Audiovox 2001 Annual Report Download - page 42

Notes to Consolidated Financial Statements (Continued) 40 Audiovox Corporation and Subsidiaries
The significant components of deferred income tax recovery for the
years ended November 30, 2000 and 2001 are as follows:
November 30,
2000 2001
Deferred tax recovery (exclusive of the effect of
other components listed below) $ (4,993) $ (3,137)
Decrease in beginning-of-the-year balance of
the valuation allowance for deferred tax assets (1,041) (227)
$ (6,034) $ (3,364)
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,
2000 2001
Deferred tax assets:
Accounts receivable, principally due to allowance
for doubtful accounts and cellular deactivations $ 2,290 $ 1,971
Inventory, principally due to additional costs
capitalized for tax purposes pursuant to
the Tax Reform Act of 1986 687 1,075
Inventory, principally due to valuation reserve 4,276 5,421
Accrual for future warranty costs 2,684 3,241
Plant, equipment and certain intangibles,
principally due to depreciation and amortization 1,146 1,442
Net operating loss carryforwards, state and foreign 755 870
Contributions — 41
Accrued liabilities not currently deductible and other 382 705
Investment securities — 463
Deferred compensation plans 862 1,492
Total gross deferred tax assets 13,082 16,721
Less: valuation allowance (343) (116)
Net deferred tax assets 12,739 16,605
Deferred tax liabilities:
Investment securities (35) —
Issuance of subsidiary shares (1,432) (1,460)
Total gross deferred tax liabilities (1,467) (1,460)
Net deferred tax asset $11,272 $15,145
The net change in the total valuation allowance for the year ended
November 30, 2001 was a decrease of $227. 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
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 realize the benefit of the net deferred tax
assets existing at November 30, 2001. 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, 2001, the Company had net operating loss carry-
forwards for state income tax purposes of approximately $16,064,
which are available to offset future state taxable income, if any, which
will expire through the year ended November 30, 2021.
(15) Capital Structure
The Company’s capital structure is as follows:
Shares Authorized Shares Outstanding
Par November 30, November 30, Voting Rights Liquidation
Security Value 2000 2001 2000 2001 Per Share Rights
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 60,000,000 60,000,000 19,478,554 19,706,309 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