Audiovox 2004 Annual Report Download - page 34

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check from the Company. The Company is unable to demonstrate that an
identifiable benefit of the sales incentives has been received, as such, all
costs associated with sales incentives are classified as a reduction of net
sales. The following is a summary of the various sales incentive programs
offered by the Company and the related accounting policies:
Co−operative advertising allowances are offered to customers as
reimbursement towards their costs for print or media advertising in which our
product is featured on its own or in conjunction with other companies' products
(e.g., a weekly advertising circular by a mass merchant). The amount offered is
either a fixed amount or is based upon a fixed percentage of the Company's sales
revenue or fixed amount per unit sold to the customer during a specified time
period.
Market development funds are offered to customers in connection with new
product launches or entering into new markets. Those new markets can be either
new geographic areas or new customers. The amount offered for new product
launches is based upon a fixed amount or fixed percentage of the Company's sales
revenue to the customer or a fixed amount per unit sold to the customer during a
specified time period. The Company accrues the cost of co−operative advertising
allowances and market development funds at the later of when the customer
purchases our products or when the sales incentive is offered to the customer.
Volume incentive rebates offered to customers require that minimum
quantities of product be purchased during a specified period of time. The amount
offered is either based upon a fixed percentage of the Company's sales revenue
to the customer or a fixed amount per unit sold to the customer. Certain of the
volume incentive rebates offered to customers include a sliding scale of the
amount of the sales incentive with different required minimum quantities to be
purchased. The Company makes an estimate of the ultimate amount of the rebate
their customers will earn based upon past history with the customer and other
facts and circumstances. The Company has the ability to estimate these volume
incentive rebates, as there does not exist a relatively long period of time for
a particular rebate to be claimed. The Company has historical experience with
these sales incentive programs and a large volume of relatively homogenous
transactions. Any changes in the estimated amount of volume incentive rebates
are recognized immediately using a cumulative catch−up adjustment.
Other trade allowances are additional sales incentives that the Company
provides to customers subsequent to the related revenue being recognized. In
accordance with EITF 01−9, the Company records the provision for these
additional sales incentives at the later of when the sales incentive is offered
or when the related revenue is recognized. Such additional sales incentives are
based upon a fixed percentage of the selling price to the customer, a fixed
amount per unit, or a lump−sum amount.
The accrual for sales incentives at November 30, 2003 and 2004 was $14,605
and $7,584, 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, 2002, 2003 and 2004, reversals of
previously established sales incentive liabilities amounted to $1,500, $1,803
and $3,889, 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 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, 2002, 2003 and 2004 amounted to $784, $917 and
$2,187, respectively. Unclaimed sales incentives are sales incentives earned
31