Audiovox 2006 Annual Report Download - page 58

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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)
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 the year ended February 28, 2007, the three
months ended February 28, 2006 and the years ended November 30, 2005 and 2004
amounted to $1,312, $480, $1,829 and $1,702, respectively.
The Company reverses earned but unclaimed sales incentives based upon the expiration of
the claim period of each program. Unclaimed sales incentives that have no specified claim
period are reversed in the quarter following one year from the end of the program. The
Company believes 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.
A summary of the activity with respect to sales incentives is provided below:
Year
Ended
February 28,
2007
Three Months
Ended
February 28,
2006
Years ended
November 30,
2005 2004
Opening balance........................ $ 8,512 $ 9,826 $ 7,584 $ 14,605
Accruals............................... 14,961 3,526 20,609* 17,012
Payments .............................. (13,603) (4,360) (15,531) (20,144)
Reversals for unearned incentives......... (1,148) — (1,007) (2,187)
Reversals for unclaimed incentives........ (1,312) (480) (1,829) (1,702)
Ending balance......................... $ 7,410 $ 8,512 $ 9,826 $ 7,584
The majority of the reversals of previously established sales incentive liabilities pertain to
sales recorded in prior periods.
* Included in accruals for the year ended November 30, 2005 is $1,255 of accrued sales
incentives from the acquisition of Terk (Note 4).
m) Advertising
Excluding co-operative advertising, the Company expensed the cost of advertising, as
incurred, of $6,194, $1,682, $8,214 and $8,821 for the year ended February 28, 2007, the
three months ended February 28, 2006 and the years ended November 30, 2005 and 2004,
respectively.
n) Product Warranties and Product Repair Costs
The Company generally warranties its products against certain manufacturing and other
defects. The Company provides warranties for all of its products ranging from 90 days to
the lifetime of the product. Warranty expenses are accrued at the time of sale based on the
Company’s estimated cost to repair expected returns of products for warranty matters. This
liability is based primarily on historical experiences of actual warranty claims as well as
current information on repair costs. The warranty liability of $5,856 and $5,314 is recorded
in accrued expenses in the accompanying consolidated balance sheets as of February 28,
2007 and 2006, respectively. In addition, the Company records a reserve for product repair
costs which is based upon the quantities of defective inventory on hand and an estimate of
the cost to repair such defective inventory. The reserve for product repair costs of $3,730
and $4,633 is recorded as a reduction to inventory in the accompanying consolidated
balance sheets as of February 28, 2007 and 2006, respectively. Warranty claims and product
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