Audiovox 2003 Annual Report Download - page 41

The Company maintains a significant investment in inventory and, therefore,
is subject to the risk of losses on write−downs to market and inventory
obsolescence. The Company decided to substantially exit the analog phone line of
business to reflect the shift in the wireless industry from analog to digital
technology and recorded a charge of approximately $13,500 during the second
quarter of 2001 to reduce its carrying value of its analog inventory to
estimated market value. During the fourth quarter of 2001, Wireless recorded
inventory write−downs to market of $7,150 as a result of the reduction of
selling prices primarily related to digital hand−held phones during the first
quarter of 2002 in anticipation of new digital technologies. During the year
ended November 30, 2002, Wireless recorded inventory write−downs to market of
$13,823.
During fiscal 2003, Wireless recorded inventory write−downs of $2,817 based
upon open purchase orders from customers and selling prices subsequent to the
respective balance sheet dates as well as indications from our customers based
upon current negotiations. It is reasonably possible that additional write−downs
to market may be required in the future given the continued emergence of new
technologies, however, no estimate can be made of such write−downs. At November
30, 2003, Wireless had on hand approximately 15,600 units of previously
written−down inventory, with an extended value of approximately $800.
For certain inventory items, the Company is entitled to receive price
protection in the event the selling price to its customers is less than the
purchase price from the manufacturer. The Company records such price protection,
as necessary, at the time of the sale of the units. For fiscal 2001, 2002 and
2003, price protection of $ 4,550, $27,683 and $13,031, respectively, was
recorded as a reduction to cost of sales as the related inventory was sold. (see
Cautionary Factors That May Affect Future Results: Our success depends on our
ability to keep pace with technological advances in the wireless industry.)
Goodwill and Other Intangible Assets
Goodwill and Other Intangible assets consist of the excess cost over fair
value of assets acquired and (goodwill) and other intangible assets (patents and
trademarks). Goodwill, which includes equity investment goodwill, is calculated
as the excess of the cost of purchased businesses over the value of their
underlying net assets. Goodwill and other intangible assets that have an
indefinite life are not amortized.
On an annual basis, we test goodwill and other intangible assets for
impairment. To determine the fair value of these intangible assets, there are
many assumptions and estimates used that directly impact the results of the
testing. We have the ability to influence the outcome and ultimate results based
on the assumptions and estimates we choose. To mitigate undue influence, we set
criteria that are reviewed and approved by various levels of management.
Additionally, we evaluate our recorded intangible assets with the assistance of
a third−party valuation firm, as necessary.
Warranties
The Company offers warranties of various lengths depending upon the
specific product. The Company's standard warranties require the Company to
repair or replace defective product returned to the Company by both end users
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