UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment #2
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 [fee required]
For the fiscal year ended November 30, 1996
Commission file number 1-9532
AUDIOVOX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1964841
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
150 Marcus Blvd., Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 231-7750
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of each class: Which Registered
Class A Common Stock $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Sec 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
(X)
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The aggregate market value of the voting stock held by non-affiliates of the
registrant was $90,356,035 (based upon closing price on the American Stock
Exchange, Inc. on February 20, 1997).
The number of shares outstanding of each of the registrant's classes of common
stock, as of February 20, 1997 was:
Class Outstanding
Class A Common Stock $.01 par value 16,901,339
Class B Common Stock $.01 par value 2,260,954
PART I
Item 1 - Business
General
Audiovox Corporation, together with its operating subsidiaries
(collectively, the Company), markets and supplies, under its own name or trade
names, a diverse line of aftermarket products which include cellular telephones,
both hand held portables and vehicle installed, cellular telephone accessories,
automotive sound equipment and automotive accessories, both of which are
designed primarily for installation in cars, trucks and vans after they have
left the factory and consumer electronic products.
The Company's products are sold through a worldwide distribution network
covering the United States, Canada and overseas. Sales are made directly and
through independent distributors to cellular telephone accounts, cellular
service providers, regional Bell Operating Companies (BOCs), new car dealers,
mass merchandisers, catalogue showrooms, original equip ment manufacturers
(OEMs), military Army and Air Force Exchange Systems (AAFES), autosound
specialists and retailers. The Company sells to consumers from Company-owned
retail sales and service locations which generally operate under the name
"Quintex", which also receive activation commissions and residuals from certain
cellular service providers.
The Company's products may be broadly grouped into three major categories:
cellular, which includes telephone products, activation commissions and residual
fees, automotive sound equipment and automotive accessories. These categories
represent different product lines rather than separate reporting segments.
The Company was incorporated in Delaware on April 10, 1987, as successor to
the business of Audiovox Corp., a New York corporation founded in 1960 (the
predecessor company) by John J. Shalam, the Company's President, Chief Executive
Officer and
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controlling stockholder. Unless the context otherwise requires, or as otherwise
indicated, references herein to the "Company" include the Company, its
wholly-owned and majority-owned operating subsidiaries.
Trademarks
The Company markets products under several trademarks, including
Audiovox(R), Custom SPS(R), Prestige(R), Pursuit(R), Minivox(TM), Minivox
Lite(R), The Protector(R) and Rampage(TM). The Company believes that these
trademarks are recognized by customers and are therefore significant in
marketing its products. Trademarks are registered for a period of ten years and
such registration is renewable for subsequent ten-year periods.
Distribution and Marketing
Cellular and Non-Cellular Wholesale
The Company markets products on a wholesale basis to a variety of customers
through its direct sales force and independent sales representatives. During the
fiscal year ended November 30, 1996, the Company sold its products to
approximately 2,500 wholesale accounts, including the BOCs, other cellular
carriers and their respective agents, mass merchandise chain stores, specialty
installers, distributors and car dealers, OEMs and AAFES.
The Company's five largest wholesale customers (excluding joint ventures),
who, in the aggregate, accounted for 29.4% of the Company's net sales for the
fiscal year ended November 30, 1996, are Bell Atlantic Mobile Systems, Airtouch
Cellular, US Cellular, Proton Corporation Sdn. Bhd. (Proton) and Nynex Mobile
Communications Company. Proton is an automobile manufacturer in Malaysia. The
other four are cellular carriers. None of these customers individually accounted
for more than 12.4% of the Company's net sales for such period. In addition, the
Company also sells its non-cellular products to mass merchants such as Walmart
Stores, Inc., warehouse clubs including Price/Costco, Inc. and OEMs such as
Chrysler of Canada, Navistar International Corporation, General Motors
Corporation and BMW of North America.
The Company uses several techniques to promote its products to wholesale
customers, including trade and customer advertising, attendance at trade shows
and direct personal contact by Company sales representatives. In addition, the
Company typically assists cellular carriers in the conduct of their marketing
campaigns (including the scripting of telemarketing presentations), conducts
cooperative advertising campaigns, develops and prints custom sales literature
and conducts in-house training programs for cellular carriers and their agents.
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The Company believes that the use of such techniques, along with the
provision of warranty services and other support programs, enhances its strategy
of providing value-added marketing and, thus, permits the Company to increase
Audiovox(R) brand awareness among wholesale customers while, at the same time,
promoting sales of the Company's products through to end users.
The Company's wholesale policy is to ship its products within 24 hours of a
requested shipment date from public warehouses in Norfolk, Virginia, Sparks,
Nevada and Canada and from leased facilities located in Hauppauge, New York and
Los Angeles, California.
Retail
As of November 30, 1996, the Company operated approximately 29 retail
outlets and licensed its trade name to 11 additional retail outlets in selected
markets in the United States through which it markets cellular telephones and
related products to retail customers under the names Audiovox(R), American
Radio(R), Quintex(R) and H & H Eastern Distributors (H&H). In addition to
Audiovox products, these outlets sell competitive products such as Motorola and
Nokia.
The Company's retail outlets typically generate revenue from three sources:
(i) sale of cellular telephones and related products, (ii) activation
commissions paid to the Company by cellular telephone carriers when a customer
initially subscribes for cellular service and (iii) monthly residual fees. The
amount of the activation commissions paid by a cellular telephone carrier is
based upon various service plans and promotional marketing programs offered by
the particular cellular telephone carrier. The monthly residual payment is based
upon a percentage of the customer's usage and is calculated based on the amount
of the cellular phone billings generated by the base of the customers activated
by the Company on a particular cellular carrier's system. Under the Company's 11
licensee relationships, the licensee receives the majority of the activation
commissions, and the Company retains the majority of the residual fees. The
Company's agreements with cellular carriers provide for a reduction in, or
elimination of, activation commissions in certain circumstances if a cellular
subscriber activated by the Company deactivates service within a specified
period. The Company records an allowance to provide for the estimated liability
for return of activation commissions associated with such deactivations. See
Note 1(l) of Notes to Consolidated Financial Statements. As a practical matter,
the profitability of the Company's retail operations is dependent on the Company
maintaining agency agreements with cellular carriers under which it receives
activation commissions and residual fees.
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The Company's relationships with the cellular carriers are governed by
contracts that, in the aggregate, are material to the continued generation of
revenue and profit for the Company. Pursuant to applicable contracts with
cellular carriers, each of the Company's retail outlets functions as a
non-exclusive agent engaged to solicit and sell cellular telephone service in
certain geographic areas and, while such contract is in effect and for a
specified period thereafter (which typically ranges from three months to one
year), may not act as a representative or agent for any other carrier or
reseller in those areas or solicit cellular or wireless communication network
services of the kind provided by the cellular carrier in the areas where the
Company acts as an agent. The Company's retail operation is free, at any time
after the restricted period, to pursue an agreement with another carrier who
services a particular geographic area. At present, each geographic area is
serviced by two cellular carriers.
As of November 30, 1996, the Company had agency contracts with the
following carriers in selected areas: Bell Atlantic/NYNEX Mobile Systems, Inc.,
BellSouth Mobility, Inc., GTE Mobilnet of the Southeast, Inc., and Richmond
Cellular Telephone Company d/b/a Cellular One. Dependant upon the terms of the
specific carrier contracts, which typically range in duration from one year to
five years, the Company's retail operation may receive a one-time activation
commission and periodic residual fees. These carrier contracts provide the
carrier with the right to unilaterally restructure or revise activation
commissions and residual fees payable to the Company, and certain carriers have
exercised such right from time-to-time. Dependent upon the terms of the specific
carrier contract, either party may terminate the agreement, with cause, upon
prior notice. Typically, the Company's right to be paid residual fees ceases
upon termination of an agency contract.
Equity Investments
The Company has from time-to-time, at both the wholesale and retail levels,
established joint ventures to market its products to a specific market segment
or geographic area. In entering into a joint venture, the Company seeks to join
forces with an established distributor with an existing customer base and
knowledge of the Company's products. The Company seeks to blend its financial
and product resources with these local operations to expand their collective
distribution and marketing capabilities. The Company believes that such joint
ventures provide a more cost effective method of focusing on specialized
markets. The Company does not participate in the day-to-day management of these
joint ventures.
