Audiovox 2003 Annual Report Download - page 37

and assumptions that management believes are reasonable based upon the
information available. These estimates and assumptions, which can be subjective
and complex, affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the dates of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting periods. As a result, actual results could differ from such
estimates and assumptions. The significant accounting policies which the Company
believes are the most critical to aid in fully understanding and evaluating the
reported consolidated financial results include the following:
Revenue Recognition
The Company recognizes revenue from product sales at the time of passage of
title and risk of loss to the customer either at FOB Shipping Point or FOB
Destination, based upon terms established with the customer. Any customer
acceptance provisions, which are related to product testing, are satisfied prior
to revenue recognition. There are no further obligations on the part of the
Company subsequent to revenue recognition except for returns of product from the
Company's customers. The Company does accept returns of products, if properly
requested, authorized, and approved by the Company. The Company records an
estimate of returns of products to be returned by its customers. Management
continuously monitors and tracks such product returns and records the provision
for the estimated amount of such future returns, based on historical experience
and any notification the Company receives of pending returns. The Electronics
segment's selling price to its customers is a fixed amount that is not subject
to refund or adjustment or contingent upon additional rebates.
The Wireless segment has sales agreements with certain customers that
provide for a rebate of the selling price to such customers if the particular
product is subsequently sold at a lower price to the same customer or to a
different customer. The rebate period extends for a relatively short period of
time. Historically, the amounts of such rebates paid to customers have not been
material. The Company estimates the amount of the rebate based upon the terms of
each individual arrangement, historical experience and future expectations of
price reductions, and the Company records its estimate of the rebate amount at
the time of the sale.
Sales Incentives
Both of the Company's segments, Wireless and Electronics, offer sales
incentives to its customers in the form of (1) co−operative advertising
allowances; (2) market development funds and (3) volume incentive rebates. The
Electronics segment also offers other trade allowances to its customers. The
terms of the sales incentives vary by customer and are offered from time to
time. Except for other trade allowances, all sales incentives require the
customer to purchase the Company's products during a specified period of time.
All sales incentives require the customer to claim the sales incentive within a
certain time period. Although all sales incentives require customers to claim
the sales incentive within a certain time period (referred to as the "claim
period"), the Wireless segment historically has settled sales incentives claimed
after the claim period has expired if a customer demands payment. The sales
incentive liabilities are settled either by the customer claiming a deduction
against an outstanding account receivable owed to the Company by the customer or
by the customer requesting a check from the Company. The Company is unable to
demonstrate that an identifiable benefit of the sales incentives has been
received as such, all costs associated with sales incentives are classified as a
reduction of net sales. The following is a summary of the various sales
incentive programs offered by the Company and the related accounting policies:
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