Audiovox 2010 Annual Report Download - page 27

Revenue Recognition
We recognize revenue from product sales at the time of passage of title and risk of loss to the customer either at FOB
Shipping Point or FOB Destination, based upon terms established with the customer. Any customer acceptance provisions, which are
related to product testing, are satisfied prior to revenue recognition. We have no further obligations subsequent to revenue recognition
except for returns of product from customers. We do accept returns of products, if properly requested, authorized and approved. We
continuously monitor and track such product returns and record the provision for the estimated amount of such future returns at point
of sale, based on historical experience and any notification we receive of pending returns.
Sales Incentives
We offer sales incentives to our customers in the form of (1) co-operative advertising allowances; (2) market development
funds; (3) volume incentive rebates and (4) other trade allowances. We account for sales incentives in accordance with ASC 605-50
“Customer Payments and Incentives” (“ASC 605-50”). Except for other trade allowances, all sales incentives require the customer to
purchase our 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 or by the customer requesting a check. All costs associated with sales incentives are classified as a
reduction of net sales, and the following is a summary of the various sales incentive programs:
Co-operative advertising allowances are offered to customers as a 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. The amount offered is either
a fixed amount or is based upon a fixed percentage of 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 entrance into new
markets. The amount offered for new product launches is based upon a fixed amount or fixed percentage of our sales revenue to the
customer or a fixed amount per unit sold to the customer during a specified time period. We accrue 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 our sales revenue to the customer or a fixed amount per
unit sold to the customer. We make an estimate of the ultimate amount of the rebate customers will earn based upon past history with
the customer and other facts and circumstances. We have 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 we provide to customers subsequent to the related revenue being
recognized. In accordance with ASC 605-50, we record 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, 2010 and February 28, 2009 was $10,606 and $7,917,
respectively. Although we make our best estimate of sales incentive liabilities, many factors, including significant unanticipated
changes in the purchasing volume and the lack of claims from customers could have a significant impact on the liability for sales
incentives and reported operating results.
We reverse 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. We
believe 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.
For the years ended February 28, 2010, February 28, 2009 and February 29, 2008, reversals of previously established sales
incentive liabilities amounted to $2,559, $4,083 and $4,108, respectively. These reversals include unearned 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 reach the required minimum purchases of product during the specified time. Reversals of unearned sales incentives for the years
ended February 28, 2010, February 28, 2009 and February 29, 2008 amounted to $1,369, $1,664 and $1,970, respectively. Unclaimed
sales incentives are sales incentives earned by the customer but the customer has not claimed payment within the claim period (period
after program has ended). Reversals of unclaimed sales incentives for the years ended February 28, 2010, February 28, 2009 and
February 29, 2008 amounted to $1,190, $2,419 and $2,138 , respectively.
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Source: AUDIOVOX CORP, 10-K, May 14, 2010 Powered by Morningstar® Document Research℠