Audiovox 2003 Annual Report Download - page 60

Warehousing and technical support expenses remained essentially unchanged
at $1,137 in fiscal 2002 from fiscal 2001 compared to $1,134 in fiscal 2002.
Pre−tax Income
Pre−tax income for fiscal 2002 was $17,729, compared to $13,780 for fiscal
2001.
The Company believes that the Electronics Group has an expanding market
with a certain level of volatility related to both domestic and international
new car sales and general economic conditions. Also, all of its products are
subject to price fluctuations which could affect the carrying value of
inventories and gross margins in the future.
Consolidated Other Income and Expense
Interest expense and bank charges decreased $1,703 during fiscal 2002 from
fiscal 2001, primarily due to lower interest rates on lower borrowing levels.
Equity in income of equity investees decreased by approximately $1,807 for
fiscal 2002 compared to fiscal 2001. The majority of the decrease was due to a
decrease in the equity income of ASA due to a general slow down in the market
for their products.
Other expenses increased as a result of foreign exchange translation in our
Venezuelan subsidiary as a result of the devaluation of the Venezuelan currency
against the U.S. Dollar and the effects of the change from hyper−inflationary
accounting for foreign exchange translation to non−hyper−inflationary accounting
in fiscal 2002. During fiscal 2001, the Company accounted for foreign exchange
translation in its Venezuelan subsidiary under hyper−inflationary method. The
foreign exchange losses were $333 in 2001 and $2,819 in 2002.
In addition, in fiscal 2002, the Company recorded an other−than−temporary
impairment for investment in common stock of Shintom Co., Ltd. of $1,158 and
recognized a gain of $14,269 on the sale of ACC shares to Toshiba (Note 3).
Consolidated Provision for Income Taxes
The effective tax rate for 2001 was a (benefit) of (31.6%) as compared to
the effective tax rate for 2002 which was an expense of 202.0%. The increase in
the effective tax rate is principally due to the increase in valuation
allowance, relating to various deferred tax assets. Effective May 29, 2002, the
Company's ownership in the Wireless Group was decreased to 75% (see Note 3). As
such, the Company now files two consolidated U.S. Federal tax returns, one for
the Wireless Group and one for the Electronics Group. As a result, the
realizability of the Wireless Group's deferred tax assets are assessed on a
stand−alone basis. The Company's Wireless Group has incurred cumulative losses
in recent years and therefore based upon these cumulative losses and other
material factors (including the Wireless Group's inability to reasonably and
accurately estimate future operating and taxable income based upon the
volatility of their historical operations), the Company has determined that it
is more likely than not that some of the benefits of the Wireless Group's
deferred tax assets and carryforwards will expire unused, accordingly, the
58