WPI » Topics » Revenue and Provision for Sales Returns and Allowances

These excerpts taken from the WPI 10-K filed Feb 23, 2009.
Revenue and Provision for Sales Returns and Allowances
 
As customary in the pharmaceutical industry, our gross product sales are subject to a variety of deductions in arriving at reported net product sales. When we recognize revenue from the sale of our products, an estimate of sales returns and allowances (“SRA”) is recorded which reduces product sales. Accounts receivable and/or accrued liabilities are also reduced and/or increased by the SRA amount. These adjustments include estimates for chargebacks, rebates, cash discounts and returns and other allowances. These provisions are estimated based on historical payment experience, historical relationship to revenues, estimated customer


57


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inventory levels and current contract sales terms with direct and indirect customers. The estimation process used to determine our SRA provision has been applied on a consistent basis and no material adjustments have been necessary to increase or decrease our reserves for SRA as a result of a significant change in underlying estimates. We use a variety of methods to assess the adequacy of our SRA reserves to ensure that our financial statements are fairly stated. This includes periodic reviews of customer inventory data, customer contract programs and product pricing trends to analyze and validate the SRA reserves.
 
Chargebacks — The provision for chargebacks is our most significant sales allowance. A chargeback represents an amount payable in the future to a wholesaler for the difference between the invoice price paid to the Company by our wholesale customer for a particular product and the negotiated contract price that the wholesaler’s customer pays for that product. Our chargeback provision and related reserve varies with changes in product mix, changes in customer pricing and changes to estimated wholesaler inventories. The provision for chargebacks also takes into account an estimate of the expected wholesaler sell-through levels to indirect customers at contract prices. We validate the chargeback accrual quarterly through a review of the inventory reports obtained from our largest wholesale customers. This customer inventory information is used to verify the estimated liability for future chargeback claims based on historical chargeback and contract rates. These large wholesalers represent 85% — 90% of our chargeback payments. We continually monitor current pricing trends and wholesaler inventory levels to ensure the liability for future chargebacks is fairly stated.
 
Rebates — Rebates include volume related incentives to direct and indirect customers and Medicaid rebates based on claims from Medicaid benefit providers.
 
Volume rebates are generally offered to customers as an incentive to continue to carry our products and to encourage greater product sales. These rebate programs include contracted rebates based on customers’ purchases made during an applicable monthly, quarterly or annual period. The provision for rebates is estimated based on our customers’ contracted rebate programs and our historical experience of rebates paid. Any significant changes to our customer rebate programs are considered in establishing our provision for rebates. We continually monitor our customer rebate programs to ensure that the liability for accrued rebates is fairly stated.
 
The provision for Medicaid rebates is based upon historical experience of claims submitted by the various states. The provision for Medicaid rebates is based upon historical experience of claims submitted by the various states. We monitor Medicaid legislative changes to determine what impact such legislation may have on our provision for Medicaid rebates. Our accrual of Medicaid rebates is based on historical payment rates and is reviewed on a quarterly basis against actual claim data to ensure the liability is fairly stated.
 
Returns and Other Allowances — Our provision for returns and other allowances include returns, pricing adjustments, promotional allowances and billback adjustments.
 
Consistent with industry practice, we maintain a return policy that allows our customers to return product for credit. Our estimate of the provision for returns is based upon historical experience and current trends of actual customer returns. Additionally, we consider other factors when estimating our current period return provision, including levels of inventory in our distribution channel as well as significant market changes which may impact future expected returns, and make adjustments to our current period provision for returns when it appears product returns may differ from our original estimates.
 
Pricing adjustments, which include shelf stock adjustments, are credits issued to reflect price decreases in selling prices charged to our direct customers. Shelf stock adjustments are based upon the amount of product our customers have in their inventory at the time of an agreed-upon price reduction. The provision for shelf stock adjustments is based upon specific terms with our direct customers and includes estimates of existing customer inventory levels based upon their historical purchasing patterns. We regularly monitor all price changes to help evaluate our reserve balances. The adequacy of these reserves is readily determinable as pricing adjustments and shelf stock adjustments are negotiated and settled on a customer-by-customer basis.
 
Promotional allowances are credits that are issued in connection with a product launch or as an incentive for customers to begin carrying our product. We establish a reserve for promotional allowances based upon these contractual terms.


