Audiovox 2006 Annual Report Download - page 53

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Audiovox Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
February 28, 2007
(Dollars in thousands, except share and per-share data)
are stated at amounts due from customers, net of an allowance for doubtful accounts.
Accounts outstanding longer than the contracted payment terms are considered past due.
Accounts receivable is comprised of the following:
February 28,
2007 2006
Trade accounts receivable and other ........................ $91,330 $95,132
Less:
Allowance for doubtful accounts.......................... 5,062 6,136
Allowance for cash discounts............................. 265 325
$86,003 $88,671
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. While such credit losses have historically been
within management’s expectations and the provisions established, the Company cannot
guarantee 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.
h) Inventory
The Company values its inventory (finished goods) 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, indications from customers based
upon current price negotiations and purchase orders. 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 $2,977, $689, $16,924 and $5,506
for the year ended February 28, 2007, the three months ended February 28, 2006 and the
years ended November 30, 2005 and 2004, respectively.
As a result of the Company’s: a) post holiday season review of inventory and sales
projections, b) review of products which were at the end of their product life cycle at the
completion of the fourth quarter and c) market information obtained from industry
competitors and customers regarding pricing and product demand at the January 2006
Consumer Electronics trade show, the Company decided to discontinue certain product
lines resulting in a $9,972 inventory writedown in the fourth quarter of fiscal 2005.
In addition, the Company recorded a $3,789 inventory writedown during the third quarter
of fiscal 2005 primarily for satellite radio plug and play products as a result of sudden
reduced pricing by a competitor.
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
F-13