As of November 30, 1996, the Company had a 31.6% ownership interest in TALK
Corporation (TALK) which holds world-wide distribution rights for product
manufactured by Shintom Co., Ltd. (Shintom). These products include cellular
telephones, video
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recorders and players and automotive sound products. TALK has granted Audiovox
exclusive distribution rights on all wireless personal communication products
for all countries except Japan, China, Thailand, and several mid-eastern
countries. Additionally, the Company had a 50% non-controlling ownership in five
other companies: Protector Corporation (Protector) which acts as a distributor
of chemical protection treatments, Audiovox Specialty Markets Co., L.P. (ASMC),
which acts as a distributor of televisions and other automotive sound, security
and accessory products to specialized markets for RV's and van conversions,
Audiovox Pacific Pty., Limited (Audiovox Pacific) which distributes cellular
telephones and automotive sound and security products in Australia and New
Zealand, G.L.M. Wireless Communications, Inc. (G.L.M.) which is in the cellular
telephone, pager and communications business and Quintex Communications West,
LLC, which is in the cellular telephone and communications business. The
Company's 80%-owned subsidiary, Audiovox Holdings (Malaysia) Sdn. Bhd. (Audiovox
Holdings), had a 30% ownership interest in Avx Posse (Malaysia) Sdn. Bhd.
(Posse) which monitors car security commands through a satellite based system in
Malaysia.
Customers
The Company had one customer, Bell Atlantic, that accounted for 12.4% of
the Company's net sales for fiscal 1996.
Suppliers
The Company purchases its cellular and non-cellular products from
manufacturers located in several Pacific Rim countries, including Japan, China,
Korea, Taiwan and Singapore, Europe and in the United States. In selecting its
vendors, the Company considers quality, price, service, market conditions and
reputation. The Company maintains buying offices or inspection offices in
Taiwan, Korea and China to provide local supervision of supplier performance
with regard to, among other things, price negotiation, delivery and quality
control. The majority of the products sourced through these foreign buying
offices are non-cellular.
Since 1984, the principal supplier of the Company's wholesale cellular
telephones has been Toshiba Corporation (Toshiba), accounting for approximately
28%, 44% and 45% of the total dollar amount of all product purchases by the
Company, during the fiscal years ended November 30, 1996, 1995 and 1994,
respectively. In 1994, Toshiba competed directly with the Company in the United
States by marketing cellular telephone products through Toshiba's United States
distribution subsidiary. As of November 30, 1995, Toshiba announced it will no
longer distribute cellular telephone products through its subsidiary in the
United States. Toshiba continues to sell products to the Company as an original
equipment customer. In order to expand
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its supply channels and diversify its cellular product line, the Company now
sources cellular equipment from other manufacturers including, Hagenuk Telecom
Gmbh. (Hagenuk), Dancall Telecom A/S (Dancall) and TALK. Purchases from TALK
accounted for approximately 26%, 20% and 7% of total inventory purchases for the
years ended November 30, 1996, 1995 and 1994, respectively. Purchases of
non-cellular products are made primarily from other overseas suppliers including
Hyundai Electronics Inc. (Hyundai), Namsung Corporation (Namsung) and Nutek
Corporation (Nutek). There are no agreements in effect that require
manufacturers to supply product to the Company. The Company considers its
relations with its suppliers to be good. In addition, the Company believes that
alternative sources of supply are currently available.
Competition
The Company's wholesale business is highly competitive in all its product
lines, each competing with a number of well-established companies that
manufacture and sell products similar to those of the Company. Specifically, the
cellular market place is driven by current selling prices, which also affects
the carrying value of inventory on hand. Additionally, the Custom SPS line
competes against factory-supplied radios. Service and price are the major
competitive factors in all product lines. The Company believes that it is a
leading supplier to the cellular market primarily as a result of the performance
of its products and the service provided by its distribution network. The
Company's retail business is also highly competitive on a product basis. In
addition, since the Company acts as an agent for cellular service providers,
these cellular service providers must also compete in their own markets which
are also highly competitive. The Company's retail performance is, therefore,
also based on the carriers' ability to compete.
Employees
At November 30, 1996, the Company employed approximately 934 people.
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Executive Officers of the Registrant
The executive officers of the registrant are listed below. All officers of
the Company are elected by the Board of Directors to serve one-year terms. There
are no family relationships among officers, or any arrangement or understanding
between any officer and any other person pursuant to which the officer was
selected. Unless otherwise indicated, positions listed in the table have been
held for more than five years.
Name Age Current Position
John J. Shalam 63 President and Chief Executive
Officer and Director
Philip Christopher 48 Executive Vice President and
Director
Charles M. Stoehr 50 Senior Vice President, Chief
Financial Officer and Director
Patrick M. Lavelle 45 Senior Vice President and
Director
Chris L. Johnson 45 Vice President, Secretary
Ann M. Boutcher 46 Vice President and Director
Richard Maddia 38 Vice President and Director
John J. Shalam has served as President and Chief Executive Officer and as a
director of the Company since 1960. Mr. Shalam also serves as president and is a
director of most of the Company's operating subsidiaries.
Philip Christopher, Executive Vice President of the Company, has been with
the Company since 1970 and has held his current position since 1983. Prior
thereto, he was Senior Vice President of the Company. Mr. Christopher also has
been a director of the Company since 1973 and, in addition, serves as an officer
and a director of most of the Company's operating subsidiaries.
Charles M. Stoehr has been Chief Financial Officer of the Company since
1979 and was elected Senior Vice President in 1990. Mr. Stoehr has been a
director of the Company since 1987. From 1979 through 1990, Mr. Stoehr was a
Vice President of the Company.
Patrick M. Lavelle has been a Vice President of the Company since 1982. In
1991, Mr. Lavelle was elected Senior Vice President, with responsibility for
marketing and selling the Company's automotive accessory and automotive sound
line of products. Mr. Lavelle was elected to the Board of Directors in 1993.
Chris L. Johnson has been a Vice President of the Company since 1986 and
Secretary since 1980. Ms. Johnson has been employed by the Company in various
positions since 1968 and was a director of the Company from 1987 to 1993.
Ann M. Boutcher has been a Vice President of the Company since 1984. Ms.
Boutcher's responsibilities include the
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development and implementation of the Company's advertising, sales
promotion and public relations programs. Ms. Boutcher was elected to the Board
of Directors in 1995.
Richard Maddia has been a Vice President of the Company since 1991. Mr.
Maddia is responsible for the Company's Management Information Systems for both
the Company's distribution network and financial reporting. Mr. Maddia was
elected to the Board of Directors in 1996.
Item 2 - Properties
As of November 30, 1996, the Company leased a total of forty-three
operating facilities located in thirteen states and two Canadian provinces.
These facilities serve as offices, warehouses, distribution centers or retail
locations. Additionally, the Company utilizes approximately 117,000 square feet
of public warehouse facilities. Management believes that it has sufficient,
suitable operating facilities to meet the Company's requirements.
Item 3 - Legal Proceedings
On February 10, 1997, the Company and the other defendants in the case
entitled Robert Verb, et al. v. Motorola, Inc., Audiovox Corporation, et al.
filed their answer to Plaintiff's Petition for Leave to Appeal. The Company
believes that the likelihood of the Court granting Plaintiff's motion is low. In
addition, the Company believes that its insurance coverage and rights of
recovery against manufacturers of its portable hand-held cellular telephones
relating to this case are sufficient to cover any reasonably anticipated
damages. The Company also believes that there are meritorious defenses to the
claims made in this case.
On March 15, 1996 and April 4, 1996, Audiovox was served with a complaint
and an amended complaint, respectively, in an action entitled Electronics
Communications Corp. (ECC) v. Toshiba America Consumer Products, Inc. and
Audiovox Corporation in which plaintiff seeks injunctive relief and damages
against Toshiba and Audiovox. The damages against both defendants could be an
amount in excess of $16,000 arising out of alleged antitrust violations,
tortious interference with contract and tortious interference with prospective
economic advantage or business relations and monopoly, all arising out of the
termination of ECC's alleged distributorship arrangement with Toshiba.
Audiovox's motion to dismiss the complaint for failure to state a federal cause
of action and for lack of subject matter jurisdiction was granted on August 12,
1996. Plaintiff has filed a Notice of Appeal with the Second Circuit Court of
Appeals.
In addition, the Company is currently, and has in the past been, a party to
other routine litigation incidental to its business. The Company does not expect
any pending litigation to
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have a material adverse effect on its consolidated financial position.
Item 4 - Submission of Matters to a Vote of Security Holders
A special meeting of the stockholders of Audiovox Corporation (the Company)
was held on November 25, 1996 at the Company's offices, 150 Marcus Boulevard,
Hauppauge, New York.
The matter presented to the meeting concerned the approval of the issuance
of up to 10,725,000 shares of Class A Common Stock of the Company in exchange
for its 6 1/4% Convertible Subordinated Debentures due 2001. The Class A vote
was as follows: 4,340,254 for the proposal, 44,025 against and 22,365
abstentions. All of the Class B stockholders, representing 22,609,540 votes,
voted in favor of the proposal.
