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EMERSON RADIO CORP - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

June 25, 2014

The following discussion of the Company's operations and financial condition should be read in conjunction with the Financial Statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

Special Note: Certain statements set forth below constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. See Item 1A - "Risk Factors - Forward-Looking Information."

In the following discussions, most percentages and dollar amounts have been rounded to aid presentation. As a result, all figures are approximations.

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Results of Operations:

The following table summarizes certain financial information for the fiscal years ended March 31 (in thousands):

2014 2013 Net product sales $ 70,257$ 121,628 Licensing revenue 7,572 6,768 Net revenues 77,829 128,396 Cost of sales 63,012 108,631 Other operating costs and expenses 864 1,355 Selling, general and administrative 10,434 7,759 Impairment of trademark 219 1,326 Operating income 3,300 9,325 Loss on settlement of litigation (4,000 ) - Interest income, net 548 340 (Loss) income before income taxes (152 ) 9,665 Provision for income tax (benefit) expense (1,469 ) 3,666 Net income $ 1,317$ 5,999



Results of Operations - Fiscal 2014 compared with Fiscal 2013

Net product sales - Net product sales for fiscal 2014 were $70.3 million as compared to $121.6 million for fiscal 2013, a decrease of $51.3 million, or 42.2%. The Company's fiscal 2014 net product sales were lower than its fiscal 2013 net product sales primarily due to the inclusion in fiscal 2013's net product sales of the sales of two microwave products for which there were no sales during fiscal 2014, ongoing pricing pressures, intense competitive activity and a challenging retail sales environment. The Company's sales during fiscal 2014 and fiscal 2013 were highly concentrated among the Company's two largest customers, Target and Wal-Mart, where gross product sales comprised approximately 89.4% and 94.2%, respectively, of the Company's total gross product sales. Net product sales may be periodically impacted by adjustments made to the Company's sales allowance and marketing support accrual to record unanticipated customer deductions from accounts receivable or to reduce the accrual by any amounts which were accrued in the past but not taken by customers through deductions from accounts receivable within a certain time period. In the aggregate, these adjustments had the effect of increasing net product sales and operating income by $0.3 million and $0.9 million for fiscal 2014 and fiscal 2013, respectively.

Net product sales are comprised primarily of the sales of houseware and audio products which bear the Emerson® brand name. The major elements which contributed to the overall decrease in net product sales were as follows:

i) Houseware product net sales decreased $50.7 million, or 43.1%, to $66.9 million in fiscal 2014 as compared to $117.6 million in fiscal 2013, principally driven by a decrease in sales of all products offered by the Company in the category, which is comprised of microwave ovens, compact refrigerators and wine coolers.

As previously reported by the Company, the Company was informed by Wal-Mart that, commencing in the Spring of 2013, Wal-Mart would discontinue purchasing from Emerson two microwave oven products that had been sold by the Company to Wal-Mart.

Emerson continued shipping these products to Wal-Mart throughout the remainder of Fiscal 2013 (the year ending March 31, 2013), with sales of such products declining through the fourth quarter of Fiscal 2013. During Fiscal 2013, these two microwave oven products comprised, in the aggregate, approximately $36.1 million, or 29.7%, of the Company's net product sales.

Emerson anticipates that the full impact of Wal-Mart's decision has been realized by the Company in Fiscal 2014, which began on April 1, 2013. As previously disclosed by the Company, the complete loss of, or significant reduction in, business with either of the Company's key customers will have a material adverse effect on the Company's business and results of operations. Accordingly, Wal-Mart's decision has had a material adverse effect on the Company's business and results of operations. The Company is considering various strategic initiatives, including a complete analysis of its current and prospective product lines and pricing strategies, although there can be no assurance that the Company will be able to increase sales of such products at levels sufficient to offset the adverse impact of Wal-Mart's decision, if at all.

As a result of the above, during the twelve months ending March 31, 2014, sales of these two products by the Company were nil as compared to approximately $36.1 million net sales of these two products by the Company during the twelve months ending March 31, 2013.

ii) Audio product net sales were $3.4 million in fiscal 2014 compared to $4.1 million in fiscal 2013, a decrease of $0.7 million, or 16.7%, resulting from decreased net sales of clock radios and portable audio products.

