Audiovox 2000 Annual Report Download - page 35

AUDIOVOX CORPORATION AND SUBSIDIARIES
AUDIOVOX 33
The significant components of deferred income tax recovery for the years
ended November 30, 1999 and 2000 are as follows:
November 30,
1999 2000
Deferred tax (recovery) expense (exclusive of
the effect of other components listed below) $ 424 $(4,993)
Decrease in beginning-of-the-year balance of
the valuation allowance for deferred tax assets (989) (1,041)
$(565) $(6,034)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred liabilities are presented below:
November 30,
1999 2000
Deferred tax assets:
Accounts receivable, principally due to allowance
for doubtful accounts and cellular deactivations $ 1,977 $ 2,290
Inventory, principally due to additional costs
capitalized for tax purposes pursuant to the
Tax Reform Act of 1986 617 687
Inventory, principally due to valuation reserve 1,702 4,276
Accrual for future warranty costs 615 2,684
Plant, equipment and certain intangibles,
principally due to depreciation and amortization 957 1,146
Net operating loss carryforwards, state and foreign 1,327 755
Equity collar 570 —
Accrued liabilities not currently deductible and other 469 382
Deferred compensation plans — 862
Total gross deferred tax assets 8,234 13,082
Less: valuation allowance (1,384) (343)
Net deferred tax assets 6,850 12,739
Deferred tax liabilities:
Investment securities (6,323) (35)
Issuance of subsidiary shares (1,432) (1,432)
Total gross deferred tax liabilities (7,755) (1,467)
Net deferred tax (liability) asset $ (905) $11,272
The net change in the total valuation allowance for the year ended
November 30, 2000 was a decrease of $1,041. 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 val-
uation allowances primarily for net operating loss carryforwards 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 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 real-
ize the benefit of the net deferred tax assets existing at November 30,
2000. 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, 2000, the Company had net operating loss carryforwards
for state income tax purposes of approximately $4,819, which are avail-
able to offset future state taxable income, if any, which will expire
through the year ended November 30, 2018.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
A reconciliation of the provision for income taxes computed at the Federal statutory rate to the reported provision for income taxes is as follows:
November 30,
1998 1999 2000
Tax provision at Federal statutory rates $1,292 34.0% $14,953 35.0% $13,988 35.0%
Undistributed income (losses) from equity investments 287 7.6 (373) (0.9) ——
State income taxes, net of Federal benefit 260 6.8 1,025 2.4 639 1.6
Decrease in beginning-of-the-year balance of the valuation allowance
for deferred tax assets (340) (8.9) (989) (2.3) (1,041) (2.6)
Foreign tax rate differential (82) (2.2) 38 0.1 (59) (0.1)
Benefit of concluded examination (350) (9.2) — — ——
Other, net (238) (6.3) 823 1.9 1,398 3.4
$ 829 21.8% $15,477 36.2% $14,925 37.3%