Audiovox 2001 Annual Report Download - page 32

30 Audiovox Corporation and Subsidiaries
(1) Summary of Significant Accounting Policies
(a) Description of Business
Audiovox Corporation and its subsidiaries (the Company) design
and market 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, automotive entertainment and security products,
automotive electronic accessories and consumer electronics.
The Company operates in two primary markets:
(1) Wireless communications. The Wireless Group 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
autosound, mobile electronics and consumer electronics primarily
to mass merchants, power retailers, specialty retailers, new car
dealers, original equipment manufactures (OEMs), independent
installers of automotive 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
subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
(c) Cash Equivalents
Investments with original maturities of three months or less are
considered cash equivalents. There were no cash equivalents at
November 30, 2000 and 2001.
(d) Revenue Recognition
Revenues are recorded at the time of shipment and passage of title
to the customer. In the fourth quarter of 2001, the Company adopted
Staff Accounting Bulleting 101, “Revenue Recognition in Financial
Statements” (SAB 101). The Company’s adoption of SAB 101 did
not have an impact on its consolidated financial position or results
of operations.
(e) Co-Operative Advertising Allowances, Market Development
Funds and Volume Incentive Rebates
Accruals for trade and promotional co-operative advertising allowances,
market development funds and volume incentive rebates are estab-
lished either when the related revenues are recognized or the related
advertising takes place in accordance with Statement of Position 93-7,
“Accounting for Advertising Costs.” These discounts and allowances are
reflected in the accompanying consolidated balance sheets as a reduc-
tion of accounts receivable as they are utilized by customers to reduce
their trade indebtedness to the Company and in selling expenses in the
accompanying consolidated statements of operations.
The Company initially accrues for all of its co-operative advertising
allowances, market development funds and volume incentive rebates
as this represents the Company’s full obligation. With respect to the
volume incentive rebates, the customers are required to purchase a
specified volume of a specified product. The Company accrues for the
rebate as product is shipped. When specified volume levels are not
achieved, and, therefore, the customer is not entitled to the funds, the
Company revises its estimate of its liability. In addition, the Company
will revise its estimate of its liability based upon the likelihood of its
customers not requesting the funds. The accrual for co-operative
advertising allowances, market development funds and volume incen-
tive rebates at November 30, 2000 and 2001 of $16,092 and $10,366,
respectively, represents managements best estimate of amounts
owed under these arrangements. Due to uncertainties inherent in the
estimation process, it is at least reasonably possible that the accrual
will be further revised in the near term. During 1999, 2000 and 2001,
the Company recorded in income $4,095, $8,265 and $12,820,
respectively, which represents revisions to previously established
co-operative advertising allowances, market development funds and
volume incentive rebates accruals.
Co-operative advertising allowances, market development funds and
volume incentive rebate expenses approximated $15,390, $21,923
and $16,027 for the years ended November 30, 1999, 2000 and 2001,
respectively.
In April 2001, the Emerging Issues Task Force (EITF) reached a final
consensus on EITF Issue NO. 00-25, “Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor’s
Products,” which requires that, unless specific criteria are met, consid-
eration from a vendor to a retailer (e.g. “slotting fees,” co-operative
advertising agreements, “buy downs,” etc.) be recorded as a reduction
from revenue, as opposed to selling expense. This consensus is
effective for fiscal quarters beginning after December 15, 2001.
Management of the Company is in the process of assessing the
impact that implementing EITF Issue No. 00-25 will have on the
consolidated financial statements.
In November 2001, the EITF reached several consensuses on Issue
01-9, “Accounting for Consideration Given by a Vendor to a Customer
or a Reseller of the Vendor’s Products.” This Issue is a codification of
the issues addressed in EITF 00-14, “Accounting for Certain Sales
Incentives,” and EITF 00-25, “Vendor Income Statement Character-
ization of Consideration Paid to a Reseller of the Vendor’s Product,” as
well as issues 2 and 3 of Issue 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.”
In addition, several reconciling and clarifying issues that were identified
in the codification process were addressed.The consensuses codified in
Issue 01-9 must be applied in financial statements for any interim or
annual period beginning after December 15, 2001, with the exception
of the consensus on one issue which must be applied in financial state-
ments for any interim or annual period ending after February 15, 2001.
Accordingly, the consensus on one issue will be effective for the quarter
ended February 28, 2002 and the entire consensus which will be effec-
tive for the quarter ended May 31, 2002. Management of the Company
is in the process of assessing the impact that implementing EITF 01-9
will have on the consolidated financial statements.
Notes to Consolidated Financial Statements
November 30, 1999, 2000 and 2001 (Dollars in thousands, except share and per share data)