Audiovox 2000 Annual Report Download - page 28

The recoverability of the excess cost over fair value of assets acquired is
assessed by determining whether the amortization over its remaining life
can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of impairment, if any, is measured based
on projected discounted future operating cash flows using a discount rate
reflecting the Company’s average cost of funds. The assessment of the
recoverability of the excess cost over fair value of assets acquired will be
impacted if estimated future operating cash flows are not achieved.
(K)EQUITY INVESTMENTS
The Company has common stock investments which are accounted for by
the equity method (Note 10).
(L)CELLULAR TELEPHONE COMMISSIONS
Under various agency agreements, the Company receives an initial activa-
tion commission for obtaining subscribers for cellular telephone services.
The agreements may contain provisions for additional commissions based
upon usage and length of continued subscription. The agreements also
provide for the reduction or elimination of initial activation commissions if
subscribers deactivate service within stipulated periods. The Company
has provided a liability for estimated cellular deactivations which is
reflected in the accompanying consolidated financial statements as a
reduction of accounts receivable.
The Company recognizes sales revenue for the initial activation, length
of service commissions and residual commissions based upon usage on
the accrual basis. Such commissions approximated $27,237, $29,547
and $32,475 for the years ended November 30, 1998, 1999 and 2000,
respectively. Related commissions paid to outside selling representa-
tives for cellular activations are included in cost of sales in the accom-
panying consolidated statements of income and amounted to $13,877,
$19,884 and $23,186 for the years ended November 30, 1998, 1999 and
2000, respectively.
(M)ADVERTISING
The Company expenses the costs of advertising as incurred. During the
years ended November 30, 1998, 1999 and 2000, the Company had no
direct response advertising.
(N)WARRANTY EXPENSES
Warranty expenses are accrued at the time of sale based on the
Company’s estimated cost to repair expected returns for products. At
November 30, 1999 and 2000, the liability for future warranty expense
amounted to $5,152 and $8,263, respectively.
(O)FOREIGN CURRENCY
With the exception of a subsidiary operation in Venezuela, which has
been deemed a hyper inflationary economy, assets and liabilities of those
subsidiaries and equity investments located outside the United States
whose cash flows are primarily in local currencies have been translated
at rates of exchange at the end of the period or historical exchange rates,
as appropriate. Revenues and expenses have been translated at the
weighted average rates of exchange in effect during the period. Gains
and losses resulting from translation are accumulated in the cumulative
foreign currency translation account in accumulated other comprehensive
income. For the operation in Venezuela, financial statements are trans-
lated at either current or historical exchange rates, as appropriate. These
adjustments, along with gains and losses on currency transactions, are
reflected in the consolidated statements of income.
Exchange gains and losses on hedges of foreign net investments and on
intercompany balances of a long-term nature are also recorded in the cumu-
lative foreign currency translation adjustment account in accumulated other
comprehensive income. Exchange gains and losses on available-for-sale
investment securities are recorded in the unrealized gain (loss) on mar-
ketable securities in accumulated other comprehensive income. Other for-
eign currency transaction gains (losses) of $871, $(1,046) and $193 for the
years ended November 30, 1998, 1999 and 2000, respectively, were
included in other income.
(P)INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax conse-
quences attributable to differences between the financial statement car-
rying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(Q)NET INCOME PER COMMON SHARE
Basic earnings per share is based upon the weighted average number of
common shares outstanding during the period. Diluted earnings per share
reflects the potential dilution that would occur if securities or other contracts
to issue common stock were exercised or converted into common stock.
(R)SUPPLEMENTARY FINANCIAL STATEMENT
INFORMATION
Interest income of approximately $896, $943 and $1,616 for the years
ended November 30, 1998, 1999 and 2000, respectively, is included in
other, net, in the accompanying consolidated statements of income.
(S)USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of the contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)