Audiovox 2003 Annual Report Download - page 42

and its customers during such warranty period at no cost to the end users or
customers. The Company records an estimate for warranty related costs based upon
its actual historical return rates and repair costs at the time of sale, which
are included in cost of sales. The estimated liability for future warranty
expense amounted to $12,006 at November 30, 2003, which has been included in
accrued expenses and other current liabilities. While the Company's warranty
costs have historically been within its expectations and the provisions
established, the Company cannot guarantee that it will continue to experience
the same warranty return rates or repair costs that have been experienced in the
past. A significant increase in product return rates, or a significant increase
in the costs to repair the Company's products, could have a material adverse
impact on its operating results for the period or periods in which such returns
or additional costs materialize.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
This Statement establishes financial accounting and reporting standards for the
effects of income taxes that result from an enterprise's activities during the
current and preceding years. It requires an asset and liability approach for
financial accounting and reporting of income taxes.
The realization of tax benefits of deductible temporary differences and
operating loss or tax credit carryforwards will depend on whether the Company
will have sufficient taxable income of an appropriate character within the
carryback and carryforward period permitted by the tax law to allow for
utilization of the deductible amounts and carryforwards. Without sufficient
taxable income to offset the deductible amounts and carryforwards, the related
tax benefits will expire unused. The Company has evaluated both positive and
negative evidence in making a determination as to whether it is more likely than
not that all or some portion of the deferred tax asset will not be realized.
Effective May 29, 2002, the Company's ownership in the Wireless Group was
decreased to 75% (see Note 3). As such, the Company no longer files a
consolidated U.S. Federal tax return. As a result, the realizability of the
Wireless Group's deferred tax assets are assessed on a stand−alone basis. The
Company's Wireless Group has incurred cumulative losses in recent years, and
therefore based upon these cumulative losses and other material factors
(including the Wireless Group's inability to reasonably and accurately estimate
future operating and taxable income based upon the volatility of their
historical operations), the Company has determined that it is more likely than
not that some of the benefits of the Wireless Group's deferred tax assets and
carryforwards will expire unused. Accordingly, the Company recorded an
additional valuation allowance of $13,090 during fiscal year ended November 30,
2002 related to the Wireless Group's deferred tax assets. During the fiscal year
ended November 30, 2003, the valuation allowance was reduced by $641 due to a
reduction in various temporary differences.
Furthermore, the Company provides tax reserves for Federal, state and
international exposures relating to potential tax examination issues, planning
initiatives and compliance responsibilities. The development of these reserves
requires judgments about tax issues, potential outcomes and timing and is a
subjective critical estimate.
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