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PART II
Item 5 - Market for the Registrant's Common Equity and Related
- -----------------------------------------------------------------------
Stockholder Matters
-------------------
Summary of Stock Prices and Dividend Data
Class A Common Shares of Audiovox are traded on the American Stock Exchange
under the symbol VOX. No dividends have been paid on the Company's common stock.
The Company is restricted by agreements with its financial institutions from the
payment of common stock dividends while certain loans are outstanding (see
Liquidity and Capital Resources of Management's Discussion and Analysis). There
are approximately 5,485 beneficial holders of Class A Common Stock and 5 holders
of Class B Common Stock.
<TABLE>
Class A Common Stock
Average Daily
Fiscal Period High Low Trading Volume
1996
<S> <C> <C> <C>
First Quarter........................$ 6 3/8 $ 4 3/4 15,924
Second Quarter.........................7 7/16 4 1/16 52,039
Third Quarter..........................6 5/16 4 16,309
Fourth Quarter.........................6 3/4 4 5/8 95,817
1995
First Quarter..........................8 1/2 6 3/8 25,300
Second Quarter.........................7 5 1/16 13,500
Third Quarter..........................7 3/8 4 7/16 30,100
Fourth Quarter.........................6 13/16 4 3/8 21,600
1994
First Quarter.........................18 3/8 14 1/4 26,400
Second Quarter...................... 16 11 7/8 32,600
Third Quarter.........................12 3/4 6 1/4 39,600
Fourth Quarter.........................9 3/8 6 3/4 19,600
</TABLE>
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Item 6 - Selected Financial Data
Years ended November 30, 1996, 1995, 1994, 1993 and 1992
<TABLE>
1996 1995 1994 1993 1992
---------- ------------- -------- ---------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $597,915 $500,740 $486,448 $389,038 $343,905
Net income (loss) (26,469)(a) (11,883)(b) 26,028(d) 12,224(f) 7,670(h)
Net income (loss)
per common share,
primary (2.82)(a) (1.31)(b) 2.86(d) 1.35(f) 0.85(h)
Net income per
common share, fully
diluted - - 2.20(d) 1.25(f) -
Total assets 265,545 308,428 239,098 169,671 145,917
Long-term obligations,
less current
installments 70,413 142,802 110,698(e) 13,610(g) 55,335
Stockholders' equity 131,499 (c) 114,595(c) 92,034 65,793 53,457
</TABLE>
NOTE: Certain amounts have been restated as discussed in Note 8
to the consolidated financial statements.
(a) Includes a pre-tax charge of $26.3 million for costs associated
with the exchange of $41.3 million of subordinated debentures into
6,806,580 shares of common stock in addition to tax expense on the
exchange of $2.9 million.
(b) Includes a pre-tax charge of $2.9 million associated with the
issuance of warrants, a pre-tax charge of $11.8 million for
inventory write-downs and the down-sizing of the retail operations
and a pre-tax gain on the sale of an equity investment of $8.4
million.
(c) Includes a $10.3 million unrealized gain on marketable securities,
net, and a $34.4 million increase as a result of the exchange of
$41.3 million of subordinated debentures in 1996 and a $31.7
million unrealized gain on marketable securities, net, for 1995.
(d) Includes a cumulative effect change of ($178,000) or ($0.02) per
share, primary, and ($0.01) per share, fully diluted. Also includes
a pre-tax gain on sale of an equity investment of $27.8 million and
a gain on public offering of equity investment of $10.6 million.
(e) Long-term debt includes the addition of a $65 million bond
offering in 1994.
(f) Includes an extraordinary item of $2.2 million or $0.24 per share,
primary, and $0.22 per share, fully diluted.
(g) Long-term debt does not include $38.8 million of bank obligations
which were classified as current.
(h) Includes an extraordinary item of $1.9 million or $0.21
per share.
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Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
(In thousands, except share and per share data)
The Company's operations are conducted in a single business segment
encompassing three principal product lines: cellular, automotive sound equipment
and automotive security and accessory equipment.
The Company's wholesale cellular operations generate revenue from the sale
of cellular telephones and accessories. The Company's retail outlets typically
generate revenue from three sources: (i) the sale of cellular telephones and
related products, (ii) activation commissions paid to the Company by cellular
telephone carriers when a customer initially subscribes for cellular service and
(iii) monthly residual fees. The price at which the Company's retail outlets
sell cellular telephones is often affected by the amount of the activation
commission the Company will receive in connection with such sale. The amount of
the activation commission paid by a cellular telephone carrier is based upon
various service plans and promotional marketing programs offered by the
particular cellular telephone carrier. The monthly residual payment is based
upon a percentage of the customer's usage and is calculated based on the amount
of the cellular phone billings generated by the base of customers activated by
the Company on a particular cellular carrier's system.
The Company's automotive sound product line includes stereo cassette
radios, compact disc players and changers, speakers and amplifiers. The
automotive security and accessory line consists of automotive security products,
such as alarm systems, and power accessories, including cruise controls and
power door locks.
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Certain reclassifications have been made to the data for periods prior to
fiscal 1996 in order to conform to fiscal 1996 presentation. The net sales and
percentage of net sales by product line for the fiscal years ended November 30,
1996, 1995 and 1994 are reflected in the following table:
<TABLE>
Years Ended November 30,
1996 1995 1994
------------------ ---------------- ------------------
Cellular product-
<S> <C> <C> <C> <C> <C> <C>
wholesale $349,655 58% $260,704 52% $237,566 49%
Cellular product-
retail 8,309 1 15,470 3 18,198 3
Activation
commissions 33,102 6 38,526 8 47,788 10
Residual fees 4,828 1 4,781 1 4,005 1
-------- ---- -------- ----- -------- ---
Total Cellular 395,894 66 319,481 64 307,557 63
Automotive sound
equipment 104,696 18 107,404 21 112,512 23
Automotive security
and accessory
equipment 93,625 16 73,207 15 64,040 13
Other 3,700 - 648 - 2,339 1
-------- ---- -------- ---- -------- ---
Total $597,915 100% $500,740 100% $486,448 100%
======== ==== ======== ==== ======== ====
</TABLE>
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The following table sets forth for the periods indicated certain statement
of income (loss) data for the Company expressed as a percentage of net sales:
<TABLE>
Percentage of Net Sales
Year Ended November 30,
1996 1995 1994
Net sales:
<S> <C> <C> <C>
Net product sales 93.7% 91.4% 89.4%
Cellular telephone activation
commissions 5.5 7.7 9.8
Cellular telephone residual fees 0.8 0.9 0.8
------ ------ -----
Net sales 100.0 100.0 100.0
Cost of sales (83.9) (85.9) (82.5)
------ ------ ------
Gross profit 16.1 14.1 17.5
Selling expense (6.7) (6.9) (6.7)
General and administrative expense (5.4) (7.2) (6.7)
Warehousing, assembly and repair
expense (1.8) (2.0) (1.9)
------ ------ ------
Total operating expenses (13.9) (16.1) (15.3)
------ ------ ------
Operating income (loss) 2.2 (2.0) 2.2
Interest expense (1.4) (1.9) (1.3)
Income of equity investments 0.1 - 0.8
Management fees - - 0.3
Gain on sale of equity investment 0.2 1.7 5.7
Gain on public offering equity
investment - - 2.2
Debt conversion expense (4.4) - -
Expenses related to issuance of
warrants - (0.6) -
Other expenses, net (0.1) (0.2) (0.3)
Income tax (expense) recovery (1.0) 0.6 (4.2)
------ ------ ------
Net income (loss) (4.4) (2.4) 5.4
===== ====== =====
</TABLE>
NOTE: Certain amounts have been restated as discussed in Note 8
to the consolidated financial statements.
Results of Operations
Fiscal 1996 Compared to Fiscal 1995
Net sales increased by approximately $97,175, or 19.4% for fiscal 1996,
compared to fiscal 1995. This result was primarily attributable to increases in
net sales from the cellular division of approximately $76,413, or 23.9%,
automotive security and accessory equipment of approximately $20,418, or 27.9%
and other products, primarily home stereo systems of $3,052. These increases
were partially offset by a decrease in automotive sound equipment of
approximately $2,708, or 2.5%.
The improvement in net sales of cellular telephone products was primarily
attributable to an increase in unit sales. Net sales of cellular products
increased by approximately 857,000 units, or 70.9%, compared to fiscal 1995,
primarily resulting from an increase in sales of hand-held portable cellular
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telephones and transportable cellular telephones, partially offset by a decline
in sales of installed mobile cellular telephones. The average unit selling price
declined approximately 23.7% vs. 1995 as production efficiencies and market
competition continues to reduce unit selling prices. The Company believes that
the shift from installed mobile cellular telephones to hand-held and
transportable cellular telephones is reflective of a desire by consumers for
increased flexibility in their use of cellular telephones. Toward that end, the
Company markets an accessory package that permits its Minivox(TM) and Minivox
Lite(R) hand-held cellular telephones to be used in an automobile on a
hands-free basis and to draw power from the automobile's electrical system like
an installed mobile cellular telephone.
