Audiovox 2005 Annual Report Download - page 29

Accounts Receivable
We perform ongoing credit evaluations of our customers and adjust credit
limits based upon payment history and current credit worthiness, as determined
by a review of current credit information. We continuously monitor collections
from our customers and maintain a provision for estimated credit losses based
upon historical experience and any specific customer collection issues that have
been identified. We record charges for estimated credit losses against operating
expenses and charges for price adjustments against net sales in the consolidated
financial statements. The reserve for estimated credit losses at November 30,
2004 and 2005 was $6,271 and $6,497, respectively. While such credit losses have
historically been within management's expectations and the provisions
established, we cannot guarantee that we will continue to experience the same
credit loss rates that have been experienced in the past. Since our 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 accounts
receivable and our results of operations.
Inventories
We value our 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. We
regularly review inventory quantities on−hand and record a provision, in cost of
sales, for excess and obsolete inventory based primarily from selling price
reductions subsequent to the balance sheet date, indications from customers
based upon current negotiations and purchase orders. A significant sudden
increase in the demand for our 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, our 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. During the years ended November
30, 2003, 2004, and 2005, we recorded inventory write−downs of $4,397, $5,506
and $16,924 respectively.
Estimates of excess and obsolete inventory may prove to be inaccurate, in
which case we may have understated or overstated the provision required for
excess and obsolete inventory. Although we make every effort to ensure the
accuracy of our forecasts of future product demand, any significant
unanticipated changes in demand or technological developments could have a
significant impact on the carrying value of inventory and our results of
operations.
Goodwill and Other Intangible Assets
Goodwill and Other Intangible assets consist of the excess cost over fair
value of assets acquired (goodwill) and other intangible assets (patents,
contracts, 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 useful life are not amortized. Intangible assets that have a
definite useful life are amortized over their estimated useful life.
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
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