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items, per petitioner’s instructions, to San Diego Bindery.
Petitioner contracts with San Diego Bindery to cut the sheets of
cards into individual cards and to fold each individual card, and
San Diego Bindery bears the risk of loss if it damages any card
during that process. San Diego Bindery ships the finished goods
(with an invoice) to petitioner’s headquarters, where petitioner
stores all of its inventory.
In addition to selling products which bear at least one of
its cartoon characters, petitioner enters into licensing
agreements under which certain manufacturers are given the right
to use one or more of petitioner’s characters. Under a licensing
agreement, petitioner generally charges the licensee a fee to use
an original cartoon drawing and a royalty equal to a percentage
of the licensed products sold. The licensees sell and distribute
the products they create bearing images of petitioner’s cartoon
characters. Petitioner does not sell its licensees’ products
through either its independent sales representatives or through
its catalogue; most of the licensees sell and distribute their
products themselves. Petitioner does sell all of its licensees’
products at its retail store.
Petitioner has never adjusted the value of its inventory to
reflect section 263A. Petitioner’s reported ending inventory on
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Last modified: May 25, 2011