Audiovox 2003 Annual Report Download - page 39

The accrual for sales incentives at November 30, 2002 and 2003 was $12,151
and $21,894, respectively. The Company's sales incentive liability may prove to
be inaccurate, in which case the Company may have understated or overstated the
provision required for these arrangements. Therefore, although the Company makes
its best estimate of its sales incentive liability, many factors, including
significant unanticipated changes in the purchasing volume of its customers and
the lack of claims made by customers of offered and accepted sales incentives,
could have significant impact on the Company's liability for sales incentives
and the Company's reported operating results.
For the fiscal years ended November 30, 2001, 2002 and 2003, reversals of
previously established sales incentive liabilities amounted to $14,369, $4,716
and $2,940, respectively. These reversals include unearned sales incentives and
unclaimed sales incentives. Unearned sales incentives are volume incentive
rebates where the customer did not purchase the required minimum quantities of
product during the specified time. Volume incentive rebates for both segments
are reversed into income in the period when the customer did not purchase the
required minimum quantities of product during the specified time. Unearned sales
incentives for fiscal years ended November 30, 2001, 2002 and 2003 amounted to
$9,051, $1,354 and $1,310, respectively. Unclaimed sales incentives are sales
incentives earned by the customer but the customer has not claimed payment of
the earned sales incentive from the Company. Unclaimed sales incentives for
fiscal years ended November 30, 2001, 2002 and 2003 amounted to $5,318, $3,362
and $1,630, respectively.
The accrual for earned but unclaimed sales incentives is reversed by
Wireless only when management is able to conclude, based upon an individual
judgment of each sales incentive, that it is remote that the customer will claim
the sales incentive. The methodology applied for determining the amount and
timing of reversals for the Wireless segment is disciplined, consistent and
rational. The methodology is not systematic (formula based), as the Company
makes an estimate as to when it is remote that the sales incentive will not be
claimed. Reversals by the Wireless segment of unclaimed sales incentives have
historically occurred in varying periods up to 12 months after the recognition
of the accrual. In deciding on whether to reverse the sales incentive liability
into income, the Company makes an assessment as to the likelihood of the
customer ever claiming the funds after the claim period has expired and
considers the specific facts and circumstances pertaining to the individual
sales incentive. The factors considered by management in making the decision to
reverse accruals for unclaimed sales incentives include (i) past practices of
the customer requesting payments after the expiration of the claim period; (ii)
recent negotiations with the customer for new sales incentives; (iii) subsequent
communications with the customer with regard to the status of the claim; and
(iv) recent activity in the customer's account.
The Electronics segment reverses earned but unclaimed sales incentives upon
the expiration of the claim period. The Company believes that the reversal of
earned but unclaimed sales incentives for Electronics upon the expiration of the
claim period is a disciplined, rational, consistent and systematic method of
reversing unclaimed sales incentives. For the Electronics segment, the majority
of sales incentive programs are calendar−year programs. Accordingly, the program
ends on the month following the fiscal year end and the claim period expires one
year from the end of the program.
Accounts Receivable
The Company performs ongoing credit evaluations of its customers and
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