Audiovox 2008 Annual Report Download - page 69

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Audiovox Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
February 29, 2008
(Dollars in thousands, except share and per share data)
A summary of the activity with respect to sales incentives is provided below:
Three
Year Year Months Year
Ended Ended Ended Ended
February 29, February 28, February 28, November 30,
2008 2007 2006 2005
Opening balance $ 7,410 $ 8,512 $ 9,826 $ 7,584
Accruals 29,084** 14,961 3,526 20,609*
Payments (21,618) (13,603) (4,360) (15,531)
Reversals for unearned incentives (1,970) (1,148) - (1,007)
Reversals for unclaimed incentives (2,138) (1,312) (480) (1,829)
Ending balance $ 10,768 $ 7,410 $ 8,512 $ 9,826
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 (see Note 4).
** Included in accruals for the year ended February 29, 2008 is $325 and $646 of accrued sales incentives acquired from
the acquisitions of Oehlbach and Technuity, respectively (see Note 3).
l) Advertising
Excluding co-operative advertising, the Company expensed the cost of advertising, as incurred, of $5,854, $6,194,
$1,682 and $8,214 for the years ended February 29, 2008, February 28, 2007, the three months ended February 28, 2006
and the year ended November 30, 2005, respectively.
m) 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 product returns 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 $13,272 and $5,856 is recorded in accrued expenses in the accompanying consolidated
balance sheets as of February 29, 2008 and February 28, 2007, 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 $4,047 and $3,730 is recorded as a reduction to
inventory in the accompanying consolidated balance sheets as of February 29, 2008 and February 28, 2007, respectively.
Warranty claims and product repair costs expense for the years ended February 29, 2008, February 28, 2007, the three
months ended February 28, 2006 and the year ended November 30, 2005 were $9,401, $8,047, $477 and $6,063,
respectively.
Changes in the Company's product warranties and product repair costs are as follows:
Three
Year Year Months Year
Ended Ended Ended Ended
February 29, February 28, February 28, November 30,
2008 2007 2006 2005
Beginning balance $ 9,586 $ 9,947 $ 10,329 $ 11,794
Liabilities acquired during acquisitions (see Note 3) 12,848 1,705 - -
Liabilities accrued for warranties issued 9,401 8,047 477 6,063
Warranty claims paid (14,516) (10,113) (859) (7,528)
Ending balance $ 17,319 $ 9,586 $ 9,947 $ 10,329
F-16
Source: AUDIOVOX CORP, 10-K, May 14, 2008