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Billback adjustments are credits that are issued to certain customers who purchase directly from us as well as indirectly through a wholesaler. These credits are issued in the event there is a difference between the customer’s direct and indirect contract price. The provision for billbacks is estimated based upon historical purchasing patterns of qualified customers who purchase product directly from us and supplement their purchases indirectly through our wholesale customers.
 
Cash Discounts — Cash discounts are provided to customers that pay within a specific period. The provision for cash discounts are estimated based upon invoice billings, utilizing historical customer payment experience. Our customer’s payment experience is fairly consistent and most customer payments qualify for the cash discount. Accordingly, our reserve for cash discounts is readily determinable.
 
The estimation process used to determine our SRA provision has been applied on a consistent basis and there have been no significant changes in underlying estimates that have resulted in a material adjustment to our SRA reserves. The Company does not expect future payments of SRA to materially exceed our current estimates. However, if future SRA payments were to materially exceed our estimates, such adjustments may have a material adverse impact on our financial position, results of operations and cash flows. For additional information on our reserves for SRA refer to “NOTE 2 — Summary of Significant Accounting Policies” in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report.
 
Revenue
and Provision for Sales Returns and Allowances



 



As customary in the pharmaceutical industry, our gross product
sales are subject to a variety of deductions in arriving at
reported net product sales. When we recognize revenue from the
sale of our products, an estimate of sales returns and
allowances (“SRA”) is recorded which reduces product
sales. Accounts receivable
and/or
accrued liabilities are also reduced and/or increased by the SRA
amount. These adjustments include estimates for chargebacks,
rebates, cash discounts and returns and other allowances. These
provisions are estimated based on historical payment experience,
historical relationship to revenues, estimated customer





57





Table of Contents






inventory levels and current contract sales terms with direct
and indirect customers. The estimation process used to determine
our SRA provision has been applied on a consistent basis and no
material adjustments have been necessary to increase or decrease
our reserves for SRA as a result of a significant change in
underlying estimates. We use a variety of methods to assess the
adequacy of our SRA reserves to ensure that our financial
statements are fairly stated. This includes periodic reviews of
customer inventory data, customer contract programs and product
pricing trends to analyze and validate the SRA reserves.


 



Chargebacks — The provision for chargebacks is
our most significant sales allowance. A chargeback represents an
amount payable in the future to a wholesaler for the difference
between the invoice price paid to the Company by our wholesale
customer for a particular product and the negotiated contract
price that the wholesaler’s customer pays for that product.
Our chargeback provision and related reserve varies with changes
in product mix, changes in customer pricing and changes to
estimated wholesaler inventories. The provision for chargebacks
also takes into account an estimate of the expected wholesaler
sell-through levels to indirect customers at contract prices. We
validate the chargeback accrual quarterly through a review of
the inventory reports obtained from our largest wholesale
customers. This customer inventory information is used to verify
the estimated liability for future chargeback claims based on
historical chargeback and contract rates. These large
wholesalers represent 85% — 90% of our chargeback
payments. We continually monitor current pricing trends and
wholesaler inventory levels to ensure the liability for future
chargebacks is fairly stated.


 



Rebates — Rebates include volume related
incentives to direct and indirect customers and Medicaid rebates
based on claims from Medicaid benefit providers.


 



Volume rebates are generally offered to customers as an
incentive to continue to carry our products and to encourage
greater product sales. These rebate programs include contracted
rebates based on customers’ purchases made during an
applicable monthly, quarterly or annual period. The provision
for rebates is estimated based on our customers’ contracted
rebate programs and our historical experience of rebates paid.
Any significant changes to our customer rebate programs are
considered in establishing our provision for rebates. We
continually monitor our customer rebate programs to ensure that
the liability for accrued rebates is fairly stated.


 



The provision for Medicaid rebates is based upon historical
experience of claims submitted by the various states. The
provision for Medicaid rebates is based upon historical
experience of claims submitted by the various states. We monitor
Medicaid legislative changes to determine what impact such
legislation may have on our provision for Medicaid rebates. Our
accrual of Medicaid rebates is based on historical payment rates
and is reviewed on a quarterly basis against actual claim data
to ensure the liability is fairly stated.


