Audiovox 1998 Annual Report Download - page 29

(l) Cellular Telephone Commissions
Under various agency agreements, the Company receives
an initial activation commission for obtaining subscribers for
cellular telephone services. Additionally, the agreements
may contain provisions for 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 stipu-
lated periods. The Company has provided a liability for esti-
mated cellular deactivations which is reflected in the
accompanying consolidated financial statements as a reduc-
tion of accounts receivable.
The Company recognizes sales revenue for the initial acti-
vation, length of service commissions and residual commis-
sions based upon usage on the accrual basis. Such
commissions approximated $27,237, $35,749 and $37,930
for the years ended November 30, 1998, 1997 and 1996,
respectively. Related commissions paid to outside selling
representatives for cellular activations are reflected as a
reduction of sales in the accompanying consolidated state-
ments of income (loss) and amounted to $13,877, $19,924
and $20,443 for the years ended November 30, 1998, 1997
and 1996, respectively.
(m) Advertising
The Company expenses the production costs of advertis-
ing as incurred and expenses the costs of communicating
advertising when the service is received. During the years
ended November 30, 1998, 1997 and 1996, 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, 1998 and 1997, the liability
for future warranty expense amounted to $1,915 and $2,257,
respectively.
(o) Foreign Currency
With the exception of an operation in Venezuela, assets
and liabilities of those subsidiaries and equity investments
located outside the United States whose cash flows are pri-
marily in local currencies have been translated at rates of
exchange at the end of the period. 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 stockholders’ equity.
For the operation in Venezuela, financial statements are
translated 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 (loss). Exchange gains and losses on
hedges of foreign net investments and on intercompany
balances of a long-term investment nature are also recorded
in the cumulative foreign currency translation adjustment
account. Other foreign currency transaction gains of $924 for
the year ended November 30, 1998 were included in other
income. Other foreign currency gains and losses were not
material for the years ended November 30, 1997 and 1996.
(p) Income Taxes
Income taxes are accounted for under the asset and liabil-
ity method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of exist-
ing 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 (Loss) Per Common Share
In February 1997, the FASB issued Statement No. 128,
“Earnings per Share” (Statement 128). Statement 128
replaces the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Basic
earnings per share excludes any dilution. It is based upon
the weighted average number of common shares outstand-
ing 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 con-
verted into common stock. Earnings per share amounts for
all periods presented have been restated to conform to the
new presentation.
(r) Supplementary Financial Statement Information
Advertising expenses approximated $15,789, $16,981 and
$21,794 for the years ended November 30, 1998, 1997 and
1996, respectively.
Interest income of approximately $896, $1,525 and $1,097
for the years ended November 30, 1998, 1997 and 1996,
respectively, is included in other in the accompanying con-
solidated statements of income (loss).
Included in accrued expenses and other current liabilities
is $3,511 and $4,091 of accrued wages and commissions at
November 30, 1998 and 1997, respectively.
(s) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires manage-
ment 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 finan-
cial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
(t) Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of
On December 1, 1996, the Company adopted Statement
No.121, “Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of“
(Statement 121). Statement 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is
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