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Licensing revenue - Licensing revenue in fiscal 2014 was $7.6 million as compared to $6.8 million for fiscal 2013, an increase of $0.8 million, or 11.9%. The increase in year-over-year licensing revenue for fiscal 2014 was primarily due to approximately $1.6 million of higher year-over-year licensing revenue earned from one of its licensees upon the completion of an audit of and negotiation with this licensee to pay to the company $1.8 million in previously unreported and unpaid royalty fees, partly offset by $0.9 million of lower year-over-year licensing revenue earned from the Company's largest licensee, Funai Corporation, Inc. ("Funai"), on lower year-over-year sales by Funai of products bearing the Emerson® brand name.

The Company's largest license agreement is with Funai, which accounted for approximately 86% and 87%, respectively, of the Company's total fiscal 2014 and fiscal 2013 licensing revenue, and which was amended during November 2013 to extend the term of the agreement until March 31, 2018. The agreement provides that Funai will manufacture, market, sell and distribute specified products bearing the Emerson® trademark to customers in the U.S. and Canadian markets. Under the terms of the agreement, the Company receives non-refundable minimum annual royalty payments of $3.75 million each calendar year and a license fee on sales of product subject to the agreement in excess of the minimum annual royalties. During fiscal 2014 and 2013, licensing revenues of $5.0 million and $5.9 million, respectively, were earned under this agreement.

Net revenues - As a result of the foregoing factors, the Company's net revenues were $77.8 million for fiscal 2014 as compared to $128.4 million for fiscal 2013, a decrease of $50.6 million, or 39.4%.

Cost of sales- Cost of sales includes those components as described in Note 1 "Cost of Sales" of the Notes to the Consolidated Financial Statements. In absolute terms, cost of sales decreased $45.6 million, or 42.0%, to $63.0 million in fiscal 2014 as compared to $108.6 million in fiscal 2013. Cost of sales as a percentage of net product sales was 89.7% in fiscal 2014 as compared to 89.3% in fiscal 2013. The decrease in absolute terms for fiscal 2014 as compared to fiscal 2013 was primarily related to the reduced net product sales partly offset by lower year-over-year cost of sales as a percentage of sales.

Other operating costs and expenses - Other operating costs and expenses include those components as described in Note 1 "Other Operating Costs and Expenses" of the Notes to the Consolidated Financial Statements. Other operating costs and expenses as a percentage of net product sales was 1.2% in fiscal 2014 and 1.1% in fiscal 2013. In absolute terms, other operating costs and expenses was $0.9 million in fiscal 2014 as compared to $1.4 million in fiscal 2013.

Selling, general and administrative expenses ("S,G&A") - S,G&A, as a percentage of net revenues, was 13.4% in fiscal 2014 as compared to 6.0% in fiscal 2013. Fiscal 2014 S,G&A, in absolute terms, was $10.4 million and fiscal 2013 S, G&A, in absolute terms, was $7.8 million, an increase of $2.6 million, or 34.5%.

Fiscal 2014 S,G&A included approximately $1.8 million in legal fees related to the Kayne litigation, as more fully described in Note 13 - Legal Proceedings, approximately $1.2 million in legal and advisory fees pertaining to the setup of and work performed for the Special Committee of the Company's Board of Directors, approximately $0.3 million in tax advisory fees related to the audit of the Company's tax returns by the IRS, as mentioned elsewhere within this Annual Report on Form 10-K, and approximately $0.2 million in management consulting fees to evaluate the Company's current operations.

Fiscal 2013 S,G&A included approximately $1.2 million in legal fees related to the Kayne litigation, as more fully described in Note 13 - Legal Proceedings and approximately $0.1 million in tax advisory fees related to the audit of the Company's tax returns by the IRS, as mentioned elsewhere within this Annual Report on Form 10-K.

Excluding the aforementioned items, fiscal 2014 S, G&A was $6.9 million and fiscal 2013 S,G&A was $6.5 million, an increase of $0.4 million, or 7.3%, primarily due to a $1.6 million lower year-over-year allocation to Cost of Sales, partially offset by an $0.8 million year-over-year reduction in personnel costs and a $0.3 million year-over-year reduction in rental and facility costs.

Impairment of Trademark - During fiscal 2014, upon completion of an analysis which showed the absence of future expected cash flows, the Company determined that the value of one of its non-strategic trademarks was fully impaired. Thus, the Company recorded an impairment charge of $0.2 million in December 2013 to write off this trademark.