 



Returns and Other Allowances — Our provision
for returns and other allowances include returns, pricing
adjustments, promotional allowances and billback adjustments.


 



Consistent with industry practice, we maintain a return policy
that allows our customers to return product for credit. Our
estimate of the provision for returns is based upon historical
experience and current trends of actual customer returns.
Additionally, we consider other factors when estimating our
current period return provision, including levels of inventory
in our distribution channel as well as significant market
changes which may impact future expected returns, and make
adjustments to our current period provision for returns when it
appears product returns may differ from our original estimates.


 



Pricing adjustments, which include shelf stock adjustments, are
credits issued to reflect price decreases in selling prices
charged to our direct customers. Shelf stock adjustments are
based upon the amount of product our customers have in their
inventory at the time of an
agreed-upon
price reduction. The provision for shelf stock adjustments is
based upon specific terms with our direct customers and includes
estimates of existing customer inventory levels based upon their
historical purchasing patterns. We regularly monitor all price
changes to help evaluate our reserve balances. The adequacy of
these reserves is readily determinable as pricing adjustments
and shelf stock adjustments are negotiated and settled on a
customer-by-customer
basis.


 



Promotional allowances are credits that are issued in connection
with a product launch or as an incentive for customers to begin
carrying our product. We establish a reserve for promotional
allowances based upon these contractual terms.





58





Table of Contents






Billback adjustments are credits that are issued to certain
customers who purchase directly from us as well as indirectly
through a wholesaler. These credits are issued in the event
there is a difference between the customer’s direct and
indirect contract price. The provision for billbacks is
estimated based upon historical purchasing patterns of qualified
customers who purchase product directly from us and supplement
their purchases indirectly through our wholesale customers.


 



Cash Discounts — Cash discounts are provided to
customers that pay within a specific period. The provision for
cash discounts are estimated based upon invoice billings,
utilizing historical customer payment experience. Our
customer’s payment experience is fairly consistent and most
customer payments qualify for the cash discount. Accordingly,
our reserve for cash discounts is readily determinable.


 



The estimation process used to determine our SRA provision has
been applied on a consistent basis and there have been no
significant changes in underlying estimates that have resulted
in a material adjustment to our SRA reserves. The Company does
not expect future payments of SRA to materially exceed our
current estimates. However, if future SRA payments were to
materially exceed our estimates, such adjustments may have a
material adverse impact on our financial position, results of
operations and cash flows. For additional information on our
reserves for SRA refer to “NOTE 2 — Summary
of Significant Accounting Policies” in the accompanying
“Notes to Consolidated Financial Statements” in this
Annual Report.


 




These excerpts taken from the WPI 10-K filed Feb 25, 2008.
Revenue and Provision for Sales Returns and Allowances
 
As customary in the pharmaceutical industry, our gross product sales are subject to a variety of deductions in arriving at reported net product sales. When we recognize revenue from the sale of our products, an estimate of sales returns and allowances (“SRA”) is recorded which reduces product sales, accounts receivable and/or accrued liabilities. These adjustments include estimates for chargebacks, rebates, cash discounts and returns and other allowances. These provisions are estimated based on historical payment experience, historical relationship to revenues, estimated customer inventory levels and current contract sales terms with direct and indirect customers. The estimation process used to determine our SRA provision has been applied on a consistent basis and no material adjustments have been necessary to increase or decrease our reserves for SRA as a result of a significant change in underlying estimates. We use a variety of methods to assess the adequacy of our SRA reserves to ensure that our financial statements are fairly stated. This includes periodic reviews of customer inventory data, customer contract programs and product pricing trends to analyze and validate the SRA reserves.
 
Chargebacks — The provision for chargebacks is our most significant sales allowance. A chargeback represents an amount payable in the future to a wholesaler for the difference between the invoice price paid to the Company by our wholesale customer for a particular product and the negotiated contract price that the wholesaler’s customer pays for that product. Our chargeback provision and related reserve varies with changes in product mix, changes in customer pricing and changes to estimated wholesaler inventories. The provision for chargebacks also takes into account an estimate of the expected wholesaler sell-through levels to indirect customers at contract prices. We validate the chargeback accrual quarterly through a review of the inventory reports obtained from our largest wholesale customers. This customer inventory information is used to verify the estimated liability for future chargeback claims based on historical chargeback and contract rates. These


59


Table of Contents

large wholesalers represent 85% - 90% of our chargeback payments. We continually monitor current pricing trends and wholesaler inventory levels to ensure the liability for future chargebacks is fairly stated.
 
