June 25, 2011 and June 26, 2010 are as follows (in thousands):

	Thirteen weeks ended June 25, 2011			Thirteen weeks ended June 26, 2010			Thirty-nine weeks ended June 25, 2011			Thirty-nine weeks ended June 26, 2010
Balance, beginning of period		15,715			3,278		$	6,694		$	724
Provision charged to income		6,177			(423	)		27,788			8,292
Usage, net of recoveries		(6,837	)		1,242			(19,427	)		(4,919	)
Balance, end of period	$	15,055		$	4,097		$	15,055		$	4,097

During the third quarter of fiscal year 2010 the Company recovered approximately $6.0 million as reimbursement from suppliers related to warranty issues.