Audiovox 1999 Annual Report Download - page 32

AUDIOVOX
30
The significant components of deferred income tax recovery for the
years ended November 30, 1998 and 1999 are as follows:
November 30,
1998 1999
Deferred tax (recovery) expense (exclusive of
the effect of other components listed below) ............... $ (562) $ 424
Decrease in beginning-of-the-year balance of the
valuation allowance for deferred tax assets................. (340) (989)
$ (902) $ (565)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred liabilities are pre-
sented below: November 30,
1998 1999
Deferred tax assets:
Accounts receivable, principally due to allowance
for doubtful accounts and cellular deactivations ...... $ 1,210 $ 1,977
Inventory, principally due to additional costs
capitalized for tax purposes pursuant to the
Tax Reform Act of 1986.............................................. 325 617
Inventory, principally due to valuation reserve.............. 1,882 1,702
Accrual for future warranty costs .................................. 563 615
Plant, equipment and certain intangibles,
principally due to depreciation and amortization...... 804 957
Net operating loss carryforwards,state and foreign ..... 2,338 1,327
Equity collar.................................................................... 570 570
Accrued liabilities not currently deductible................... 346 348
Other............................................................................... 405 121
Total gross deferred tax assets.................................. 8,443 8,234
Less: valuation allowance.............................................. (2,373) (1,384)
Net deferred tax assets.............................................. 6,070 6,850
Deferred tax liabilities:
Investment securities ..................................................... (3,577) (6,323)
Issuance of subsidiary shares........................................ — (1,432)
Total gross deferred tax liabilities ............................. (3,577) (7,755)
Net deferred tax asset (liability) ................................ $ 2,493 $ (905)
The net change in the total valuation allowance for the year ended
November 30, 1999 was a decrease of $989. 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 established
valuation allowances primarily for net operating loss carryforwards in cer-
tain 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 current and prior years
and the Company’s historical taxable income record, adjusted for unusual
items, management believes it is more likely than not that the Company
will realize the benefit of the net deferred tax assets existing at
November 30, 1999. 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, how-
ever, 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 esti-
mates of future taxable income during the carryforward period are reduced.
At November 30, 1999, the Company had net operating loss carryfor-
wards for state and foreign income tax purposes of approximately $7,250,
which are available to offset future state and foreign taxable income, if
any, which will expire through the year ended November 30, 2018.
(14) Capital Structure
The Company’s capital structure is as follows:
Par Voting Rights Liquidation
Security Value Shares Authorized Shares Outstanding Per Share Rights
November 30, November 30,
1998 1999 1998 1999
Preferred Stock.......................................................... $50.00 50,000 50,000 50,000 50,000 — $50 per share
Series Preferred Stock .............................................. 0.01 1,500,000 1,500,000 ——— —
Class A Common Stock............................................. 0.01 30,000,000 30,000,000 16,760,518 17,206,909 One Ratably with Class B
Class B Common Stock ............................................. 0.01 10,000,000 10,000,000 2,260,954 2,260,954 Ten Ratably with 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 dividends 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 common
stock in the event of liquidation or dissolution.
The Company’s Board of Directors approved the repurchase of
1,563,000 shares of the Company’s Class A common stock in the open
market under a share repurchase program (the Program). As of November
30, 1998 and 1999, 498,055 and 621,037 shares, respectively, were
Notes to Consolidated
FINANCIAL STATEMENTS (continued) Audiovox Corporation and Subsidiaries