Rebates — Rebates include volume related incentives to direct and indirect customers and Medicaid rebates based on claims from Medicaid benefit providers.
 
Volume rebates are generally offered to customers as an incentive to continue to carry our products and to encourage greater product sales. These rebate programs include contracted rebates based on customer’s purchases made during an applicable monthly, quarterly or annual period. The provision for rebates is estimated based on our customers’ contracted rebate programs and our historical experience of rebates paid. Any significant changes to our customer rebate programs are considered in establishing our provision for rebates. We continually monitor our customer rebate programs to ensure that the liability for accrued rebates is fairly stated.
 
The provision for Medicaid rebates is based upon historical experience of claims submitted by the various states. We monitor Medicaid legislative changes to determine what impact such legislation may have on our provision for Medicaid rebates. Our accrual of Medicaid rebates is based on historical payment rates and is reviewed on a quarterly basis against actual claim data to ensure the liability is fairly stated.
 
Returns and Other Allowances — Our provision for returns and other allowances include returns, pricing adjustments, promotional allowances and billback adjustments.
 
Consistent with industry practice, we maintain a return policy that allows our customers to return product for credit. Our estimate of the provision for returns is based upon historical experience and current trends of actual customer returns. Additionally, we consider other factors when estimating our current period return provision, including levels of inventory in our distribution channel as well as significant market changes which may impact future expected returns, and make adjustments to our current period provision for returns when it appears product returns may differ from our original estimates.
 
Pricing adjustments, which include shelf stock adjustments, are credits issued to reflect price decreases in selling prices charged to our direct customers. Shelf stock adjustments are based upon the amount of product our customers have in their inventory at the time of an agreed-upon price reduction. The provision for shelf stock adjustments is based upon specific terms with our direct customers and includes estimates of existing customer inventory levels based upon their historical purchasing patterns. We regularly monitor all price changes to help evaluate our reserve balances. As pricing adjustments and shelf stock adjustments are negotiated and settled on a customer-by-customer basis, the adequacy of these reserves are readily determinable.
 
Promotional allowances are credits that are issued in connection with a product launch or as an incentive for customers to begin carrying our product. We establish a reserve for promotional allowances based upon these contractual terms.
 
Billback adjustments are credits that are issued to certain customers who purchase directly from us as well as indirectly through a wholesaler. These credits are issued in the event there is a difference between the customer’s direct and indirect contract price. The provision for billbacks is estimated based upon historical purchasing patterns of qualified customers who purchase product directly from us and supplement their purchases indirectly through our wholesale customers.
 
Cash Discounts — Cash discounts are provided to customers that pay within a specific period. The provision for cash discounts are estimated based upon invoice billings, utilizing historical customer payment experience. Our customer’s payment experience is fairly consistent and most customer payments qualify for the cash discount. Accordingly, our reserve for cash discounts is readily determinable.
 
The estimation process used to determine our SRA provision has been applied on a consistent basis and there have been no significant changes in underlying estimates that have resulted in a material adjustment to our SRA reserves. The Company does not expect future payments of SRA to materially exceed our current estimates. However, if future SRA payments were to materially exceed our estimates, such adjustments may have a material adverse impact on our financial position, results of operations and cash flows. For additional


60


Table of Contents

information on our reserves for SRA refer to “NOTE 2 — Summary of Significant Accounting Policies” in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report.
 
Revenue
and Provision for Sales Returns and Allowances



 



As customary in the pharmaceutical industry, our gross product
sales are subject to a variety of deductions in arriving at
reported net product sales. When we recognize revenue from the
sale of our products, an estimate of sales returns and
allowances (“SRA”) is recorded which reduces product
sales, accounts receivable
and/or
accrued liabilities. These adjustments include estimates for
chargebacks, rebates, cash discounts and returns and other
allowances. These provisions are estimated based on historical
payment experience, historical relationship to revenues,
estimated customer inventory levels and current contract sales
terms with direct and indirect customers. The estimation process
used to determine our SRA provision has been applied on a
consistent basis and no material adjustments have been necessary
to increase or decrease our reserves for SRA as a result of a
significant change in underlying estimates. We use a variety of
methods to assess the adequacy of our SRA reserves to ensure
that our financial statements are fairly stated. This includes
periodic reviews of customer inventory data, customer contract
programs and product pricing trends to analyze and validate the
SRA reserves.


