Audiovox 2001 Annual Report Download - page 27

In October 2001, the FASB issued SFAS No. 144, “Accounting for the
Impairment of Long-Lived Assets” (Statement 144), which addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement supersedes Statement No. 121,
“Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of,” while retaining the fundamental
recognition and measurement provisions of that statement. Statement
No. 144 requires that a long-lived asset to be abandoned, exchanged
for a similar productive asset or distributed to owners in a spin-off to be
considered held and used until it is disposed of. However, Statement
No. 144 requires that management consider revising the depreciable
life of such long-lived asset.With respect to long-lived assets to be dis-
posed of by sale, Statement No. 144 retains the provisions of
Statement No. 121 and, therefore, requires that discontinued opera-
tions no longer be measured on a net realizable value basis and that
future operating losses associated with such discontinued operations
no longer be recognized before they occur. Statement No. 144 is effec-
tive for all fiscal quarters of fiscal years beginning after December 15,
2001, and will thus be adopted by the Company on December 1, 2002.
The Company has not determined the effect, if any, that the adoption
of Statement No. 144 will have on the Company’s consolidated
financial statements.
In November 2001, the EITF reached several consensuses on Issue
01-9, “Accounting for Consideration Given by a Vendor to a Customer
or a Reseller of the Vendor’s Products.” This Issue is a codification of
the issues addressed in EITF 00-14, “Accounting for Certain Sales
Incentives,” and EITF 00-25, “Vendor Income Statement Character-
ization of Consideration Paid to a Reseller of the Vendor’s Product,” as
well as issues 2 and 3 of Issue 00-22, “Accounting for ‘Points’ and
Certain Other Time-Based or Volume-Based Sales Incentive Offers,
and Offers for Free Products or Services to Be Delivered in the
Future.” In addition, several reconciling and clarifying issues that were
identified in the codification process were addressed.The consensuses
codified in Issue 01-9 must be applied in financial statements for any
interim or annual period beginning after December 15, 2001, with the
exception of the consensus on one issue which must be applied in
financial statements for any interim or annual period ending after
February 15, 2001. Accordingly, the consensus on one issue will be
effective for the quarter ended February 28, 2002 and the entire con-
sensus which will be effective for the quarter ended May 31, 2002.
Management of the Company is in the process of assessing the
impact that implementing EITF 01-9 will have on the consolidated
financial statements.
Quantitative and Qualitative Disclosures About Market Risk
Market Risk Sensitive Instruments
The market risk inherent in the Company’s market risk sensitive instru-
ments and positions is the potential loss arising from adverse changes
in marketable equity security prices, foreign currency exchange rates
and interest rates.
Marketable Securities
Marketable securities at November 30, 2001, which are recorded at
fair value of $5,777 and include net unrealized losses of $(1,647),
have exposure to price risk. This risk is estimated as the potential loss
in fair value resulting from a hypothetical 10% adverse change in
prices quoted by stock exchanges and amounts to $578 as of
November 30, 2001. Actual results may differ.
Interest Rate Risk
The Company’s bank loans expose earnings to changes in short-term
interest rates since interest rates on the underlying obligations are
either variable or fixed for such a short period of time as to effectively
become variable. The fair values of the Company’s bank loans are not
significantly affected by changes in market interest rates.
Foreign Exchange Risk
In order to reduce the risk of foreign currency exchange rate fluctua-
tions, the Company hedges transactions denominated in a currency
other than the functional currencies applicable to each of its various
entities. The instruments used for hedging are forward contracts with
banks. The changes in market value of such contracts have a high
correlation to price changes in the currency of the related hedged
transactions. There were no hedge transactions at November 30,
2001. Intercompany transactions with foreign subsidiaries and equity
investments are typically not hedged. Therefore, the potential loss in
fair value for a net currency position resulting from a 10% adverse
change in quoted foreign currency exchange rates as of November 30,
2001 is not applicable.
The Company is subject to risk from changes in foreign exchange
rates for its subsidiaries and equity investments that use a foreign
currency as their functional currency and are translated into U.S.
dollars. These changes result in cumulative translation adjustments
which are included in accumulated other comprehensive income. On
November 30, 2001, the Company had translation exposure to various
foreign currencies with the most significant being the Malaysian ring-
git, Thailand baht and Canadian dollar. The Company also has a
Venezuelan subsidiary in which translation adjustments are included
in net income. The potential loss resulting from a hypothetical 10%
adverse change in quoted foreign currency exchange rates, as of
November 30, 2001, amounts to $634. Actual results may differ.
Certain of the Company’s investments in marketable securities and
notes payable are subject to risk from changes in the Japanese yen
rate. As of November 30, 2001, the amount of loss in fair value result-
ing from a hypothetical 10% adverse change in the Japanese yen rate
approximates $699. Actual results may differ.
25 Audiovox Corporation and Subsidiaries