DVD-RW is over a year and 1/2 away.
One point that others have mentioned, but maybe have not stressed enough, is the assumption that some where between 50 to 75% of the rebates are going to be redeemed. This is a HUGE assumption.
if they are assuming x where .5<x.75, then they are "reserving" $50 *x * Q for each unit sold,where Q is the quantity sold.
So the total reserve would be 50*x*Q
Then you take off however many actually have redeemed. Lets say this is Y, where Y/Q < 1, Q >1.
This leaves a total reserve of 50x*Q-50*Y which according to the statements is around 30 million.
We know Q ~ 900,000. therefore 45,000,000*x-50*Y = 30M
Now given the range for x is .50 <x< .75 this implies:
@ x = .5 y= 150,000
@ x = .75 y= 75,000
So with only 8 to 16% redeemed so far (and from the post we know there are some substantial delays) they are projecting a total payout of 50 to 75%. (very dangerous to assume such a low payout,given so little data)
NOW, lets assume the actual percentage goes to 90%. this would reduce income by (.9-x)*50*900,000 or 6.75M to 18M. JUST FOR THE 3RD QUARTER. The adjustments for the next quarter would be over twice as large if Q for Q4 is 2M like projected. This would lead to a 1996 write down of 20 million to 54 million. OR A NET LOSS FOR THE YEAR!!!
Choose whatever percentage you like, rework the numbers and the answer is the same. They have used unrealistically low redemption assumptions for this rebate, and it will lead to a GAAP write down for fiscal 1996.
The logic here is simple. This product is very price sensitive. Stores are advertising it for 149 or 139 or less. They will send in a rebate that accounts for 25% of the purchase price... To think otherwise would be silly.
Not only that but these rebates go on to 1/31/97 |
