Audiovox 1998 Annual Report Download - page 28

instruments embedded in other contracts and for hedging
activities. Statement 133 is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999. Early applica-
tion of all the provisions of this Statement is encouraged but
is permitted only as of the beginning of any fiscal quarter
that begins after issuance of this Statement. Management of
the Company has not yet determined the impact, if any, that
the implementation of Statement 133 will have on its finan-
cial position, results of operations or liquidity.
(g) Investment Securities
The Company classifies its debt and equity securities in
one of three categories: trading, available-for-sale, or held-
to-maturity. Trading securities are bought and held princi-
pally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities in which the
Company has the ability and intent to hold the security until
maturity. All other securities not included in trading or held-
to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at
fair value. Held-to-maturity securities are recorded at amor-
tized cost, adjusted for the amortization or accretion of pre-
miums or discounts. Unrealized holding gains and losses on
trading securities are included in earnings. Unrealized hold-
ing gains and losses, net of the related tax effect, on avail-
able-for-sale securities are excluded from earnings and are
reported as a separate component of stockholders’ equity
until realized. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific
identification basis.
A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed other
than temporary results in a reduction in carrying amount to
fair value. The impairment is charged to earnings and a new
cost basis for the security is established. Premiums and dis-
counts are amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield using the
effective interest method. Dividend and interest income are
recognized when earned.
(h) Debt Issuance Costs
Costs incurred in connection with the issuance of the con-
vertible subordinated debentures and restructuring of the
Series A and Series B convertible subordinated notes (Note
10) and the restructuring of bank obligations (Note 9(a)) have
been capitalized. These charges are amortized over the lives
of the respective agreements. Amortization expense of these
costs amounted to $37 and $1,109 for the years ended
November 30, 1997 and 1996, respectively. During 1997 and
1996, the Company wrote-off $245 and $3,249, respectively,
of debt issuance costs (Note 10). There were no debt
issuance costs recorded as of November 30, 1998.
(i) Property, Plant and Equipment
Property, plant and equipment are stated at cost.
Equipment under capital lease is stated at the present value
of minimum lease payments. Depreciation is calculated on
the straight-line method over the estimated useful lives of
the assets as follows:
Buildings.......................................................................... 20-30 years
Furniture, fixtures and displays...................................... 5-10 years
Machinery and equipment............................................. 5-10 years
Computer hardware and software ................................ 5 years
Automobiles.................................................................... 3 years
Leasehold improvements are amortized over the shorter
of the lease term or estimated useful life of the asset. Assets
acquired under capital lease are amortized over the term of
the lease.
(j) Intangible Assets
Intangible assets consist of patents, trademarks, non-
competition agreements and the excess cost over fair value
of assets acquired for certain subsidiary companies and
equity investments. Excess cost over fair value of assets
acquired is being amortized over periods not exceeding
twenty years. The costs of other intangible assets are amor-
tized on a straight-line basis over their respective lives.
Accumulated amortization approximated $2,148 and
$1,759 at November 30, 1998 and 1997, respectively.
Amortization of the excess cost over fair value of assets
acquired and other intangible assets amounted to $382,
$363 and $145 for the years ended November 30, 1998, 1997
and 1996, respectively. During 1997, the Company made
investments in two companies that resulted in additional
excess cost over fair value of assets acquired (Note 8).
On an ongoing basis, the Company reviews the valuation
and amortization of its intangible assets. As a part of its
ongoing review, the Company estimates the fair value of
intangible assets taking into consideration any events and
circumstances which may diminish fair value.
The recoverability of the excess cost over fair value of
assets acquired is assessed by determining whether the
amortization over its remaining life can be recovered
through undiscounted future operating cash flows of the
acquired operation. The amount of impairment, if any, is
measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company’s
average cost of funds. The assessment of the recoverability
of the excess cost over fair value of assets acquired will be
impacted if estimated future operating cash flows are not
achieved.
(k) Equity Investments
The Company has common stock investments which are
accounted for by the equity method (Note 8).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
AUDIOVOX CORPORATION AND SUBSIDIARIES