During fiscal 2013, upon completion of an analysis which showed the absence of future expected cash flows, the Company determined that the value of one of its non-strategic trademarks was fully impaired. Thus, the Company recorded an impairment charge of $1.3 million in September 2012 to write off this trademark.

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The Company does not anticipate any future material adverse financial impacts arising from these impairments.

Loss on settlement of litigation - To settle the Kayne Litigation, as more fully described in Note 13 - Legal Proceedings, the Company paid $4.0 million to the Kayne plaintiff's trust account in December 2013, such funds being disbursed to the plaintiffs in May 2014 , which significantly and negatively impacted fiscal 2014 results.

Interest income, net - Interest income, net, was $548,000 in fiscal 2014 as compared to $340,000 in fiscal 2013, resulting from an additional 8 months of interest earned by the Company on certain of its investments in Certificates of Deposit during fiscal 2014.

Provision for income tax (benefit) expense - In fiscal 2014, the Company recorded an income tax benefit of $1.5 million as compared to income tax expense of $3.7 million in fiscal 2013. See Item 8 - "Financial Statements and Supplementary Data" and Note 6 "Income Taxes".

Net income - As a result of the foregoing factors, the Company recorded net income of $1.3 million for fiscal 2014 as compared to $6.0 million for fiscal 2013, a decrease of $4.7 million, or 78.0%.

Liquidity and Capital Resources

General

As of March 31, 2014, the Company had cash and cash equivalents of approximately $26.3 million as compared to approximately $21.4 million at March 31, 2013. Working capital increased to $73.3 million at March 31, 2014 as compared to $72.5 million at March 31, 2013. The increase in cash and cash equivalents of approximately $4.9 million was due to the below factors.

Net cash used by operating activities was approximately $8.1 million for fiscal 2014, primarily resulting from the reduction of accounts payable and other current liabilities of $3.3 million, an increase in other receivables of $2.9 million, an increase in inventories of $2.0 million, a decrease in asset allowances of $1.7 million, a decrease of $1.3 million in income taxes payable, an increase in prepaid purchases of $1.2 million and an increase in deferred tax assets of $0.5 million, partially offset by a reduction in accounts receivable of $3.7 million and the net income generated of $1.3 million.

Net cash provided by investing activities was $13.1 million for fiscal 2014 primarily due to $13.0 million of maturities of short term investments during fiscal 2014.

Net cash used by financing activities was $73,000 for fiscal 2014 resulting from payments made on, as well as transfer of remaining balances to a third party by the Company of its capital lease obligations.

Other Events and Circumstances Pertaining to Liquidity

Potential Income Tax Issues Concerning the Extraordinary Dividend Paid by the Company in March 2010

On March 2, 2010, the Board declared an extraordinary dividend of $1.10 per common share which was paid on March 24, 2010. In connection with the Company's determination as to the taxability of the dividend, the Board relied upon information and research provided to it by the Company's tax advisors and, in reliance on the "stock-for-debt" exception in the Internal Revenue Code Sections 108(e)(8) and (e)(10), concluded that 4.9% of such dividend paid was taxable to the recipients.

In August 2012, the Company received a Form 886-A from the IRS which challenges the Company's conclusions and determines that the Company does not qualify for the above-referenced exception. Accordingly, the IRS has concluded that 100% of the dividend paid was taxable to the recipients. The Company is defending its position and calculations and is contesting the position asserted by the IRS. The Company prepared and, on October 25, 2012, delivered its rebuttal to the IRS contesting the IRS determination. There can be no assurance that the Company will be successful in defending its position.

In the event that the Company is not successful in establishing with the IRS that the Company's calculations were correct, then the shareholders who received the dividend likely will be subject to and liable for an assessment of additional taxes due. Moreover, the Company may be contingently liable for taxes due by certain of its shareholders resulting from the dividend paid by the Company.

Initially, the Company withheld from the dividend paid to foreign shareholders an amount equal to the tax liability associated with such dividend. On April 7, 2010, upon a request made to the Company by its foreign controlling shareholder, S&T, the Company entered into an agreement with S&T (the "Agreement"), whereby the Company returned to S&T on April 7, 2010 that portion of the funds withheld for taxes from the dividend paid on March 24, 2010 to S&T, which the Company believes is not subject to U.S. tax based on the Company's good-faith estimate of its accumulated earnings and profits. The Agreement includes provisions pursuant to which S&T agreed to indemnify the Company for any liability imposed on it as a result of the Company's agreement not to withhold such funds for S&T's possible tax liability and a pledge of stock as collateral. The Company continues to assert that such dividend is largely not subject to U.S. tax based on the Company's good-faith estimate of its accumulated earnings and profits. In addition, the Company also continues to assert that this transaction results in an off-balance sheet arrangement and a possible contingent tax liability of the Company, which, if recognized, would be offset by the calling by the Company on S&T of the indemnification provisions of the Agreement.