Activation commissions decreased by approximately $5,424, or 14.1%, for
fiscal 1996 compared to fiscal 1995. This decrease was primarily attributable to
fewer new cellular subscriber activations and partially due to fewer retail
outlets operated by the Company. The number of activation commissions decreased
21.4% compared to fiscal 1995. This decrease in commission revenue was offset by
a 9.3% increase in average activation commissions paid to the Company. Residual
revenues on customer usage increased by approximately $47, or 1.0%, for fiscal
1996, compared to fiscal 1995, due primarily to the addition of new subscribers
to the Company's cumulative subscriber base, despite a decrease in current year
activations. A majority of the residual income resides with the remaining
operating retail locations.
Net sales of automotive sound equipment decreased by approximately $2,708,
or 2.5%, for fiscal 1996, compared to fiscal 1995. This decrease was
attributable primarily to a decrease in sales of products sold to mass
merchandise chains and auto sound sales to new car dealers. This decrease was
partially offset by increases in sales of sound products to private label
customers. Net sales of automotive security and accessory products increased
approximately $20,418, or 27.9%, for fiscal 1996, compared to fiscal 1995,
principally due to increases in sales of vehicle security products, Protector
Hardgoods and cruise controls. This increase was partially offset by a reduction
in net sales of AA security products.
Gross margins increased to 16.1% in fiscal 1996 from 14.1% in fiscal 1995.
The 1995 gross margin included a $9,300 charge for inventory written down to
market at August 31, 1995. Cellular gross margins were 13.2% compared to 9.8% in
1995. Despite a 23.7% decrease in average unit selling prices, the average gross
margin per unit increased 25.3%. The number of new subscriber activations
decreased 21.4% but was partially offset by a 9.3% increase in average
activation commissions earned by the Company. Residuals increased 1.0% over last
year. The Company believes that the cellular market will continue to be a
highly-competitive and price-sensitive environment. Increased price competition
related to the Company's product could result in
16
<PAGE>
downward pressure on the Company's gross margins if the Company is unable to
obtain competitively priced product from its suppliers or result in adjustments
to the carrying value of the Company's inventory.
Automotive sound margins were 19.9%, up from 17.5% in 1995. Most product
lines in the category experienced an increase and there was a marked increase in
the gross margin on international sales. Automotive accessory margins decreased
from 27.9% in 1995 to 24.5% in 1996. This decrease was primarily in the Prestige
and cruise control lines.
Total operating expenses increased approximately $2,837, or 3.5%, compared
to last year. As a percentage to sales, total operating expenses decreased to
13.9% during 1996 compared to 16.1% for 1995. Selling expenses increased
approximately $5,544, or 16.1%, over last year. Divisional marketing and
advertising increased approximately $8,256 compared to last year in addition to
travel and related expenses. These increases were partially offset by decreases
in salesmen's commissions, salesmen's salaries, payroll taxes and employee
benefits. General and administrative expenses decreased approximately $3,708
during 1996. The decreases were in occupancy costs, telephone and overseas
buying office expenses and were partially offset by increases in office
salaries, travel, payroll taxes, employee benefits and professional fees.
Warehousing, assembly and repair expenses increased approximately $1,001
compared to last year, predominately in warehousing expenses and direct labor.
Management fees and related income and equity in income from joint venture
investments increased by approximately $463 for 1996 compared to 1995 as
detailed in the following table:
<TABLE>
1996 1995
---------------------------- ----------------
Equity Equity
Management Income Management Income
Fees (Loss) Total Fees (Loss) Total
<S> <C> <C> <C> <C> <C> <C>
CellStar - - - - $ 2,151 $ 2,151
ASMC - $ 948 $ 948 - 819 819
G.L.M. $ 100 - 100 $ 14 - 14
Pacific 22 (334) (312) 186 21 207
TALK - - - - (2,837) (2,837)
Quintex West 18 - 18 - - -
Posse 46 17 63 - - -
------- -------- ------- ------- -------- -------
$ 186 $ 631 $ 817 $ 200 $ 154 $ 354
======= ======== ======= ======= ======== =======
</TABLE>
NOTE: Certain amounts have been restated as discussed in Note 8
to the consolidated financial statements.
The increase was primarily due to non-recurring costs recorded by TALK
during 1995, their first full year of operations. This was offset by the Company
owning less than 20% of CellStar for the entire fiscal year and, therefore, not
accounting for the
17
<PAGE>
investment on the equity method. During 1995, the Company owned more than 20% of
CellStar until the third quarter and, therefore, accounted for CellStar under
the equity method until then. Audiovox Pacific has experienced an overall
decline in gross margins, as the cellular market in Australia has experienced
the same competitive factors as those in the United States.
Interest expense and bank charges decreased by $1,214, or 12.5%, compared
to 1995 as a result of a decrease in interest bearing debt. Other expenses
decreased approximately $412 primarily due to the write-off of fixed assets in
the retail group during 1995 which did not recur in 1996. Costs associated with
the issuance of stock warrants for no monetary consideration to certain holders
of the Company's convertible subordinated debentures also did not recur in 1996.
During the fourth quarter of 1996, the Company exchanged $41,252 of its 6
1/4% subordinated debentures for 6,806,580 shares of Class A Common Stock. This
exchange resulted in a charge to earnings of approximately $26,318 before income
taxes. This charge includes the loss on the exchange and the write-off of the
remaining debt issuance costs associated with the original issue of the
debentures.
Fiscal 1995 Compared to Fiscal 1994
Net sales increased by approximately $14,300, or 2.9%, for fiscal 1995
compared to fiscal 1994. This result was primarily attributable to increases in
net sales from cellular telephone products of approximately $11,900, or 3.9%,
and automotive security and accessory equipment of approximately $9,200, or
14.3%. These increases were partially offset by a decline in net sales
attributable to automotive sound equipment of approximately $5,100, or 4.5%.
The improvement in net sales of cellular telephone products was primarily
attributable to increased unit sales, partially offset by a decrease in
activation commissions. Net sales of cellular telephones increased by
approximately 382,000 units, or 46.3%, compared to fiscal 1994, primarily
resulting from an increase in sales of hand-held portable cellular telephones,
partially offset by a decline in sales of installed mobile and transportable
cellular telephones. The average unit selling price declined approximately 23.4%
vs. 1994 as production efficiencies and market competition continues to reduce
unit selling prices.
Activation commissions decreased by approximately $9,300, or 19.4%, for
fiscal 1995 compared to fiscal 1994. This decrease was primarily attributable to
fewer new cellular subscriber activations and partially due to the net reduction
of 61 retail outlets operated by the Company. The number of activation
commissions decreased 15.5% over fiscal 1994. This decrease in commission
revenue was further affected by a 4.7% decrease in average activation
commissions paid to the Company. Residual revenues on customer usage increased
by approximately $776, or
18
<PAGE>
19.4%, for fiscal 1995, compared to fiscal 1994, due primarily to the addition
of new subscribers to the Company's cumulative subscriber base, despite a
decrease in current year activations. A majority of the residual income resides
with the remaining 30 operating retail locations.
During fiscal 1994, the Company experienced dramatic growth in its Quintex
type retail operations. This growth reflected the large increases in cellular
telephone sales experienced in the domestic U.S.
During this period, the Company had favorable contracts with several of the
major cellular carriers. To capitalize on the growth in the market during 1994,
the Company embarked on an expansion program to increase its retail presence in
its designated cellular markets. During fiscal 1995, beginning with the first
quarter, the market place in which the Quintex retail operations conducted their
business was adversely affected by several trends. These trends include a slow
down in the growth of the cellular market, a desire by the cellular carriers to
lower their acquisition costs with lower payments to its individual agents,
increased competition by mass merchandisers and the cellular carriers direct
sales force, and the overall economic conditions in the U.S. domestic market. As
a result of these trends, the Company decided to reduce its retail presence by
closing or disposing of all unprofitable Quintex locations through out the U.S.
The result of this plan was a reduction of outlets from 91 to 30. The cost of
this closing was approximately $4,000 during fiscal 1995. Of the $4,000 charge
to income, approximately $1,500 is related to inventory write-offs, $1,800 is
associated with the lease buy-outs, employee severance pay, the write-off of
leasehold improvements and other fixed assets and $700 of miscellaneous charges
including co-op advertising, deactivation allowances, and anticipated bad debts.
The impact of this Quintex reduction program and the overall erosion of the
retail market was a decrease in revenue of approximately $21,000 for fiscal
1995.
