Audiovox 2004 Annual Report Download - page 35

by the customer but the customer has not claimed payment from the Company within
the claim period (period after program has ended). Unclaimed sales incentives
for fiscal years ended November 30, 2002, 2003 and 2004 amounted to $716, $886
and $1,702, respectively.
The Company reverses earned but unclaimed sales incentives based upon the
expiration of the claim period of each program. If no claim period is specified
for the program, a claim period of 12 months is utilized. The Company believes
that the reversal of earned but unclaimed sales incentives upon the expiration
of the claim period is a disciplined, rational, consistent and systematic method
of reversing unclaimed sales incentives. The majority of sales incentive
programs are calendar−year programs. Accordingly, the program ends on the month
following the fiscal year end and the claim period expires one year from the end
of the program.
Accounts Receivable
The Company performs ongoing credit evaluations of its customers and
adjusts credit limits based upon payment history and the customer's current
credit worthiness, as determined by a review of their current credit
information. The Company continuously monitors collections and payments from its
customers and maintains a provision for estimated credit losses based upon
historical experience and any specific customer collection issues that have been
identified. The Company records charges for estimated credit losses against
operating expenses and charges for price adjustments against net sales in the
consolidated financial statements. The Company's reserve for estimated credit
losses at November 30, 2003 and 2004 was $5,558 and $6,271, respectively. While
such credit losses have historically been within management's expectations and
the provisions established, the Company cannot guarantee that it will continue
to experience the same credit loss rates that have been experienced in the past.
Since the Company's accounts receivable are concentrated in a relatively few
number of customers, a significant change in the liquidity or financial position
of any one of these customers could have a material adverse impact on the
collectability of the Company's accounts receivable and future operating
results.
Inventories
The Company values its inventory at the lower of the actual cost to
purchase (primarily on a weighted moving average basis) and/or the current
estimated market value of the inventory less expected costs to sell the
inventory. The Company regularly reviews inventory quantities on−hand and
records a provision for excess and obsolete inventory based primarily from
selling prices subsequent to the balance sheet date, indications from customers
based upon current negotiations and purchase orders. A significant sudden
increase in the demand for the Company's products could result in a 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. The Company
recorded inventory write−downs on Electronics inventory of $2,722, $4,397 and
$5,506 for the years ended November 30, 2002, 2003 and 2004, respectively.
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. In the future, if the
Company's inventory is determined to be overvalued, it would be required to
recognize such costs in its cost of goods sold at the time of such
determination. Likewise, if the Company does not properly estimate the lower of
cost or market of its inventory and it is therefore determined to be
undervalued, it may have over−reported its cost of goods sold in previous
periods and would be required to recognize such additional operating income at
the time of sale. Therefore, although the Company makes every effort to ensure
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