Audiovox 2003 Annual Report Download - page 85

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AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
November 30, 2001, 2002 and 2003
(Dollars in thousands, except share and per share data)
short−term increase in the cost of inventory purchases while a
significant decrease in demand could result in an increase in the
amount of excess inventory quantities on−hand. In addition, the
Company's industry is characterized by rapid technological change and
frequent new product introductions that could result in an increase in
the amount of obsolete inventory quantities on−hand. In such
situations, the Company generally does not obtain price protection
from its vendors, however, on occasion, the Company has received price
protection which reduces the cost of inventory. Since price protection
reduces the cost of inventory, as the Company sells the inventory for
which it has received price protection, the amount is reflected as a
reduction to cost of sales. There can be no assurances that the
Company will be successful in negotiating such price protection from
its vendors in the future.
The Company has, on occasion, performed upgrades on certain inventory
on behalf of its vendors. The reimbursements the Company receives to
perform these upgrades are reflected as a reduction to the cost of
inventory and is recognized as a reduction to cost of sales as the
related inventory is sold. Additionally, the Company's estimates of
excess and obsolete inventory may prove to be inaccurate, in which
case the Company may have understated or overstated the provision
required for excess and obsolete inventory. Therefore, although the
Company makes every effort to ensure the accuracy of its forecasts of
future product demand, any significant unanticipated changes in demand
or technological developments could have a significant impact on the
value of the Company's inventory and its reported operating results.
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 the year ended November 30, 2003, Wireless recorded inventory
write−downs of $2,817 based upon open purchase orders with customers
at lower selling prices, as well as indications from our customers
based upon then 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
(Continued)
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