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In February 2011, upon the request of S&T to the Company, the Company and S&T agreed that the collateral pledged as a part of the Agreement would no longer be required and such collateral was returned by the Company to S&T in March 2011 and the Agreement was amended and restated to remove the collateral requirement but retain the indemnification provisions. The Agreement, as amended (the "Amended Agreement"), remains in effect as of today. In the event that (i) the Company is not successful in establishing with the IRS that the Company's calculations were correct and (ii) S&T is unable or unwilling to pay the additional taxes due or indemnify the Company under the terms of the Amended Agreement, the Company may be liable to pay such additional taxes, which, together with penalties and interest, are currently estimated by the Company to be approximately $4.7 million as of March 31, 2014. Any such liability, should it be required to be recognized by the Company, would likely have a material adverse effect on the Company's results of operations in the period recognized. S&T is a subsidiary of Grande, which is currently in liquidation (as described above under "Controlling Shareholder"). Therefore, the ability of the Company to enforce its rights to indemnification under the Amended Agreement and to collect from S&T any additional taxes, interest and penalties due may be severely impaired.

Income Tax Issues Concerning Overseas Income

On April 15, 2013 and June 5, 2013, the Company received correspondence from the IRS including a (i) Form 5701 and Form 886-A regarding Adjusted Sales Income (collectively referred to as "NOPA 1") and (ii) Form 5701 and Form 886-A regarding Adjusted Subpart F-Foreign Base Company Sales Income (collectively referred to as "NOPA 2").

With respect to NOPA 1, the IRS is (i) challenging the position of the Company with respect to the way the Company's controlled foreign corporation in Macao (the "Macao CFC") recorded its product sales during Fiscal 2010 and Fiscal 2011 and (ii) asserting that an upward adjustment to the Company's Fiscal 2010 and Fiscal 2011 taxable income of $4,981,520 and $5,680,182, respectively, is required.

With respect to NOPA 2, the IRS is challenging the position of the Company with respect to the fact that the Company considered the service fee paid by the Company to the Macao CFC to be non-taxable in the US. The IRS has taken the position that the service fee paid to the Macao CFC by the Company constitutes foreign base company sales income ("FBCSI"). The IRS asserts that the service fee earned by the Macao CFC in connection with its sale of products to the Company should be taxable to the Company as FBCSI. As a result, the IRS determined that an upward adjustment to the Company's Fiscal 2010 and Fiscal 2011 taxable income of $1,553,984 and $1,143,162, respectively, is required.

The Company has evaluated the determinations made by the IRS as set forth in each of NOPA 1 and NOPA 2 in order to decide (a) how it will proceed and (b) the potential impact on the Company's financial condition and operations. Furthermore, although NOPA 1 and NOPA 2 represent potential adjustments to Fiscal 2010 and Fiscal 2011 only, the Company believes it is likely that the IRS will take the position that the same type of adjustments should be made for each of the Company's subsequent fiscal years. The assessment and payment of such additional taxes, penalties and interest would have a material adverse effect on the Company's financial condition and results of operations.

With respect to NOPA 1, the Company is disputing the proposed adjustment with the IRS. In the event that the Company is not successful in its dispute, the Company estimates that it could be liable for a maximum in taxes, penalties and interest of approximately $14.9 million pertaining to NOPA 1, in the aggregate, for its Fiscal 2010, Fiscal 2011, Fiscal 2012, Fiscal 2013 and Fiscal 2014 periods. However, because the Company's current assessment is that its appeal of NOPA 1 is more likely than not to be successful, the Company has not recorded any liability to its March 31, 2014 or March 31, 2013 balance sheets related to NOPA 1.

