Audiovox 2010 Annual Report Download - page 70

Audiovox Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
February 28, 2010
(Dollars in thousands, except share and per share data)
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.
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. 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.
Other trade allowances are additional sales incentives that the Company provides to customers subsequent to the related
revenue being recognized. 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, 2010 and February 28, 2009 was $10,606 and $7,917,
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 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. 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 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 from the Company within the claim period (period after program
has ended). 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.
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 accrued sales incentives is provided below:
Year Year Year
Ended Ended Ended
February 28, February 28, February 29,
2010 2009 2008
Opening balance $ 7,917 $ 10,768 $ 7,410
Accruals 29,654 23,877 29,084
Payments (24,406) (22,645) (21,618)
Reversals for unearned incentives (1,369) (1,664) (1,970)
Reversals for unclaimed incentives (1,190) (2,419) (2,138)
Ending balance $ 10,606 $ 7,917 $ 10,768
Source: AUDIOVOX CORP, 10-K, May 14, 2010 Powered by Morningstar® Document Research℠