Audiovox 2004 Annual Report Download - page 66

AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
November 30, 2002, 2003 and 2004
(Dollars in thousands, except share and per share data)
(g) Sales Incentives
The Company offers sales incentives to its customers in the form of
(1) co−operative advertising allowances; (2) market development funds;
(3) volume incentive rebates and (4) other trade allowances. The
Company accounts for sales incentives in accordance with EITF 01−9,
"Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of Vendor's Products)" (EITF 01−9). The terms of
sales incentives are offered from time to time and vary by customer.
Except for other trade allowances, all sales incentives require the
customer to purchase the Company's products during a specified period
of time. All sales incentives require customers to claim the sales
incentive within a certain time period (referred to as the "claim
period") and claims are settled either by the customer claiming a
deduction against an outstanding account receivable owed to the
Company by the customer or by the customer requesting a 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, 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.
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