Audiovox 2004 Annual Report Download - page 69

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AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
November 30, 2002, 2003 and 2004
(Dollars in thousands, except share and per share data)
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 receivables and future operating results.
The following is a rollforward of the allowance for doubtful accounts:
November 30,
−−−−−−−−−−−−−−−−−−−−−−−−
2003 2004
−−−−−− −−−−−−
Beginning balance $3,193 $5,558
Expense 577 141
Deductions 1,788 572
−−−−−− −−−−−−
Ending balance $5,558 $6,271
====== ======
(i) Inventory
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 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 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.
66