 



Chargebacks — The provision for chargebacks is
our most significant sales allowance. A chargeback represents an
amount payable in the future to a wholesaler for the difference
between the invoice price paid to the Company by our wholesale
customer for a particular product and the negotiated contract
price that the wholesaler’s customer pays for that product.
Our chargeback provision and related reserve varies with changes
in product mix, changes in customer pricing and changes to
estimated wholesaler inventories. The provision for chargebacks
also takes into account an estimate of the expected wholesaler
sell-through levels to indirect customers at contract prices. We
validate the chargeback accrual quarterly through a review of
the inventory reports obtained from our largest wholesale
customers. This customer inventory information is used to verify
the estimated liability for future chargeback claims based on
historical chargeback and contract rates. These





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Table of Contents






large wholesalers represent 85% - 90% of our chargeback
payments. We continually monitor current pricing trends and
wholesaler inventory levels to ensure the liability for future
chargebacks is fairly stated.


 



Rebates — Rebates include volume related
incentives to direct and indirect customers and Medicaid rebates
based on claims from Medicaid benefit providers.


 



Volume rebates are generally offered to customers as an
incentive to continue to carry our products and to encourage
greater product sales. These rebate programs include contracted
rebates based on customer’s purchases made during an
applicable monthly, quarterly or annual period. The provision
for rebates is estimated based on our customers’ contracted
rebate programs and our historical experience of rebates paid.
Any significant changes to our customer rebate programs are
considered in establishing our provision for rebates. We
continually monitor our customer rebate programs to ensure that
the liability for accrued rebates is fairly stated.


 



The provision for Medicaid rebates is based upon historical
experience of claims submitted by the various states. We monitor
Medicaid legislative changes to determine what impact such
legislation may have on our provision for Medicaid rebates. Our
accrual of Medicaid rebates is based on historical payment rates
and is reviewed on a quarterly basis against actual claim data
to ensure the liability is fairly stated.


 



Returns and Other Allowances — Our provision
for returns and other allowances include returns, pricing
adjustments, promotional allowances and billback adjustments.


 



Consistent with industry practice, we maintain a return policy
that allows our customers to return product for credit. Our
estimate of the provision for returns is based upon historical
experience and current trends of actual customer returns.
Additionally, we consider other factors when estimating our
current period return provision, including levels of inventory
in our distribution channel as well as significant market
changes which may impact future expected returns, and make
adjustments to our current period provision for returns when it
appears product returns may differ from our original estimates.


 



Pricing adjustments, which include shelf stock adjustments, are
credits issued to reflect price decreases in selling prices
charged to our direct customers. Shelf stock adjustments are
based upon the amount of product our customers have in their
inventory at the time of an
agreed-upon
price reduction. The provision for shelf stock adjustments is
based upon specific terms with our direct customers and includes
estimates of existing customer inventory levels based upon their
historical purchasing patterns. We regularly monitor all price
changes to help evaluate our reserve balances. As pricing
adjustments and shelf stock adjustments are negotiated and
settled on a
customer-by-customer
basis, the adequacy of these reserves are readily determinable.


 



Promotional allowances are credits that are issued in connection
with a product launch or as an incentive for customers to begin
carrying our product. We establish a reserve for promotional
allowances based upon these contractual terms.


 



Billback adjustments are credits that are issued to certain
customers who purchase directly from us as well as indirectly
through a wholesaler. These credits are issued in the event
there is a difference between the customer’s direct and
indirect contract price. The provision for billbacks is
estimated based upon historical purchasing patterns of qualified
customers who purchase product directly from us and supplement
their purchases indirectly through our wholesale customers.


