Audiovox 2006 Annual Report Download - page 57

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Audiovox Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
February 28, 2007
(Dollars in thousands, except share and per-share data)
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 or by the
customer requesting a cash payout. 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:
Co-operative advertising allowances are offered to customers as reimbursement towards
their costs for print or media advertising in which the Company’s product is featured on its
own or in conjunction with other companies’ products. The amount offered is either a fixed
amount or is based upon a fixed percentage of sales revenue or a 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 entrance into new markets. The amount offered for new product launches is
based upon a fixed amount, or percentage of 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, volume incentive rebates 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 sales revenue to the customer or a fixed amount per unit sold to the
customer. 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.
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 balance for sales incentives at February 28, 2007 and 2006 was $7,410 and
$8,512, respectively. 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 could have a significant impact
on the sales incentives liability and reported operating results.
For the year ended February 28, 2007, the three months ended February 28, 2006 and the
years ended November 30, 2005 and 2004, reversals of previously established sales
incentive liabilities amounted to $2,460, $480, $2,836 and $3,889, respectively. These
reversals include unearned and unclaimed sales incentives. Reversals of 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 reach the required minimum
purchases of product during the specified time. Unearned sales incentives for the year
ended February 28, 2007, the three months ended February 28, 2006 and the years ended
November 30, 2005 and 2004 amounted to $1,148, $0, $1,007 and $2,187, respectively.
F-17