This decrease was due to a decrease in revenues of cellular and
non-cellular products of approximately $12,500 and a decrease in activation
commission revenues of approximately $9,300, which was partially offset by an
increase in residuals of $776. During the earlier part of the 1995 fiscal year,
prior to the retail program, the Company continued to open and close various
retail outlets. During the third quarter of 1995, the Company felt that the
erosion of the retail business in certain carrier regions would not allow a
return to profitability. It was then decided to close all those locations which
had not attained profitability. This further accelerated the reduction of
operating revenues and income in the fourth quarter of fiscal 1995. The
performance of the retail locations closed during fiscal 1995, which were a part
19
<PAGE>
of the retail reduction program and included in the total $21,000 decrease in
revenues for the entire retail group, is as follows:
1995 1994 1993
------- ------- --------
Net sales $18,077 $25,663 $14,496
Operating income (loss) $(1,438) $ 1,159 $ 1,944
The Company believes that these closures will reduce revenue, as well as
operating expenses, primarily in occupancy costs, salaries and commissions,
during fiscal 1996. The Company will continue to review its remaining locations
and will close them if they do not remain profitable.
Net sales of automotive sound equipment decreased by approximately $5,100,
or 4.5%, for fiscal 1995, compared to fiscal 1994. This decrease was
attributable primarily to a decrease in sales of products sold to mass
merchandise chains, coupled with decreases in auto sound sales to private label
customers, new car dealers, products used in the truck and agricultural vehicle
markets and several OEM accounts. Net sales of automotive security and accessory
products increased approximately $9,200, or 14.3%, for fiscal 1995, compared to
fiscal 1994, principally due to increases in sales of vehicle security products
and Protector Hardgoods. This increase was partially offset by a reduction in
net sales by the Company of recreational vehicle equipment and accessories.
Gross margins declined to 14.1% in fiscal 1995 from 17.5% for fiscal 1994
as a result of lower selling prices and the write-down of the carrying value of
inventory of $9,300 during the third quarter of 1995. This reflects the overall
erosion of gross margins experienced primarily in the cellular product category
which resulted in the decision to mark down the carrying value of the Company's
cellular inventory. Of the $9,300 inventory adjustment, $8,800 was in the
cellular product category and $500 was in the automotive sound product category
in wholesale operations.
Cellular gross margins were 9.8% for fiscal 1995 compared to 14.8% for
fiscal 1994. As previously mentioned, the gross margins reflect an $8,800 charge
for inventory write-downs. In addition, the decline in cellular margins is a
result of the continuing decline of unit selling prices due to increased
competition and the introduction of lower-priced units. The portable cellular
telephone line accounted for the majority of this decrease. The average unit
selling price declined 23.4% during the 1995 fiscal year. Likewise, gross
profits on unit sales declined 26.7% for the same period. The number of new
subscriber activations declined 15.5% to 126,000 for 1995 compared to 1994.
Average commissions received by the Company from the cellular carriers per
activation also declined 4.7% to $305 for the twelve months ended November 30,
1995 versus fiscal 1994. These decreases were partially offset by an increase of
19.4% in residual payments received by the Company compared to the same period
in 1994. The Company believes that the cellular market will continue to be a
20
<PAGE>
highly-competitive, price-sensitive environment. Increased price competition
related to the Company's product could result in downward pressure to the
Company's gross margins if the Company is unable to obtain competitively-priced
product from its suppliers or result in additional adjustments to the carrying
value of the Company's inventory.
Automotive sound margins decreased to 17.5% from 18.7% for the fiscal year
ended November 30, 1995 compared to fiscal 1994. The decrease in automotive
sound margins was primarily in the AV product line, partially offset by
increases in the Heavy Duty Sound product lines. Automotive accessory margins
decreased to 27.9% for 1995 from 29.1% in 1994. These decreases were primarily
in the AA security product line, partially offset by an increase in margins in
Prestige security products and Protector Hardgoods.
Total operating expenses increased by approximately $6,100, or 8.1%, for
the twelve months ended November 30, 1995 compared to fiscal 1994. A major
component of this increase was the third quarter 1995 charge for the downsizing
of the Company's retail operations. Excluding this charge, operating overhead
increased $3,600 for fiscal 1995 compared to the same period of 1994.
Warehousing, assembly and repair expenses increased approximately $441, or
4.7 %, for 1995 compared to 1994. The increase for the twelve months was
primarily in field warehousing expenses and travel. Selling expenses increased
approximately $2,200, or 6.8%, compared to 1994. Advertising and other
promotional marketing programs accounted for the majority of the increase in
fiscal 1995. General and administrative expenses increased $3,400, or 10.5%, for
1995 compared to 1994. A provision for costs associated with the down-sizing of
the retail group was the primary component of this increase. This provision
included costs for the buy-out of leases, the write-off of leasehold
improvements, severance pay and other charges necessary to close and consolidate
the retail operations. Other increases were in professional fees, bad debt and
expenses associated with the Company's overseas buying offices.
21
<PAGE>
Management fees and related income and equity in income from joint venture
investments decreased by approximately $15,502 for 1995, as compared to 1994,
principally due to CellStar Corporation (CellStar) as detailed in the following
table:
<TABLE>
1995 1994
-------------------------------- --------------------------------
Equity Equity
Management Income Management Income
Fees (Loss) Total Fees (Loss) Total
<S> <C> <C> <C> <C> <C> <C>
CellStar - $ 2,151 $ 2,151 - $13,958 $13,958
ASMC - 819 819 - 932 932
G.L.M. $ 14 - 14 - - -
Pacific 186 21 207 $ 435 242 677
Protector - - - 1,108 - 1,108
TALK - (2,837) (2,837) - (819) (819)
------- -------- -------- ------- ------- --------
$ 200 $ 154 $ 354 $1,543 $14,313 $15,856
======= ======== ======== ======= ======== =======
</TABLE>
NOTE: Certain amounts have been restated as discussed in Note 8
to the consolidated financial statements.
During 1994, the Company sold shares of CellStar, resulting in a pre-tax
gain on sale of $27,800. Also in 1994, the Company recorded a $10,600 gain on
the carrying value of the investment in CellStar after their public offering.
This event did not repeat in 1995. In addition, in 1995, the Company sold
1,500,000 shares of CellStar Common Stock. The gain on the sale of these
securities, before income taxes, was approximately $8,400. Since the Company's
ownership in CellStar is less than 20%, the Company can no longer account for
CellStar under the equity method of accounting. The decrease in Audiovox Pacific
is due to an overall decline in gross profits, as the cellular market in
Australia experienced the same competitive factors which exist in the United
States. As a result, Audiovox Pacific recorded an inventory write-down of $800
during 1995, 50% of which resulted in the Company recording lower income from
equity investments. TALK, which commenced operations during the latter part of
1994, continued to experience losses, primarily due to ongoing start-up costs.
Interest expense and bank charges increased by $3,200, or 48.3%, compared
to 1994 as a result of an increase in interest costs from increased borrowing to
support higher levels of inventory purchases and asset financing. Other expenses
increased approximately $3,000 primarily due to $2,900 in costs associated with
the issuance of stock warrants for no monetary consideration to certain holders
of the Company's convertible subordinated debentures. This one-time, non-cash
charge to earnings is offset by a $2,900 increase in paid in capital. Therefore,
there is no effect on total shareholders' equity.
For fiscal 1995, the Company recorded an income tax recovery of
approximately $2,800, compared to a provision of approximately $20,300 for
fiscal 1994. The effective income tax recovery rate for 1995 was negatively
impacted primarily due to the non-deductibility of losses in the Company's
Canadian operations
22
<PAGE>
which can no longer be carried-back, the non-deductibility of costs associated
with the issuance of the stock warrants and undistributed earnings from equity
investments.
Liquidity and Capital Resources
The Company's cash position at November 30, 1996 was approximately $5,274
above the November 30, 1995 level. Operating activities provided approximately
$24,011, primarily from a decrease in inventory and increases in accounts
payable, accrued expenses and income taxes payable. These favorable events were
partially offset by increases in accounts receivable, prepaid expenses and other
currents assets. Investing activities used approximately $1,488, composed
primarily of $2,805 for the purchase of property, plant and equipment, partially
offset by $1,000 from the sale of an investment. Financing activities used
approximately $17,280, principally for the reduction of borrowings under line of
credit agreements and documentary acceptances.
On February 9, 1996, the Company's 10.8% Series AA and 11.0% Series BB
Convertible Debentures matured. The Company paid $4,362 to holders on that date.
The remaining $1,100 was converted into 206,046 shares of Common Stock. On
November 25, 1996, the Company concluded an exchange of $41,252 of its 6 1/4%
subordinated debentures for 6,806,580 shares of the Company's Class A Common
Stock. Accounting charges to earnings for this transaction were $29,206,
including income taxes on the gain of the exchange of the bonds. As a result of
the exchange, stockholders' equity was increased by $34,426.