 



Cash Discounts — Cash discounts are provided to
customers that pay within a specific period. The provision for
cash discounts are estimated based upon invoice billings,
utilizing historical customer payment experience. Our
customer’s payment experience is fairly consistent and most
customer payments qualify for the cash discount. Accordingly,
our reserve for cash discounts is readily determinable.


 



The estimation process used to determine our SRA provision has
been applied on a consistent basis and there have been no
significant changes in underlying estimates that have resulted
in a material adjustment to our SRA reserves. The Company does
not expect future payments of SRA to materially exceed our
current estimates. However, if future SRA payments were to
materially exceed our estimates, such adjustments may have a
material adverse impact on our financial position, results of
operations and cash flows. For additional





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Table of Contents






information on our reserves for SRA refer to
“NOTE 2 — Summary of Significant Accounting
Policies” in the accompanying “Notes to Consolidated
Financial Statements” in this Annual Report.


 




This excerpt taken from the WPI 10-K filed Mar 1, 2007.

Revenue and Provision for Sales Returns and Allowances

As customary in the pharmaceutical industry, the Company’s gross product sales are subject to a variety of deductions in arriving at reported net product sales. When the Company recognizes revenue from the sale of its products, an estimate of sales returns and allowances (“SRA”) is recorded which reduces product sales and accounts receivable. These adjustments include estimates for chargebacks, rebates, cash discounts and returns and other allowances. These provisions are estimated based on historical payment experience, historical relationship to revenues, estimated customer inventory levels and current contract sales terms with direct and indirect customers. The estimation process used to determine our SRA provision has been applied on a consistent basis and no material adjustments have been necessary to increase or decrease our reserves for SRA as a result of a significant change in underlying estimates. The Company uses a variety of methods to assess the adequacy of our SRA reserves to ensure that our financial statements are fairly stated. This includes periodic reviews of customer inventory data, customer contract programs and product pricing trends to analyze and validate the SRA reserves.

Chargebacks—The provision for chargebacks is our most significant sales allowance. A chargeback represents an amount payable in the future to a wholesaler for the difference between the invoice price paid to the Company by our wholesale customer for a particular product and the negotiated contract price that the wholesaler’s customer pays for that product. The Company’s chargeback provision and related reserve vary with changes in product mix, changes in customer pricing and changes to estimated wholesaler inventory. The provision for chargebacks also takes into account an estimate of the expected wholesaler sell-through levels to indirect customers at contract prices. The Company validates the chargeback accrual quarterly through a review of the inventory reports obtained from our largest wholesale customers. This customer inventory information is used to verify the estimated liability for future chargeback claims based on historical chargeback and contract rates. These large wholesalers represent 85% - 90% of the Company’s chargeback payments. The Company continually monitors current pricing trends and wholesaler inventory levels to ensure the liability for future chargebacks is fairly stated.

Rebates—Rebates include volume related incentives to direct and indirect customers and Medicaid rebates based on claims from Medicaid benefit providers.

Volume rebates are generally offered to customers as an incentive to continue to carry our products and to encourage greater product sales. These rebate programs include contracted rebates based on customer’s purchases made during an applicable monthly, quarterly or annual period. The provision for rebates is estimated based on our customers’ contracted rebate programs and our historical experience of rebates paid. Any significant changes to our customer rebate programs are considered in establishing our provision for rebates. The Company continually monitors its customer rebate programs to ensure that the liability for accrued rebates is fairly stated.

The provision for Medicaid rebates is based upon historical experience of claims submitted by the various states. The Company monitors Medicaid legislative changes to determine what impact such legislation may have on our provision for Medicaid rebates. Our accrual of Medicaid rebates is based on historical payment rates and is reviewed on a quarterly basis against actual claim data to ensure the liability is fairly stated.

Returns and Other Allowances—Our provision for returns and other allowances include returns, pricing adjustments, promotional allowances and billback adjustments.

60




Consistent with industry practice, the Company maintains a return policy that allows our customers to return product for credit. Our estimate of the provision for returns is based upon our most recent historical experience of actual customer returns. Additionally, we consider other factors when estimating our current period return provision, including levels of inventory in our distribution channel as well as significant market changes which may impact future expected returns, and make adjustments to our current period provision for returns when it appears product returns may differ from our original estimates.

