Flood Related Expense

6 Months Ended

Dec. 31, 2011

Flood Related Expense [Abstract]

FLOOD RELATED EXPENSE

NOTE 6. FLOOD-RELATED EXPENSE

In October 2011, certain areas in Thailand suffered major flooding as a result of monsoons. This flooding had a material impact on our business and results of operations. Our primary contract manufacturer, Fabrinet, suspended operations at two factories located in Chokchai, Thailand and Pinehurst, Thailand. The Chokchai factory suffered extensive flood damage and became inaccessible due to high water levels inside and surrounding the manufacturing facility. As a result of this flooding, we experienced a significant decline in product sales and we incurred significant damage to our inventory and property and equipment located at the Chokchai facility. During the three months ended December 31, 2011, we recorded impairment charges of $4.2 million related to the write-off of the net book value of damaged inventory and $3.0 million related to the write-off of the net book value of property and equipment based on our preliminary estimates of the damage caused by the flooding. These impairment charges are recorded within the operating expense caption flood-related expense in our condensed consolidated statement of operations for the three and six months ended December 31, 2011. Flood-related expense for the three and six months ended December 31, 2011 also includes $1.9 million in personnel-related costs, professional fees and related expenses incurred in connection with our recovery efforts. We continue to evaluate our preliminary estimates of flood-related losses, and in future quarters we may record additional losses for damaged equipment and inventory.

While we maintain both property and business interruption insurance coverage, there can be no assurance as to the amount or timing of insurance recoveries. Insurance recoveries related to impairment losses previously recorded and other recoverable expenses will be recognized to the extent of the related loss or expense in the period that recoveries become probable and realizable. Insurance recoveries under business interruption coverage and insurance recovery gains in excess of amounts previously written off related to impaired inventory and equipment or in excess of other recoverable expenses previously recognized will be recognized when they become realizable and all contingencies have been resolved. The evaluation of insurance recoveries requires estimates and judgments about future results which affect reported amounts and certain disclosures. Actual results could differ from those estimates. Insurance recoveries we receive in future periods will be recorded net of flood-related expense in the condensed consolidated statement of operations. As of December 31, 2011, we have not received any insurance recoveries, nor have we recorded any amounts relating to potential future insurance recoveries in the condensed consolidated statement of operations.