Audiovox 2010 Annual Report Download - page 31

Determining whether impairment of indefinite lived intangibles has occurred requires an analysis of each identifiable asset. If
estimates used in the valuation of each identifiable asset proved to be inaccurate based on future results, there could be additional
impairment charges in subsequent periods.
Warranties
We offer warranties of various lengths depending upon the specific product. Our standard warranties require us to repair or
replace defective product returned by both end users and customers during such warranty period at no cost. We record an estimate for
warranty related costs, in cost of sales, based upon actual historical return rates and repair costs at the time of sale. The estimated
liability for future warranty expense, which has been included in accrued expenses and other current liabilities, amounted to $7,853
and $7,779 at February 28, 2010 and February 28, 2009, respectively. While warranty costs have historically been within expectations
and the provisions established, we cannot guarantee that we will continue to experience the same warranty return rates or repair costs
that have been experienced in the past. A significant increase in product return rates, or a significant increase in the costs to repair
products, could have a material adverse impact on our operating results.
Stock-Based Compensation
As discussed further in “Notes to Consolidated Financial Statements – Note 1(t) Accounting for Stock-Based Compensation,”
we adopted ASC 718, (formerly FAS 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 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
$1,138 that was recorded for the year ended February 28, 2010 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 the guidance issued under Statement ASC 740, "Income Taxes" with
consideration for uncertain tax positions. 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. During Fiscal 2009, the Company provided a
valuation allowance against substantially all of its deferred tax assets. During Fiscal 2010, the Company recorded an income tax
benefit through a reduction of its valuation allowance of $10.1 million in connection with its ability to carryback certain net operating
losses as a result of new legislation enacted during Fiscal 2010. Any further decline in the valuation allowance could have a favorable
impact on our income tax provision and net income in the period in which such determination is made.
Since March 1, 2007, the Company accounted for uncertain tax positions in accordance with the authoritative guidance
issued under ASC 740, which addresses the determination of whether tax benefits claimed or expected to be claimed on tax returns
should be recorded in the financial statements. 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. The Company provides loss
contingencies for federal, 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 different, may materially impact the Company’s financial condition and results of operations. The Company classifies interest
and penalties associated with income taxes as a component of income tax expense (benefit) on the consolidated statement of
operations.
Results of Operations
Included in Item 8 of this annual report on Form 10-K are the consolidated balance sheets at February 28, 2010 and February
28, 2009 and the consolidated statements of operations, consolidated statements of stockholders’ equity and consolidated statements of
cash flows for the years ended February 28, 2010, February 28, 2009 and February 29, 2008. In order to provide the reader meaningful
comparison, the following analysis provides comparison of the audited year ended February 28, 2010 with the audited years ended
February 28, 2009, and February 29, 2008. We analyze and explain the differences between periods in the specific line items of the
consolidated statements of operations.
Source: AUDIOVOX CORP, 10-K, May 14, 2010 Powered by Morningstar® Document Research℠