With respect to NOPA 2, the Company agrees in principle with the IRS' position that the service fee paid to the Macao CFC by the Company would be treated as FBCSI and taxable to the Company but the Company does not agree with the adjustment to the Company's taxable income as calculated by the IRS. However, the Company has estimated as approximately $1.1 million the amount of taxes, penalties and interest for which it would be liable for its Fiscal 2010, Fiscal 2011, Fiscal 2012 and Fiscal 2013 periods using the adjustments to taxable income as proposed by the IRS, and such amount was recorded by the Company as tax expense during Fiscal 2013. In addition, the Company began at this time to prospectively recognize the service fee, net of related expenses, paid to the Macao CFC as FBCSI taxable income to the Company. During Fiscal 2014, the Company remitted approximately $0.9 million of this estimated liability to the IRS, and plans to remit the balance of $0.2 million upon final agreement of this amount due with the IRS.

Credit Arrangements

Letters of Credit - The Company utilizes Hang Seng Bank to issue letters of credit on behalf of the Company, as needed, on a 100% cash collateralized basis, although at March 31, 2014 the Company had no outstanding letters of credit. In the event that the Company does have outstanding letters of credit with Hang Seng Bank, a like amount of cash is posted by the Company as collateral against such outstanding letters of credit, and is classified by the Company as Restricted Cash on the balance sheet.

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Short-term Liquidity

In fiscal 2014, products representing approximately 65% of net sales were imported directly to the Company's customers. The direct importation of product by the Company to its customers significantly benefits the Company's liquidity because this inventory does not need to be financed by the Company.

The Company's principal existing sources of cash are generated from operations. The Company believes that its cash on hand and existing sources of cash will be sufficient to support its existing operations over the next 12 months.

As of March 31, 2014, there were no capital expenditure or other commitments other than the normal purchase orders used to secure product.

Off-Balance Sheet Arrangements

On April 7, 2010, upon a request made to the Company by its foreign controlling stockholder, S&T, the Company entered into an agreement with S&T whereby the Company returned to S&T on April 7, 2010 that portion of the taxes that the Company had withheld from the dividend paid on March 24, 2010 to S&T, as the Company believes the dividend paid is not subject to U.S. tax based on the Company's good-faith estimate of its accumulated earnings and profits, and received collateral (in the form of shares in the Company) which was sufficient to cover any claims for taxes on the dividend paid (the "Agreement"). The Company believes this transaction resulted in an off-balance sheet arrangement, which is comprised of a possible contingent tax liability of the Company, which, if recognized, would be offset by the calling by the Company on S&T of the indemnification provisions of the Agreement. In February 2011, upon the request of S&T to the Company, the Company and S&T agreed the collateral pledged as a part of the Agreement would no longer be required and this collateral was returned by the Company to S&T in March 2011 (see Note 3 "Related Party Transactions - Dividend-Related Issues with S&T").

Critical Accounting Policies

The discussion and analysis of the Company's financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles that are generally accepted within the United States. The preparation of the Company's financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management considers certain accounting policies related to inventories, trade accounts receivables, impairment of long-lived assets, valuation of deferred tax assets, sales return reserves and sales allowance accruals to be critical policies due to the estimation processes involved in each.

Revenue Recognition. Revenues from product distribution are recognized at the time title passes to the customer. Under the Direct Import Program, title passes in the country of origin. Under the Domestic Program, title passes primarily at the time of shipment. Estimates for possible returns are based upon historical return rates and netted against revenues. Except in connection with infrequent sales with specific arrangements to the contrary, returns are not permitted unless the goods are defective.

In addition to the distribution of products, the Company grants licenses for the right to use the Company's trademarks for a stated term for the manufacture and/or sale of consumer electronics and other products under agreements which require payment of either i) a non-refundable minimum guaranteed royalty or, ii) the greater of the actual royalties due (based on a contractual calculation, normally comprised of actual product sales by the licensee multiplied by a stated royalty rate, or "Sales Royalties") or a minimum guaranteed royalty amount. In the case of (i), such amounts are recognized as revenue on a straight-line basis over the term of the license agreement. In the case of (ii), Sales Royalties in excess of guaranteed minimums are accounted for as variable fees and are not recognized as revenue until the Company has ascertained that the licensee's sales of products have exceeded the guaranteed minimum. In effect, the Company recognizes the greater of Sales Royalties earned to date or the straight-line amount of minimum guaranteed royalties to date. In the case where a royalty is paid to the Company in advance, the royalty payment is initially recorded as a liability and recognized as revenue as the royalties are deemed to be earned according to the principles outlined above.

Inventories. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out basis. The Company records inventory reserves to reduce the carrying value of inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be required. Conversely, if market conditions improve, such reserves are reduced.

