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EXCEL - IDEA: XBRL DOCUMENT - HI TECH PHARMACAL CO INCFinancial_Report.xls
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v2.4.0.6
Accounts Receivable
6 Months Ended
Oct. 31, 2012
Accounts Receivable [Abstract]  
ACCOUNTS RECEIVABLE

5. ACCOUNTS RECEIVABLE:

We recognize revenue for product sales when title and risk of loss have transferred to our customers, when reliable estimates of rebates, chargebacks, returns and other adjustments can be made, and when collectability is reasonably assured. This is generally at the time that products are received by our direct customers. Upon recognizing revenue from a sale, we record estimates for chargebacks, rebates and incentive programs, product returns, cash discounts and other sales reserves that reduce accounts receivable.

 

At October 31, 2012 and April 30, 2012, accounts receivable balances, net of returns and allowances and allowance for doubtful accounts, are as follows:

 

                 
    October 31, 2012     April 30, 2012  

Accounts receivable, gross

  $ 89,007,000     $ 78,641,000  

Adjustment for returns and price allowances (a)

    (21,349,000     (18,035,000

Allowance for doubtful accounts

    (500,000     (500,000
   

 

 

   

 

 

 

Accounts receivable, net

  $ 67,158,000     $ 60,106,000  
   

 

 

   

 

 

 

 

(a) directly reduces gross revenue

Our product revenues are typically subject to agreements with customers allowing chargebacks, rebates, returns, pricing adjustments and other allowances. Based on our agreements and contracts with our customers, we calculate adjustments for these items when we recognize revenue and we book the adjustments against accounts receivable and revenue. Chargebacks, primarily from wholesalers, are the most significant of these items. Chargebacks result from arrangements we have with contract customers establishing prices for products for which the contract customer independently selects a wholesaler from which to purchase. A chargeback represents the difference between our invoice price to the wholesaler, which is typically stated at wholesale acquisition cost, and the contract customer’s contract price, which is lower. We credit the wholesaler for purchases by contract customers at the lower price. Therefore, we record these chargebacks at the time we recognize revenue in connection with our sales to wholesalers.

The reserve for chargebacks is computed in the following manner. The Company obtains wholesaler inventory data for the wholesalers which represent approximately 95% of our chargeback activity. This inventory is multiplied by the historical percentage of units that are charged back and by the price adjustment per unit to arrive at the chargeback accrual. This calculation is performed by product by customer. The calculated amount of chargebacks could be affected by other factors such as:

 

   

a change in retail customer mix

 

   

a change in negotiated terms with retailers

 

   

product sales mix at the wholesaler

 

   

retail inventory levels

 

   

changes in Wholesale Acquisition Cost (“WAC”)

The Company continually monitors the chargeback activity and adjusts the provisions for chargebacks when we believe that the actual chargebacks will differ from our original provisions.

Consistent with industry practice, the Company maintains a return policy that allows our customers to return product within a specified period. The Company’s estimate for returns is based upon its historical experience with actual returns. The Company continually monitors its estimates for returns and makes adjustments when it believes that actual product returns may differ from the established accruals.

Included in the adjustment for sales allowances and returns is a reserve for credits taken by our customers for rebates, return authorizations and other discounts.

Sales discounts are granted for prompt payment. The reserve for sales discounts is based on invoices outstanding and assumes that 100% of available discounts will be taken.

Price adjustments, including shelf stock adjustments, are credits issued from time to time to reflect decreases in the selling prices of our products which our customer has remaining in its inventory at the time of the price reduction. Decreases in our selling prices are discretionary decisions made by us to reflect market conditions. Amounts recorded for estimated price adjustments are based upon specified terms with direct customers, estimated launch dates of competing products, estimated declines in market price and inventory held by the customer. The Company analyzes this on a case by case basis and makes adjustments to reserves as necessary.

The Company adequately reserves for chargebacks, discounts, allowances and returns in the period in which the sales take place. No material amounts included in the provision for chargebacks and the provision for sales discounts recorded in the current period relate to sales made in the prior periods. The provision for sales allowances and returns includes reserves for items sold in the current and prior periods. The Company has consistently used the same estimating methods. We have refined the methods as new data became available. There have been no material differences between the estimates applied and actual results.

 

The following table presents the roll forward of each significant estimate as of October 31, 2012 and October 31, 2011 and for the six months then ended, respectively.

 

                                 

For the six months ended October 31, 2012

  Beginning
Balance
May 1
    Current
Provision
    Actual Credits
in Current
Period
    Ending
Balance
October 31
 

Chargebacks

  $ 10,477,000     $ 70,222,000     $ (70,458,000   $ 10,241,000  

Sales discounts

    1,813,000       4,555,000       (4,214,000     2,154,000  

Sales allowances & returns

    5,745,000       25,516,000       (22,307,000     8,954,000  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustment for returns & price allowances

  $ 18,035,000     $ 100,293,000     $ (96,979,000   $ 21,349,000  
   

 

 

   

 

 

   

 

 

   

 

 

 
         

For the six months ended October 31, 2011

                       

Chargebacks

  $ 8,588,000     $ 64,884,000     $ (64,065,000   $ 9,407,000  

Sales discounts

    2,353,000       4,349,000       (4,842,000     1,860,000  

Sales allowances & returns

    6,159,000       17,650,000       (16,434,000     7,375,000  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustment for returns & price allowances

  $ 17,100,000     $ 86,883,000     $ (85,341,000   $ 18,642,000