Audiovox 2008 Annual Report Download - page 30

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Stock-Based Compensation
As discussed further in “Notes to Consolidated Financial Statements – Note 1(s) Accounting for Stock-Based Compensation,” we
adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R) on December 1, 2005 using the modified prospective
method. Through November 30, 2005 we accounted for our stock option plans under the intrinsic value method of Accounting
Principles Board (“APB”) Opinion No. 25, and as a result no compensation costs had been recognized in our historical consolidated
statements of operations.
We have used and expect to continue to use the Black-Sholes option pricing model to compute the estimated fair value of stock-based
awards. The Black-Scholes option pricing model includes assumptions regarding dividend yields, expected volatility, expected option
term and risk-free interest rates. The assumptions used in computing the fair value of stock-based awards reflect our best estimates,
but involve uncertainties relating to market and other conditions, many of which are outside of our control. We estimate expected
volatility by considering the historical volatility of our stock, the implied volatility of publicly traded stock options in our stock and
our expectations of volatility for the expected term of stock-based compensation awards. As a result, if other assumptions or estimates
had been used for options granted in the current and prior periods, the stock-based compensation expense of $886 that was recorded
for the year ended February 29, 2008 could have been materially different. Furthermore, if different assumptions are used in future
periods, stock-based compensation expense could be materially impacted in the future.
Income Taxes
We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" and Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN No.
48"). We record a valuation allowance to reduce our deferred tax assets to the amount of future tax benefit that is more likely than not
to be realized. We decrease the valuation allowance when, based on the weight of available evidence, it is more likely than not that
the amount of future tax benefit will be realized. While we have considered future taxable income and ongoing prudent and feasible
tax planning strategies in assessing the need for the valuation allowance, there is no assurance that the valuation allowance will not
need to be increased to cover additional deferred tax assets that may not be realized. Any increase or decline in the valuation
allowance could have a material adverse impact on our income tax provision and net income in the period in which such determination
is made.
Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits
recognized in the financial statements from such position should be measured based on the largest benefit that has a greater than fifty
percent likelihood of being realized upon ultimate settlement. It is possible that the amount of unrecognized tax benefits could change
in the next 12 months, however, the Company does not expect the change to have a significant impact on its results of operations or
financial position. Furthermore, the Company provides loss contingencies for state and international tax matters relating to potential
tax examination issues, planning initiatives and compliance responsibilities. The development of these reserves requires judgments
about tax issues, potential outcomes and timing, which if are different, may materially impact the Company’s financial condition and
results of operations.
Segment
We have determined that we operate in one reportable segment, the Electronics Group, based on review of Statement of Financial
Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”). The
characteristics of our operations that are relied on in making and reviewing business decisions include the similarities in our products,
the commonality of our customers, suppliers and product developers across multiple brands, our unified marketing and distribution
strategy, our centralized inventory management and logistics, and the nature of the financial information used by our Executive
Officers. Management reviews the financial results of the Company based on the performance of the Electronics Group.
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Source: AUDIOVOX CORP, 10-K, May 14, 2008