Audiovox 1997 Annual Report Download - page 28

The tax effects of temporary differences that give rise to signifi-
cant portions of the deferred tax assets and deferred liabilities are
presented below:
November 30,
1997 1996
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts and
cellular deactivations $ 1,483 $ 1,593
Inventory, principally due to additional
costs capitalized for tax purposes
pursuant to the Tax Reform Act of 1986 439 306
Inventory, principally due to valuation reserve 941 930
Accrual for future warranty costs 830 978
Plant, equipment, and certain intangibles,
principally due to depreciation and
amortization 719 714
Net operating loss carryforwards, state
and foreign 2,662 2,458
Accrued liabilities not currently
deductible 405 491
Other 381 664
Total gross deferred tax assets 7,860 8,134
Less: valuation allowance (2,713) (2,893)
Net deferred tax assets 5,147 5,241
Deferred tax liabilities:
Equity investments, principally due to
undistributed earnings (8,506) (10,548)
Equity collar (473) –
Total gross deferred tax liabilities (8,979) (10,548)
Net deferred tax liability $(3,832) $ (5,307)
The net change in the total valuation allowance for the year ended
November 30, 1997 was a decrease of $180. A valuation allowance is
provided when it is more likely than not that some portion, or all, of
the deferred tax assets will not be realized. The Company has estab-
lished valuation allowances primarily for net operating loss carryfor-
wards in certain states and foreign countries as well as other deferred
tax assets in foreign countries. Based on the Company’s ability to
carry back future reversals of deferred tax assets to taxes paid in cur-
rent and prior years and the Company’s historical taxable income
record, adjusted for unusual items, management believes it is likely
that the Company will realize the benefit of the net deferred tax assets
existing at November 30, 1997. Further, management believes the
existing net deductible temporary differences will reverse during
periods in which the Company generates net taxable income. There
can be no assurance, however, that the Company will generate any
earnings or any specific level of continuing earnings in the future.
The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable
income during the carryforward period are reduced.
At November 30, 1997, the Company had net operating loss carry-
forwards for state and foreign income tax purposes of approximately
$21,851, which are available to offset future state and foreign taxable
income, if any, which will expire through the year ended November
30, 2011.
(12) Capital Structure
The Company’s capital structure is as follows:
Voting
Rights
Par Shares Issued Per Liquidation
Security Value Shares Authorized and Outstanding Share Rights
November 30, November 30,
1997 1996 1997 1996
Preferred $50 per
Stock $50.00 50,000 50,000 50,000 50,000 – share
Series
Preferred
Stock 0.01 1,500,000 1,500,000 – – – –
Class A
Common Ratably with
Stock 0.01 30,000,000 30,000,000 16,963,533 14,040,414 One Class B
Class B
Common Ratably with
Stock 0.01 10,000,000 10,000,000 2,260,954 2,260,954 Ten Class A
The holders of Class A and Class B Common Stock are entitled to
receive cash or property dividends declared by the Board of
Directors. The Board can declare cash dividends for Class A
Common Stock in amounts equal to or greater than the cash divi-
dends for Class B Common Stock. Dividends other than cash must
be declared equally for both classes. Each share of Class B Common
Stock may, at any time, be converted into one share of Class A
Common Stock.
The 50,000 shares of non-cumulative Preferred Stock outstanding
are owned by Shintom and have preference over both classes of com-
mon stock in the event of liquidation or dissolution.
On May 16, 1997, the Company’s Board of Directors approved the
repurchase of 1,000,000 shares of the Company’s Class A Common
Stock in the open market under a share repurchase program (the
Program). As of November 30, 1997, 290,000 shares were repur-
chased under the Program at an average price of $8.35 per share for
an aggregate amount of $2,421. Subsequent to November 30, 1997,
50,000 shares have been repurchased under the Program at an aver-
age price of $7.37 per share for an aggregate amount of $368.
As of November 30, 1997 and 1996, 969,500 shares of the
Company’s Class A Common Stock are reserved for issuance under
the Company’s Stock Option and Restricted Stock Plans and 5,491,192
for all convertible securities and warrants outstanding at November
30, 1997 and 1996 (Notes 10 and 13).
Undistributed earnings from equity investments included in
retained earnings amounted to $1,564 and $3,728 at November 30,
1997 and 1996, respectively.
(13) Common Stock and Compensation Plans
(a) The Company has stock option plans under which employees and
non-employee directors may be granted incentive stock options
(ISO’s) and non-qualified stock options (NQSO’s) to purchase shares
of Class A Common Stock. Under the plans, the exercise price of the
ISO’s will not be less than the market value of the Company’s Class A
Common Stock or 110% of the market value of the Company’s Class A
Common Stock on the date of grant. The exercise price of the
27