12.

GUARANTEES AND PRODUCT WARRANTIES

We follow FASB guidance for accounting for contingencies relating to the guarantor's accounting for, and disclosures of, the issuance of certain types of guarantees.

From time to time, our subsidiaries guarantee third party payment obligations in connection with the sale of machines to customers that use financing. We follow FASB guidance for accounting for contingencies with respect to these guarantees. As of October 31, 2013, we had 20 outstanding third party payment guarantees totaling approximately $1.6 million. The terms of these guarantees are consistent with the underlying customer financing terms. Upon shipment of a machine, the customer has the risk of ownership. The customer does not obtain title, however, until it has paid for the machine. A retention of title clause allows us to recover the machine if the customer defaults on the financing. We accrue for potential liabilities under these guarantees when we believe a loss is probable and can be estimated.

We provide warranties on our products with respect to defects in material and workmanship. The terms of these warranties are generally one year for machines and shorter periods for service parts. We recognize a reserve with respect to this obligation at the time of product sale, with subsequent warranty claims recorded against the reserve. The amount of the warranty reserve is determined based on historical trend experience and any known warranty issues that could cause future warranty costs to differ from historical experience. A reconciliation of the changes in our warranty reserve is as follows (in thousands):

	2013			2012			2011
Balance, beginning of year	$	1,623		$	1,725		$	1,591
Provision for warranties during the year		3,811			3,473			3,142
Charges to the accrual		(3,670	)		(3,567	)		(2,993	)
Impact of foreign currency translation		14			(8	)		(15	)
Balance, end of year	$	1,778		$	1,623		$	1,725

The increase in warranty charges from fiscal 2011 to 2012 is in line with the increased volume of computerized machine tool sales. The warranty accrual increased from fiscal 2012 to 2013 as actual claims for specific warranties accrued in the prior year were more than anticipated resulting in an adjustment to the provision for warranties during the year.