Audiovox 2003 Annual Report Download - page 81

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AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
November 30, 2001, 2002 and 2003
(Dollars in thousands, except share and per share data)
Co−operative advertising allowances are offered to customers as
reimbursement towards their costs for print or media advertising in
which our product is featured on its own or in conjunction with other
companies' products (e.g., a weekly advertising circular by a mass
merchant). The amount offered is either based upon a fixed percentage
of the Company's sales revenue to the customer or is a fixed amount
per unit sold to the customer during a specified time period. Market
development funds are offered to customers in connection with new
product launches or entering into new markets. Those new markets can
be either new geographic areas or new customers. The amount offered
for new product launches is based upon a fixed percentage of the
Company's sales revenue to the customer or is a fixed amount per unit
sold to the customer during a specified time period. The Company
accrues the cost of co−operative advertising allowances and market
development funds at the later of when the customer purchases our
products or when the sales incentive is offered to the customer.
Volume incentive rebates offered to customers require that minimum
quantities of product be purchased during a specified period of time.
The amount offered is either based upon a fixed percentage of the
Company's sales revenue to the customer or is a fixed amount per unit
sold to the customer. Certain of the volume incentive rebates offered
to customers include a sliding scale of the amount of the sales
incentive with different required minimum quantities to be purchased.
The customer's achievement of the sales threshold and, consequently,
the measurement of the total rebate for the Wireless segment cannot be
reasonably estimated. Accordingly, the Wireless segment recognizes a
liability for the maximum potential amount of the rebate, with the
exception of certain volume incentive rebates that include very
aggressive tiered levels of volume purchases. For volume incentive
rebates that include very aggressive tiered levels of volume purchase,
the Wireless segment recognizes a liability for the rebate as the
underlying revenue transactions that result in progress by the
customer toward earning the rebate or refund on a program by program
basis are recognized. The Electronics segment makes an estimate of the
ultimate amount of the rebate their customers will earn based upon
past history with the customer and other facts and circumstances. The
Electronics segment has the ability to estimate these volume incentive
rebates as there does not exist a relatively long period of time for a
particular rebate to be claimed, the Electronics segment does have
historical experience with these sales incentive programs and the
Electronics segment does have a large volume of relatively homogenous
transactions. Any changes in the estimated amount of volume incentive
rebates are recognized immediately using a cumulative catch−up
adjustment.
With respect to the accounting for co−operative advertising
allowances, market development funds and volume incentive rebates,
(Continued)
80