Trade Accounts Receivable. The Company extends credit based upon evaluations of a customer's financial condition and provides for any anticipated credit losses in the Company's financial statements based upon management's estimates and ongoing reviews of recorded allowances. If the financial condition of a customer deteriorates, resulting in an impairment of that customer's ability to make payments, additional reserves may be required. Conversely, reserves are reduced to reflect credit and collection improvements.

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Income Taxes. The Company records a valuation allowance to reduce the amount of its deferred tax assets to the amount that management estimates is more likely than not to be realized. While management considers future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance, in the event that management determines that a deferred tax asset will likely be realized in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, if it is determined that all or part of a net deferred tax asset will likely not be realized in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

Sales Return Reserves. Management must make estimates of potential future product returns related to current period product revenue. Management analyzes historical returns, current economic trends and changes in customer demand for our products when evaluating the adequacy of the reserve for sales returns. Management judgments and estimates must be made and used in connection with establishing the sales return reserves in any accounting period. Additional reserves may be required if actual sales returns increase above the historical return rates. Conversely, the sales return reserve could be decreased if the actual return rates are less than the historical return rates, which were used to establish the reserve.

Sales Allowance and Marketing Support Accruals. Sales allowances, marketing support programs, promotions and other volume-based incentives which are provided to retailers and distributors are accounted for on an accrual basis as a reduction to net revenues in the period in which the related sales are recognized in accordance with ASC topic 605, "Revenue Recognition", subtopic 50 "Customer Payments and Incentives" and Securities and Exchange Commission Staff Accounting Bulletins 101 "Revenue Recognition in Financial Statements," and 104 "Revenue Recognition, corrected copy" ("SAB's 101 and 104").

At the time of sale, the Company reduces recognized gross revenue by allowances to cover, in addition to estimated sales returns as required by ASC topic 605, "Revenue Recognition.", subtopic 15 "Products", (i) sales incentives offered to customers that meet the criteria for accrual under ASC topic 605, subtopic 50 and (ii) under SAB's 101 and 104, an estimated amount to recognize additional non-offered deductions it anticipates and can reasonably estimate will be taken by customers which it does not expect to recover. Accruals for the estimated amount of future non-offered deductions are required to be made as contra-revenue items because that percentage of shipped revenue fails to meet the collectability criteria within SAB 104's and 101's four revenue recognition criteria, all of which are required to be met in order to recognize revenue.

If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company's products subsequent to the initial sale, then additional reserves may be required and are accrued for when such support is offered.

Recently-Issued Financial Accounting Pronouncements

The following Accounting Standards Updates ("ASUs") were issued by the Financial Accounting Standards Board during the twelve months ended March 31, 2014 or during the interim period between March 31, 2014 and June 25, 2014 which relate to or could relate to the Company as concerns the Company's normal ongoing operations or the industry in which the Company operates:

Accounting Standards Update 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes (Issued July 2013)

The amendments in this Update permit the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to UST and LIBOR. The amendments also remove the restriction on using different benchmark rates for similar hedges. The amendments are effective prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013. This ASU is not expected to have a significant impact on the Company's financial statements.

Accounting Standards Update 2013-11, Income Taxes - Topic 740. Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carry-forward, a Similar Tax Loss, or a Tax Credit Carry-forward Exists.

This Update applies to all entities that have unrecognized tax benefits when a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward, except as follows. To the extent a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. This ASU is not expected to have a significant impact on the Company's financial statements.

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Accounting Standards Update 2013-12, Definition of a Public Business Entity-An Addition to the Master Glossary

The FASB has decided that it should proactively determine which entities would be within the scope of the Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies (Guide). This will aim to minimize the inconsistency and complexity of having multiple definitions of, or a diversity in practice as to what constitutes, a nonpublic entity and public entity within U.S. generally accepted accounting principles (GAAP) on a going-forward basis. Specifically, stakeholders asked that the Board clarify which nonpublic entities potentially qualify for alternative financial accounting and reporting guidance. This Update addresses those issues by defining public business entity. There is no actual effective date for the amendment in this Update. However, the term public business entity will be used in Accounting Standards Updates No. 2014-01, Intangibles-Goodwill and Other (Topic 350): Accounting for Goodwill, and No. 2014-02, Derivatives and Hedging (Topic 815):Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps-Simplified Hedge Accounting Approach, which are the first Updates that will use the term public business entity. This ASU is not expected to have a significant impact on the Company's financial statements.


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