Audiovox 2004 Annual Report Download - page 67

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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)
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 by the customer but the
customer has not claimed payment from the Company within the claim
period (period after program has ended). Unclaimed sales incentives
for fiscal years ended November 30, 2002, 2003 and 2004 amounted to
$716, $886 and $1,702, respectively.
The Company reverses earned but unclaimed sales incentives based upon
the expiration of the claim period of each program. If no claim period
is specified for the program, a claim period of 12 months is utilized.
The Company believes that the reversal of earned but unclaimed sales
incentives upon the expiration of the claim period is a disciplined,
rational, consistent and systematic method of reversing unclaimed
sales incentives. 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.
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