Pricing adjustments, which include shelf stock adjustments, are credits issued to reflect price decreases in selling prices charged to our direct customers. Shelf stock adjustments are based upon the amount of product our customers have in their inventory at the time of an agreed upon price reduction. The provision for shelf stock adjustments is based upon specific terms with our direct customers and includes estimates of existing customer inventory levels based upon their historical purchasing patterns. The company regularly monitors all price changes to help evaluate our reserve balances. As pricing adjustments and shelf stock adjustments are negotiated and settled on a customer by customer basis, the adequacy of these reserves are readily determinable.

Promotional allowances are credits, which are issued in connection with a product launch or as an incentive for customers to begin carrying our product. The company establishes a reserve for promotional allowances based upon these contractual terms.

Billback adjustments are credits that are issued to certain customers who purchase directly from the Company as well as indirectly through a wholesaler. These credits are issued in the event there is a difference between the customer’s direct and indirect contract price. The provision for billbacks is estimated based upon historical purchasing patterns of qualified customers who purchase product directly from the Company and supplement their purchases indirectly through the Company’s wholesale customers.

Cash Discounts—Cash discounts are provided to customers that pay within a specific period. The provision for cash discounts are estimated based upon invoice billings, utilizing historical customer payment experience. Our customer’s payment experience is fairly consistent and most customer payments qualify for the cash discount. Accordingly, our reserve for cash discounts is readily determinable.

The estimation process used to determine our SRA provision has been applied on a consistent basis and there have been no significant changes in underlying estimates that have resulted in a material adjustment to our SRA reserves. The Company does not expect future payments of SRA to materially exceed our current estimates. However, if future SRA payments were to materially exceed our estimates, such adjustments may have a material adverse impact on our financial position, results of operations and cash flows. For additional information on our reserves for SRA refer to Note 2—Summary of Significant Accounting Policies.

This excerpt taken from the WPI 10-K filed Mar 10, 2006.
Revenue and Provision for Sales Returns and Allowances

When we sell our products, we reduce the amount of revenue we recognize from such sale by an estimate of future product returns and sales allowances. Sales allowances include cash discounts, rebates, chargebacks, and other similar expected future payments relating to product sold in the current period. Factors that are considered in our estimates of future product returns and sales allowances include historical payment experience in relationship to revenues, estimated customer inventory levels, and current contract prices and terms with both direct and indirect customers. If actual future payments for product returns and sales allowances exceed the estimates we made at the time of sale, our financial position, results of operations and cash flows would be negatively impacted.

Our provision for chargebacks is our most significant and complex estimated sales allowance. A chargeback represents an amount payable in the future to a wholesaler for the difference between the invoice price paid to us by our wholesale customer for a particular product and the negotiated contract price that the wholesaler’s customer pays for that product. Our chargeback estimates take into consideration the current average chargeback rates by product and estimated wholesaler inventory levels. We continually monitor our assumptions giving consideration to current pricing trends and estimated wholesaler inventory levels and make adjustments to these estimates when we believe that the actual chargeback amounts payable in the future will differ from our original estimates.

This excerpt taken from the WPI 10-K filed Mar 15, 2005.

Revenue and Provision for Sales Returns and Allowances

        When we sell our products, we reduce the amount of revenue we recognize from such sale by an estimate of future product returns and sales allowances. Sales allowances include cash discounts, rebates, chargebacks, and other similar expected future payments relating to product sold in the current period. Factors that are considered in our estimates of future product returns and sales allowances include historical payment experience in relationship to revenues, estimated customer inventory levels, and current contract prices and terms with both direct and indirect customers. If actual future payments for product returns and sales allowances exceed the estimates we made at the time of sale, our financial position, results of operations and cash flows would be negatively impacted.

50



        Our provision for chargebacks is our most significant and complex estimated sales allowance. A chargeback represents an amount payable in the future to a wholesaler for the difference between the invoice price paid to us by our wholesale customer for a particular product and the negotiated contract price that the wholesaler's customer pays for that product. Our chargeback estimates take into consideration the current average chargeback rates by product and estimated wholesaler inventory levels. We continually monitor our assumptions giving consideration to current pricing trends and estimated wholesaler inventory levels and make adjustments to these estimates when we believe that the actual chargeback amounts payable in the future will differ from our original estimates.

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