On October 1, 1996, business formally conducted by the Company's cellular
division will be continued in a newly-formed, wholly-owned subsidiary called
Audiovox Communications Corp. (ACC). Capitalization of this company was
accomplished by exchanging the assets of the former division, less their
respective liabilities, for all of the common stock.
On May 5, 1995, the Company entered into the Second Amended and Restated
Credit Agreement (the Credit Agreement) which superseded the first amendment in
its entirety. During 1996, the Credit Agreement was amended six times providing
for various changes to the terms. The terms as of November 30, 1996 are
summarized below.
Under the Credit Agreement, the Company may obtain credit through direct
borrowings and letters of credit. The obligations of the Company under the
Credit Agreement continue to be guaranteed by certain of the Company's
subsidiaries and is secured by accounts receivable and inventory of the Company
and those subsidiaries. The obligations were secured at November 30, 1996 by a
pledge agreement entered into by the Company for 2,125,000 shares of CellStar
Common Stock and ten shares of ACC. Subsequent to year end, the shares of
CellStar common stock were released from the Pledge Agreement. Availability of
credit under
23
<PAGE>
the Credit Agreement is a maximum aggregate amount of $85,000, subject to
certain conditions, and is based upon a formula taking into account the amount
and quality of its accounts receivable and inventory. The Credit Agreement
expires on February 28, 1998. As a result, bank obligations under the Credit
Agreement have been classified as long-term at November 30, 1996.
The Credit Agreement contains several covenants requiring, among other
things, minimum levels of pre-tax income and minimum levels of net worth and
working capital as follows: pre-tax income of $4,000 per annum; pre-tax income
of $2,500 for any two consecutive fiscal quarters; the Company cannot have
pre-tax losses of more than $500 in any quarter; and the Company cannot have
pre-tax losses in any two consecutive quarters. In addition, the Company must
maintain a minimum level of total net worth of $88,500, adjusted for 50% of the
aggregate gains realized on sales of capital stock. The Company must maintain a
minimum working capital of $125,000. Additionally, the agreement includes
restrictions and limitations on payments of dividends, stock repurchases, and
capital expenditures. At November 30, 1996, the Company was not in compliance
with several financial covenants which were waived. The violations pertained to
the limit on capital expenditures made in the fiscal year ended November 30,
1996, the pre-tax net loss incurred in the fourth quarter of fiscal year ended
November 30, 1996, the pre-tax net loss incurred in the two consecutive fiscal
quarters ending November 30, 1996 and the pre-tax loss for the fiscal year ended
November 30, 1996. As of the date of the issuance of the financial statements,
the Company's creditors waived their right to call the bank obligations.
On May 9, 1995, the Company issued 1,668,875 warrants in a private
placement, with underlying shares which may be purchased pursuant to an option
on the Chief Executive Officer's personal stock holdings. Each warrant is
convertible into one share of class A common stock at $7 1/8, subject to
adjustment under certain circumstances. On May 2, 1996 the Securities and
Exchange Commission declared effective a registration statement for the warrants
and the underlying common stock which the Company had filed pursuant to a
registration rights agreement dated as of May 9, 1995, between the Company and
the purchasers of the warrants.
On March 15, 1994, the Company completed the sale of $65,000, 6 1/4%
convertible subordinated debentures due 2001. The debentures are convertible
into shares of the Company's Class A Common Stock, par value $.01 per share at
an initial conversion price of $17.70 per share, subject to adjustment under
certain circumstances. A portion of the net proceeds of the offering was used to
repay existing indebtedness and a prepayment premium.
The Company granted to an investor in CellStar, in connection with the
CellStar initial public offering, two options to purchase up to an aggregate of
1,750,000 shares of CellStar Common Stock owned by the Company, 1,500,000 of
which was
24
<PAGE>
exercised in full on June 1, 1995 at an exercise price of $11.50 per share. As a
result, the Company recorded a gain, before provision for income taxes, of
$8,435. This reduced the Company's ownership in CellStar below 20% and, as such,
the Company will no longer account for CellStar under the equity method of
accounting. Subsequent to November 30, 1996, the remaining 250,000 shares under
the remaining option expired. The remaining 2,375,000 CellStar shares owned by
the Company will be accounted for as an investment in marketable equity
securities. During the first quarter of 1997, the Company sold 1,360,000 shares
of its CellStar shares for a gain of $14,743, net of income tax. The Company
continues to hold 1,015,000 shares of CellStar common stock. As discussed in
Note 6 to the consolidated financial statements, Financial Accounting Standards
Board (FASB) Statement No. 115 (Statement 115) addresses the accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. Based upon the closing
market price of CellStar on November 30, 1996, the decrease to equity as
required by Statement 115 is $21,444, net of deferred taxes.
The Company believes that it has sufficient liquidity to satisfy its
anticipated working capital and capital expenditure needs through November 30,
1996 and for the reasonable foreseeable future.
Impact of Inflation and Currency Fluctuation
Inflation has not had and is not expected to have a significant impact on
the Company's financial position or operating results. However, as the Company
expands its operations into Latin America and the Pacific Rim, the effects of
inflation in those areas, if any, could have growing significance to the
financial condition and results of the operations of the Company.
Currency Fluctuations
While the prices that the Company pays for the products purchased from its
suppliers are principally denominated in United States dollars, price
negotiations depend in part on the relationship between the foreign currency of
the foreign manufacturers and the United States dollar. This relationship is
dependent upon, among other things, market, trade and political factors.
Seasonality
The Company typically experiences some seasonality. The Company believes
such seasonality could be attributable to increased demand for its products
during the Christmas season, commencing October, for both wholesale and retail
operations.
Recent Accounting Pronouncements
The FASB has issued Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be
25
<PAGE>
Disposed of" (Statement 121), in March 1995. Under Statement 121, the Company is
required to assess the recoverability and carrying amount of long-lived assets,
certain identifiable intangible assets and goodwill related to those assets,
whenever events or changes in circumstances indicate impairment. Statement 121
provides the methodology for the measurement of such impairment to be recognized
in the financial statements. The provisions of Statement 121 are effective for
fiscal years beginning after December 15, 1995 and earlier adoption is
permitted. The provisions of Statement 121 must be implemented no later than
fiscal year 1997. The effect of initially applying these provisions shall be
reported in the period in which the recognition criteria are first applied and
met or, in the case of long-lived assets held for disposal, as the cumulative
effect of a change in accounting principle at the date of adoption. The Company
believes that the implementation will not have a material impact on the
Company's consolidated financial position.
The FASB has issued Statement No. 123, "Accounting for Stock-Based
Compensation" (Statement 123), in October 1995. Under Statement 123, the Company
is required to choose either the new fair value method or the current intrinsic
value method of accounting for its stock-based compensation arrangements. Using
the fair value method, the Company would measure the compensation cost
recognized in the financial statements based upon the estimated fair value of
the stock-based compensation arrangements as of the date they are granted. The
intrinsic value method, under APB Opinion No. 25, "Accounting for Stock issued
to Employees", requires the recognition of compensation cost only if such value
does not exceed the market value of the underlying stock on the measurement
date. The Company will continue to account for all employee stock-based
compensation plans under APB Opinion No. 25 and adopt the provisions of
Statement 123, as required, for all stock-based arrangements issued to
non-employees. The accounting requirements of Statement 123 are effective for
transactions entered into in fiscal years beginning after December 15, 1995 and
the disclosure, including pro forma, requirements are effective for financial
statements for fiscal years beginning after December 15, 1995. Even though the
Company has opted not to change its method of accounting, Statement 123 requires
pro forma disclosures of net income and earnings per share computed as if the
fair value method has been applied. Statement 123 must be implemented no later
than fiscal year 1997. As of November 30, 1996, the Company does not have any
such stock compensation plans which would require the preparation of the pro
forma disclosure provisions of Statement 123.
26
<PAGE>
Item 8-Consolidated Financial Statements and Supplementary Data
The consolidated financial statements of the Company as of November 30,
1996 and 1995 and for each of the years in the three-year period ended November
30, 1996, together with the independent auditors' report thereon of KPMG Peat
Marwick LLP, independent auditors, are filed under this Item 8.
