inquiry, can you please clear up some confusion in two financial disclosures from the 10-K report below?
10-K report - page 33
Company gross profit for fiscal 2010 totaled $425.8 million, or 31.4% of net sales, as compared to $245.4 million, or 31.2% of net sales, in fiscal 2009. Gross margin increased over fiscal 2009 due to the additional manufacturing margin resulting from the acquisition of Timothy’s and Diedrich, and realized manufacturing efficiencies within SCBU. These increases in gross margin were offset by higher brewer sales returns and warranty expense. In fiscal 2010, the Company was able to recover approximately $6.0 million as reimbursement from its suppliers related to a quality issue associated with certain brewer models produced primarily in late calendar 2009. The quality issue did not represent a safety concern, and is believed to be tied to a component used in limited production primarily from late 2009. This recovery was reflected as a reduction to warranty expense and moderately offsets the higher brewer warranty expense and sales returns costs incurred during fiscal 2010. [Bold and italicized emphasis added.]10-K report - page F-37
The Company offers a one-year warranty on all Keurig® brewers it sells. Keurig provides for the estimated cost of product warranties, primarily using historical information and repair or replacement costs, at the time product revenue is recognized. During fiscal 2010, the Company experienced higher warranty returns associated with certain brewer models associated with a quality issue. The quality issue did not represent a safety concern, and is believed to be primarily tied to a component used in limited production primarily from late 2009 which came to the Company’s attention in the second quarter of fiscal 2010. The Company is continuing to replace any brewers exhibiting quality issues and has implemented hardware and software changes which it believes have corrected the issue, however, there can be no assurance that we will not experience some additional warranty expense related to this quality issue in future periods. The Company reached agreement with its suppliers and has recovered approximately $6.0 million as reimbursement related to this issue. This recovery was reflected in fiscal 2010 cost of sales as a reduction to warranty expense and substantially offsets the higher warranty expense and sales returns costs incurred in fiscal 2010. [Bold and italicized emphasis added.]
How is it that the $6 million reimbursement "moderately offsets the higher brewer warranty expense and sales returns costs incurred during fiscal 2010" while that same reimbursement "substantially offsets the higher warranty expense and sales returns costs incurred in fiscal 2010"?
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