Audiovox 2008 Annual Report Download - page 91

Audiovox Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
February 29, 2008
(Dollars in thousands, except share and per share data)
The effective tax rate before income taxes varies from the current statutory U.S. federal income tax rate as follows:
Three
Year Year Months Year
Ended Ended Ended Ended
February 29, February 28, February 28, November 30,
2008 2007 2006 2005
Tax provision at Federal statutory
rates $ 3,708 35.0% $ 755 35.0% $ (517) (35.0) % $ (6,333) (35.0) %
Tax exempt interest (999) (9.4) (2,146) (99.4) (384) (26.0) (1,174) (6.5)
State income taxes, net of Federal
benefit 17 0.2 23 1.1 40 2.8 (352) (1.9)
Increase in valuation allowance 95 0.9 6 0.3 18 1.2 1,338 7.4
Change in tax reserves 369 3.5 61 2.8 (706) (47.8) (1,524) (8.4)
US effects of foreign operations 167 1.6 - - (297) (20.1) (2,273) (12.6)
Benefit for prior year refunds - - (378) (17.5) - - - -
Permanent differences and other 491 4.5 145 6.7 3 - (1,091) (6.0)
Effective tax rate $ 3,848 36.3% $(1,534) (71.0) % $ (1,843) (124.9) % $ (11,409) (63.0) %
The U.S. effects of foreign operations include differences in the statutory tax rate of the foreign countries as compared to the
statutory tax rate in the U.S., foreign operating losses for which no tax benefit has been provided and the effects of the
settlement of the German tax audit in the amount of $936.
Other is a combination of various factors, including changes in the taxable income or loss between various tax entities with
differing effective tax rates, changes in the allocation and apportionment factors between taxable jurisdictions with differing
tax rates of each tax entity, changes in tax rates and other legislation in the various jurisdictions and other items.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting and tax purposes. Significant components of the Company’s deferred tax assets and
liabilities are as follows:
February 29, February 28,
2008 2007
Deferred tax assets:
Accounts receivable $ 282 $ 380
Inventory 1,664 1,075
Property, plant and equipment 895 829
Accruals and reserves 7,798 1,825
Net operating losses 6,020 2,062
Foreign tax credits 3,307 3,092
Deferred tax assets before valuation allowance 19,966 9,263
Less: valuation allowance (2,684) (1,095)
Total deferred tax assets 17,282 8,168
Deferred tax liabilities:
Intangible assets (12,727) (1,697)
Prepaid expenses (1,362) (1,079)
Unrealized gain on investment securities (2,115) (1,042)
Total deferred tax liabilities (16,204) (3,818)
Net deferred tax asset $ 1,078 $ 4,350
In assessing the realizability of deferred tax assets, Management considers whether it is more-likely-than-not that some
portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income. The deferred tax asset valuation allowance of $2,684 as of February 29, 2008 relates
to: (i) net operating loss carryforwards related to excess share-based compensation expense deductions of $1,739 and net
operating loss carryforwards of $212 related to subsidiaries not included in Audiovox’s consolidated tax group, (ii) state net
Source: AUDIOVOX CORP, 10-K, May 14, 2008