Audiovox 2006 Annual Report Download - page 50

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Audiovox Corporation and Subsidiaries
Notes to Consolidated Financial Statements
February 28, 2007
(Dollars in thousands, except share and per-share data)
1) Description of Business and Summary of Significant Accounting Policies
a) Description of Business and Accounting Principles
Audiovox Corporation and subsidiaries (the ‘‘Company’’) design and market a diverse line
of electronic products under the Audiovox
®
and other brand names throughout the world.
The Company has one reportable segment, the Electronics Group, which is organized by
product category. The Electronics Group consists of five wholly-owned subsidiaries:
Audiovox Electronics Corporation, American Radio Corp., Code Systems, Inc., Audiovox
German Holdings GmbH and Audiovox Venezuela, C.A. The Company completed the
divestiture of the Cellular Group on November 1, 2004 and Audiovox Malaysia on
November 7, 2005 (See Note 2). Unless specifically indicated otherwise, all amounts and
percentages presented in the notes below are exclusive of discontinued operations.
In February 2006, the Company changed its fiscal year end from November 30
th
to
February 28
th
. The Company’s current fiscal year began March 1, 2006 and ends on
February 28, 2007. This annual report on Form 10-K supplements the transition report on
Form 10-Q for the three month transition period ended February 28, 2006 and compares
the financial position as of February 28, 2007 to February 28, 2006 and the results of
operations for the year ended February 28, 2007 and three months ended
February 28, 2006 with the results of operations for the years ended November 30, 2005
and 2004.
For the years ended November 30, 2005 and 2004, the Company revised the operating,
investing and financing activities of cash flows attributed to discontinued operations, to
conform to the appropriate presentation, whereas in the prior periods it was reported on a
combined basis as a single line within operating activities.
The financial statements and accompanying notes are prepared in accordance with
accounting principles generally accepted in the United States of America.
b) Principles of Consolidation
The consolidated financial statements include the financial statements of Audiovox
Corporation and its wholly owned and majority-owned subsidiaries. Minority interest of
majority-owned subsidiaries, if any, are calculated based upon the respective minority
interest ownership percentage. All significant intercompany balances and transactions have
been eliminated in consolidation.
Equity investments in which the Company exercises significant influence but does not
control and is not the primary beneficiary are accounted for using the equity method. The
Company’s share of its equity method investees earnings or losses is included in the
consolidated statements of operations. The Company eliminates its pro rata share of gross
profit on sales to its equity method investees for inventory on hand at the investee at the
end of the year. Investments in which the Company is not able to exercise significant
influence over the investee are accounted for under the cost method.
c) Use of Estimates
The preparation of financial statements requires the Company to make estimates and
assumptions that affect reported amounts of assets, liabilities, revenue and expenses. Such
estimates include the allowance for doubtful accounts, inventory valuation, recoverability
of deferred tax assets, valuation of long-lived assets, accrued sales incentives, warranty
reserves, stock-based compensation and disclosure of the contingent assets and liabilities at
the date of the consolidated financial statements. Actual results could differ from those
estimates.
F-10