Selected unaudited, quarterly financial data of the Registrant for the
years ended November 30, 1996 and 1995 appears below:
<TABLE>
QUARTER ENDED
Feb. 28 May 31 Aug. 31 Nov. 30
--------- ------ ------- -------
1996
<S> <C> <C> <C> <C>
Net sales $122,493 141,194 142,828 191,400
Gross profit 19,877 21,586 24,639 30,286
Operating expenses 17,519 19,347 20,911 25,536
Income (loss) before provision for
(recovery of) income taxes 1,091 426 1,575 (23,727)(a)
Provision for (recovery of) income
taxes 612 276 808 4,138 (b)
Net income (loss) 479 150 767 (27,865)
Net income (loss) per share (primary) 0.05 0.02 0.08 (2.83)
Net income per common share (fully
diluted) - - - -
1995
Net sales $131,391 105,811 112,177 151,361
Gross profit 22,586 19,270 7,406 (c) 21,480
Operating expenses 20,723 19,221 22,552 (d) 17,980
Income (loss) before provision for
(recovery of) income taxes 1,083 (4,240) (9,729)(e) (1,800)
Provision for (recovery of) income
taxes 547 (467) (3,344) 461
Net income (loss) 536 (3,773) (6,385) (2,261)
Net income (loss) per share (primary) 0.06 (0.42) (0.71) (0.25)
Net income per common share (fully
diluted) - - - -
</TABLE>
NOTE: The Company does not compute fully diluted earnings per
share when the addition of potentially dilutive
securities would result in anti-dilution.
NOTE: Certain amounts have been restated as discussed in Note
8 to the consolidated financial statements.
(a) Includes a pre-tax charge of $26.3 million for costs associated with
the exchange of $41.3 million of subordinated debentures into 6,806,580
shares of common stock.
(b) Includes tax expense of $2.9 million associated with the exchange of
debentures as per (a).
(c) Includes a $9.3 million inventory write-down to market.
(d) Includes a $2.5 million expense due to the down-sizing of
the retail operations.
(e) Includes a $2.9 million charge associated with the issuance of warrants
and a $8.4 million gain on the sale of an equity investment.
27
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Audiovox Corporation:
We have audited the accompanying consolidated balance sheets of Audiovox
Corporation and subsidiaries as of November 30, 1996 and 1995, and the related
consolidated statements of income (loss), stockholders' equity and cash flows
for each of the years in the three-year period ended November 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Audiovox Corporation
and subsidiaries as of November 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended November 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1(g) to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's (FASB)
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", in 1995. As also discussed
in Note 1(p), the Company adopted the provisions of the FASB's SFAS No. 109,
"Accounting for Income Taxes", in 1994.
s/KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Jericho, New York
January 23, 1997, except for Paragraph 7 of Note 8 which is as of March 6, 1998
28
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
1996 1995
-------- -----------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 12,350 $ 7,076
Accounts receivable, net 118,408 96,930
Inventory, net 72,785 100,422
Receivable from vendor 4,565 5,097
Prepaid expenses and other current assets 7,324 5,443
Deferred income taxes 5,241 5,287
Restricted cash - 5,959
---------- ---------
Total current assets 220,673 226,214
Investment securities 27,758 62,344
Equity investments 5,836 5,900
Property, plant, and equipment, net 6,756 6,055
Debt issuance costs, net 269 4,235
Excess cost over fair value of assets
acquired and other intangible assets, net 804 943
Other assets 3,449 2,737
---------- ---------
$ 265,545 $ 308,428
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,192 $ 17,844
Accrued expenses and other current liabilities 18,961 16,800
Income taxes payable 7,818 2,455
Bank obligations 4,024 761
Documentary acceptances 3,501 7,120
Current installments of long-term debt - 5,688
---------- ---------
Total current liabilities 62,496 50,668
Bank obligations 31,700 49,000
Deferred income taxes 10,548 23,268
Long-term debt, less current installments 28,165 70,534
---------- ---------
Total liabilities 132,909 193,470
---------- ---------
Minority interest 1,137 363
---------- ---------
Stockholders' equity:
Preferred stock 2,500 2,500
Common Stock:
Class A; 30,000,000 authorized; 14,040,414
issued 141 68
Class B; 10,000,000 authorized; 2,260,954
issued 22 22
Paid-in capital 107,833 42,876
Retained earnings 11,902 38,371
Cumulative foreign currency translation
and adjustment (1,176) (963)
Unrealized gain on marketable securities, net 10,277 31,721
---------- ---------
Total stockholders' equity 131,499 114,595
---------- ---------
Commitments and contingencies
Total liabilities and stockholders' equity $ 265,545 $ 308,428
========== =========
</TABLE>
Certain amounts have been restated as discussed in Note 8 to the consolidated
financial statements. SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
29
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
YEARS ENDED NOVEMBER 30, 1996, 1995, AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
1996 1995 1994
---------- --------- --------
<S> <C> <C> <C>
Net sales $597,915 $500,740 $486,448
Cost of sales (including an inventory
write-down to market in 1995 of $9,300) 501,527 429,998 401,537
--------- --------- --------
Gross profit 96,388 70,742 84,911
--------- --------- --------
Operating expenses:
Selling 40,033 34,489 32,299
General and administrative 32,452 36,160 32,740
Warehousing, assembly, and repair 10,828 9,827 9,386
--------- --------- --------
83,313 80,476 74,425
--------- --------- --------
Operating income (loss) 13,075 (9,734) 10,486
--------- --------- --------
Other income (expenses):
Debt conversion expense (26,318) - -
Interest and bank charges (8,480) (9,694) (6,535)
Equity in income of equity investments 631 154 3,748
Management fees and related income 186 200 1,543
Gain on sale of equity investment 985 8,435 27,783
Gain on public offering of equity
investment - - 10,565
Expense related to issuance of warrants - (2,921) -
Other, net (714) (1,126) (1,056)
--------- --------- ---------
(33,710) (4,952) 36,048
--------- --------- --------
Income (loss) before provision for
(recovery of) income taxes and cumulative
effect of a change in an accounting
principle (20,635) (14,686) 46,534
Provision for (recovery of) income taxes 5,834 (2,803) 20,328
--------- --------- --------
Income (loss) before cumulative effect of
a change in accounting for income taxes (26,469) (11,883) 26,206
Cumulative effect of change in accounting
for income taxes - - (178)
--------- --------- ---------
Net income (loss) $(26,469) $(11,883) $ 26,028
========= ========= ========
Net income (loss)per common share (primary):
Income (loss) before cumulative effect $ (2.82) $ (1.31) $ 2.88
========= ========= ========
Cumulative effect of change in
accounting for income taxes - - $ (.02)
========= ========= =========
Net income (loss) $ (2.82) $ (1.31) $ 2.86
========= ========= ========
Net income (loss) per common share (fully diluted):
Income before cumulative effect - - $ 2.21
========= ========= ========
Cumulative effect of change in
accounting for income taxes - - $ (.01)
========= ========= =========
Net income (loss) - - $ 2.20
========= ========= ========
</TABLE>
Certain amounts have been restated as discussed in Note 8 to the consolidated
financial statements. SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
30
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED NOVEMBER 30, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
Cumulative
foreign Unrealized
currency Gain (Loss) Total
Preferred Common Paid-In Unearned Retained translation on Marketable Stockholders'
stock stock capital compensation earnings adjustment Securities equity
--------- ------- ------- ------------ -------- ------------ ------------- -----------
Balances at
November 30,
<S> <C> <C> <C> <C> <C> <C>
1993 2,500 90 39,171 - 24,226 (194) - 65,793
Net income - - - - 26,028 - - 26,028
Equity adjustment
from foreign
currency
translation - - - - - (331) - (331)
Unearned compensation
relating to grant
of options and non-
performance restricted
stock - - 864 (864) - - - -
Compensation
expense - - 27 241 - - - 268
Stock issuance
upon exercise
of options - - 207 - - - - 207
Issuance of warrants - - 69 - - - - 69
------ ---- --------- ------ -------- -------- ------- -------
Balances at
November 30,
1994 2,500 90 40,338 (623) 50,254 (525) - 92,034
Net loss - - - - (11,883) - - (11,883)
Equity adjustment
from foreign
currency
translation - - - - - (438) - (438)
Unearned compensation
relating to grant
of options and non-
performance restricted
stock - - 62 (62) - - - -
Compensation
expense - - 46 194 - - - 240
Options and non-perform-
ance restricted stock
forfeitures due to
employee terminations - - (81) 81 - - - -
Issuance of warrants - - 2,921 - - - - 2,921
Implementation of
change in accounting
for debt and equity
securities, net of
tax effect of
$24,517 - - - - - - 40,004 40,004
Unrealized loss on
marketable
securities, net of
tax effect of
$(5,076) - - - - - - ( 8,283) (8,283)
------ ---- --------- ------ -------- -------- --------- ---------
Balances at
November 30,
1995 2,500 90 43,286 (410) 38,371 (963) 31,721 114,595
</TABLE>
Continued
31
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
Cumulative
foreign Unrealized
currency Gain (Loss) Total
Preferred Common Paid-In Unearned Retained translation on Marketable Stockholders'
stock stock capital compensation earnings adjustment Securities equity
--------- ------- ------- ------------ -------- ------------ ------------- ---------
Balances at
November 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 2,500 90 43,286 (410) 38,371 (963) 31,721 114,595
Net loss - - - - (26,469) - - (26,469)
Equity adjustment
from foreign
currency
translation - - - - - (213) - (213)
Compensation
expense - - 39 258 - - - 297
Options and non-per-
formance restricted
stock forfeitures
due to employee
terminations - - (27) 27 - - - -
Shares issued - 3 - - - - - 3
Conversion of
debentures into
common stock - 70 64,660 - - - - 64,730
Unrealized loss on
