Audiovox 2000 Annual Report Download - page 26

(1) Summary of Significant Accounting Policies
(A)DESCRIPTION OF BUSINESS
Audiovox Corporation and its subsidiaries (the Company) design and mar-
ket a diverse line of products and provide related services throughout the
world. These products and services include handsets and accessories for
wireless communications, fulfillment services for wireless carriers, auto-
motive entertainment and security products, automotive electronic acces-
sories and consumer electronics.
The Company operates in two primary markets:
(1) Wireless communications. Wireless markets wireless handsets and
accessories through domestic and international wireless carriers and
their agents, independent distributors and retailers.
(2) Mobile and consumer electronics. The Electronics Group sells auto-
sound, mobile electronics and consumer electronics primarily to mass
merchants, power retailers, specialty retailers, new car dealers, origi-
nal equipment manufactures (OEMs), independent installers of auto-
motive accessories and the U.S. military.
(B)PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
Audiovox Corporation and its wholly-owned and majority-owned sub-
sidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.
(C)CASH EQUIVALENTS
Investments with original maturities of three months or less are consid-
ered cash equivalents. There were no cash equivalents at November 30,
1999 or 2000.
(D)CASH DISCOUNTS, CO-OPERATIVE ADVERTISING
ALLOWANCES, MARKET DEVELOPMENT FUNDS AND
VOLUME INCENTIVE REBATES
The Company accrues for estimated cash discounts, trade and promo-
tional co-operative advertising allowances, market development funds
and volume incentive rebates at the time of sale. These discounts and
allowances are reflected in the accompanying consolidated balance
sheets as a reduction of accounts receivable as they are utilized by cus-
tomers to reduce their trade indebtedness to the Company and in selling
expenses in the accompanying consolidated statements of income.
In September 2000, the Emerging Issues Task Force (EITF) issued EITF 00-22,
“Accounting for Points and Certain Other Time-Based or Volume-Based
Sales Incentive Offers, and Offers for Free Products or Services to Be
Delivered in the Future”. EITF 00-22 addresses, among other issues, how a
vendor should account for an offer to a customer to rebate or refund a spec-
ified amount of cash that is redeemable only if a customer completes a
specified cumulative level of revenue transactions or remains a customer
for a specified time period. At the January 2001 meeting, the Task Force
affirmed its conclusions reached at the November 2000 meeting, at which
time they concluded that a vendor should recognize a cash rebate or refund
obligation as a reduction of revenue based upon a systematic and rational
allocation of the cost of honoring rebates or refunds earned and claimed to
each of the underlying revenue transactions. The consensus is effective for
interim or annual periods ending after February 15, 2001. A portion of the
Company’s sales programs are in the form of volume incentive rebates
which, as of November 30, 2000, have been recorded in selling expenses on
the accompanying consolidated statements of income. Implementation of
EITF 00-22 for the Company will be in the first fiscal quarter of 2001.
Management of the Company is in the process of assessing the impact that
implementation will have on the consolidated financial statements.
Cash discounts, co-operative advertising allowances, market develop-
ment funds and volume incentive rebate expenses approximated $15,789,
$15,390 and $21,923 for the years ended November 30, 1998, 1999 and
2000, respectively.
(E)INVENTORY
Inventory consists principally of finished goods and is stated at the lower
of cost (primarily on a weighted moving average basis) or market. The
markets in which the Company competes are characterized by declining
prices, intense competition, rapid technological change and frequent new
product introductions. The Company maintains a significant investment in
inventory and, therefore, is subject to the risk of losses on write-downs to
market and inventory obsolescence. During the second quarter of 1998,
the Company recorded a charge of approximately $6,600 to accurately
reflect the Company’s inventory at the lower of cost or market. During the
fourth quarter of 2000, the Company decided to substantially exit the ana-
log phone line of business to reflect the rapid shift in the wireless indus-
try from analog to digital technology. The Company recorded a charge of
approximately $8,152 to reduce its carrying value of its analog inventory
to estimated market value. No estimate can be made of losses that are
reasonably possible should additional write-downs to market be required
in the future.
(F)INVESTMENT SECURITIES
The Company classifies its equity securities in one of two categories:
trading or available-for-sale. Debt securities are classified as held-to-
maturity. Trading securities are bought and held principally for the pur-
pose of selling them in the near term. Held-to-maturity debt securities are
those securities in which the Company has the ability and intent to hold
the security until maturity. All other securities not included in trading or
held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value. Held-
to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding
gains and losses on trading securities are included in earnings. Unrealized
holding gains and losses, net of the related tax effect, on available-for-
sale securities are excluded from earnings and are reported as a compo-
nent of accumulated other comprehensive income until realized. Realized
gains and losses from the sale of available-for-sale securities are deter-
mined on a specific identification basis.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1998, 1999 and 2000 (Dollars in thousands, except share and per share data)