Audiovox 2001 Annual Report Download - page 26

During the year ended November 30, 2001, 34% of the Company’s
inventory purchases were from Toshiba Corporation (Toshiba). Toshiba
owns 5% of the Company’s Wireless subsidiary. Inventory on hand at
November 30, 2001 purchased from Toshiba approximated $99,816.
During the quarter ended November 30, 2001, the Company recorded
a receivable in the amount of $4,550 from Toshiba for upgrades that
were performed by the Company in 2001 on certain models which
Toshiba manufactured. Subsequent to November 30, 2001, the
amount was received in full.
Impact of Inflation and Currency Fluctuation
Inflation has not had a significant impact on the Company’s financial
position or operating results. To the extent that the Company expands
its operations into Latin America and the Pacific Rim, the effects of
inflation and currency fluctuations in those areas could have growing
significance to its financial condition and results of operations.
Fluctuations in the foreign exchange rates in Pacific Rim countries
have not had a material adverse effect on the Company’s consolidated
financial position, results of operations or liquidity.
While the prices that the Company pays for the products purchased
from its suppliers are principally denominated in United States dollars,
price negotiations depend in part on the relationship between the for-
eign currency of the foreign manufacturers and the United States dol-
lar. This relationship is dependent upon, among other things, market,
trade and political factors.
Seasonality
The Company typically experiences some seasonality in its opera-
tions. The Company generally experiences a substantial amount of its
sales during September, October and November. December is also a
key month for the Company due to increased demand for its products
during the holiday season. This increase results from increased pro-
motional and advertising activities from the Company’s customers to
end-users.
Recent Accounting Pronouncements
In April 2001, the Emerging Issues Task Force (EITF) reached a final
consensus on EITF Issue No. 00-25, “Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor’s
Products” (“EITF 00-25”), which requires that unless specific criteria
are met, consideration from a vendor to a retailer (e.g., “slotting fees,”
co-operative advertising agreements, “buy downs,” etc.) be recorded
as a reduction from revenue, as opposed to selling expense. This con-
sensus is effective for fiscal quarters beginning after December 15, 2001.
Management of Company is in the process of assessing the impact
that implementing EITF Issue No. 00-25 will have on the consolidated
financial statements.
In July 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS)
No. 141, “Business Combinations” (Statement 141), and Statement
No. 142, “Goodwill and Other Intangible Assets” (Statement 142).
Statement 141 requires companies to account for acquisitions entered
into after June 30, 2001 using purchase method and establishes
criteria to be used in determining whether acquired intangible assets
are to be recorded separately from goodwill. These criteria are to be
applied to business combinations completed after June 30, 2001.
Statement 141 will require, upon adoption of Statement 142, that the
Company evaluate its existing intangible assets and goodwill that were
acquired in a prior purchase business combination, and make any
necessary reclassifications in order to conform with the new criteria in
Statement 141 for recognition apart from goodwill. The Company does
not believe that implementation of Statement 141 will have an impact
on the Company’s financial position and results of operations.
Statement 142 requires that goodwill and intangible assets with indef-
inite useful lives no longer to be amortized, but rather will be tested
for impairment at least annually. Statement 142 also requires that
intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values
and reviewed for impairment in accordance with SFAS No. 121,
“Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of” (Statement 121). Upon adoption of
Statement 142, the company will be required to perform an assess-
ment of whether there is an indication that goodwill is impaired as of
the date of adoption. To accomplish this, the Company must identify
its reporting units and determine the carrying value of each reporting
unit by assigning the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units as of the date
of adoption. The Company will adopt the requirement of the provi-
sions of Statement 142 effective December 1, 2002 and, accordingly,
will reverse into income unamortized negative goodwill, which approx-
imates $240 at November 30, 2001. In addition, implementation of
Statement 142 will result in the Company no longer recording amorti-
zation expense relating to its $4,732 of goodwill, net of accumulated
amortization, recorded as of November 30, 2001 of approximately
$342 per year. The Company’s goodwill consists solely of equity
method goodwill and, as such, will continue to be evaluated for
impairment under Statement 121. The Company has no other intangi-
ble assets with indefinite lives.
In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset
Retirement Obligations” (Statement 143). Statement 143 is effective
for fiscal years beginning after June 15, 2002, and establishes an
accounting standard requiring the recording of the fair value of liabili-
ties associated with the retirement of long-lived assets in the period in
which they are incurred.The Company does not expect the adoption of
Statement 143 to have a significant effect on its results of operations
or its financial position.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
24 Audiovox Corporation and Subsidiaries