marketable
securities, net of
tax effect of
$13,143 - - - - - - (21,444) (21,444)
Balances at
November 30,
1996 $2,500 $163 $107,958 $(125) $11,902 $(1,176) $10,277 $131,499
====== ==== ========= ====== ======== ======== ======== ========
</TABLE>
Certain amounts have been restated as discussed in Note 8 to the consolidated
financial statements.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
32
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
1996 1995 1994
---------- ---------- ---------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $(26,469) $ (11,883) $ 26,028
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Debt conversion expense 25,629 - -
Depreciation and amortization 3,298 4,100 4,299
Provision for bad debt expense 429 1,816 (21)
Equity in income of equity investments (614) (154) (3,748)
Minority interest 767 225 96
Gain on sale of equity investment (985) (8,435) (27,783)
Gain on public offering of equity investment - - (10,565)
Provision for (recovery of) deferred income taxes 468 (5,158) 6,140
Provision for unearned compensation 297 240 268
Expense relating to issuance of warrants - 2,921 -
(Gain) loss on disposal of property, plant, and
equipment, net (32) 246 -
Cumulative effect of change in accounting for income taxes - - 178
Changes in:
Accounts receivable (21,848) (4,468) (20,337)
Note receivable from equity investment 532 (5,097) -
Inventory 27,688 (16,950) (18,701)
Income taxes receivable - - 229
Accounts payable, accrued expenses, and other current
liabilities 12,445 488 3,675
Income taxes payable 5,360 1,623 (1,395)
Prepaid expenses and other, net (2,954) 250 (4,171)
--------- --------- ---------
Net cash provided by (used in) operating activities 24,011 (40,236) (45,808)
--------- --------- ---------
Cash flows from investing activities:
Purchase of equity investments - - (6,016)
Purchases of property, plant, and equipment, net (2,805) (2,722) (2,611)
Notes receivable from equity investment - - 7,973
Net proceeds from sale of equity investment 1,000 17,250 29,433
Purchase of business - - (148)
Proceeds from distribution from equity investment 317 267 -
--------- --------- --------
Net cash provided by (used in) investing activities (1,488) 14,795 28,631
--------- --------- --------
Cash flows from financing activities:
Net borrowings (repayments) under line of credit agreements (14,040) 19,577 (8,613)
Net borrowings (repayments) under documentary acceptances (3,620) 7,120 (10,833)
Principal payments on long-term debt (5,029) (11) (17,411)
Debt issuance costs (392) (714) (5,315)
Proceeds from exercise of stock options - - 170
Principal payments on capital lease obligation (158) (233) (175)
Proceeds from issuance of long-term debt - 675 65,000
Proceeds from issuance of notes payable - - 10,045
Payment of note payable - - (5,000)
Restricted cash - - (6,559)
Proceeds from release of restricted cash 5,959 600 -
--------- --------- --------
Net cash provided by (used in) financing activities (17,280) 27,014 21,309
Effect of exchange rate changes on cash 31 8 (9)
--------- --------- ---------
Net increase in cash and cash equivalents 5,274 1,581 4,123
Cash and cash equivalents at beginning of period 7,076 5,495 1,372
--------- --------- --------
Cash and cash equivalents at end of period $ 12,350 $ 7,076 $ 5,495
========= ========= ========
</TABLE>
Certain amounts have been restated as discussed in Note 8 to the consolidated
financial statements.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
33
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) Summary of Significant Accounting Policies
(a) Description of Business
Audiovox Corporation and its subsidiaries (the Company) design
and market cellular telephones and accessories, automotive
aftermarket sound and security equipment, other automotive
aftermarket accessories, and certain other products,
principally in the United States, Canada, and overseas. In
addition to generating product revenue from the sale of
cellular telephone products, the Company's retail outlets, as
agents for cellular carriers, are paid activation commissions
and residual fees from such carriers.
The Company's automotive sound, security, and accessory
products include stereo cassette radios, compact disc players
and changers, amplifiers and speakers; key based remote
control security systems; cruise controls and door and trunk
locks. These products are marketed through mass merchandise
chain stores, specialty automotive accessory installers,
distributors, and automobile dealers.
(b) Principles of Consolidation
The consolidated financial statements include the financial
statements of Audiovox Corporation and its wholly-owned and
majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in
consolidation.
(c) Cash Equivalents
Cash equivalents of $1,337 at November 30, 1995 consisted of
short-term investments with terms of less than three months.
For purposes of the statements of cash flows, the Company
considers investments with original maturities of three months
or less to be cash equivalents.
(d) Cash Discount and Co-operative Advertising Allowances
The Company accrues for estimated cash discounts and
trade and promotional co-operative advertising
allowances at the time of sale. These discounts and
(Continued)
34
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
allowances are reflected in the accompanying consolidated
financial statements as a reduction of accounts receivable as
they are utilized by customers to reduce their trade
indebtedness to the Company.
(e) Inventory
Inventory consists principally of finished goods and is stated
at the lower of cost (primarily on a weighted moving average
basis) or market. The markets in which the Company competes
are characterized by declining prices, intense competition,
rapid technological change and frequent new product
introductions. The Company maintains a significant investment
in inventory and, therefore, is subject to the risk of losses
on write-downs to market and inventory obsolescence. During
the third quarter of 1995, the Company recorded a charge of
approximately $9,300 to accurately reflect the Company's
inventory at the lower of cost or market. No estimate can be
made of losses that are reasonably possible should additional
write-downs to market be required in the future.
(f) Restricted Cash
Restricted cash represents collateral for an irrevocable
standby letter of credit in favor of the Series AA and Series
BB convertible debentures (Note 10).
(g) Investment Securities
The Company adopted the provisions of Statement of Financial
Accounting Standard's (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (Statement 115) at
December 1, 1994. Under Statement 115, the Company classifies
its debt and equity securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the purpose of
selling them in the near term. Held-to-maturity securities are
those securities in which the Company has the ability and
intent to hold the security until maturity. All other
securities not included in trading or held-to-maturity are
classified as available-for-sale.
Trading and available-for-sale securities are recorded
at fair value. Held-to-maturity securities are
(Continued)
35
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized holding gains
and losses on trading securities are included in earnings.
Unrealized holding gains and losses, net of the related tax
effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of
stockholders' equity until realized. Realized gains and losses
from the sale of available-for-sale securities are determined
on a specific identification basis.
A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than
temporary results in a reduction in carrying amount to fair
value. The impairment is charged to earnings and a new cost
basis for the security is established. Premiums and discounts
are amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield using the
effective interest method. Dividend and interest income are
recognized when earned.
(h) Debt Issuance Costs
Costs incurred in connection with the issuance of the
convertible subordinated debentures and restructuring of the
Series A and Series B convertible subordinated notes (Note 10)
and the restructuring of bank obligations (Note 9) have been
capitalized. These charges are amortized over the lives of the
respective agreements. Amortization expense of these costs
amounted to $1,109, $1,319, and $1,225 for the years ended
November 30, 1996, 1995, and 1994, respectively. During 1996,
the Company wrote off $3,249 of debt issuance costs (Note 10).
(Continued)
36
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(i) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Equipment
under capital lease is stated at the present value of minimum
lease payments. Depreciation is calculated on the
straight-line method over the estimated useful lives of the
assets as follows:
Buildings 20 years
Furniture, fixtures, and displays 5-10 years
Machinery and equipment 5-10 years
Computer hardware and software 5 years
Automobiles 3 years
Leasehold improvements are amortized over the shorter of the
lease term or estimated useful life of the asset. Assets
acquired under capital lease are amortized over the term of
the lease.
The Company will adopt the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", on December 1, 1996.
Management of the Company does not expect that adoption of
SFAS No. 121 will have a material impact on the Company's
financial position, results of operations or liquidity.
(j) Intangible Assets
Intangible assets consist of patents, trademarks,
non-competition agreements, and the excess cost over fair
value of assets acquired for certain subsidiary companies and
equity investments. Excess cost over fair value of assets
acquired is being amortized over periods not exceeding twenty
years. The costs of other intangible assets are amortized on a
straight-line basis over their respective lives.
Accumulated amortization approximated $1,413 and $1,280 at
November 30, 1996 and 1995, respectively. Amortization of the
excess cost over fair value of assets acquired and other
intangible assets amounted to $133, $127, and $271 for the
years ended November 30, 1996, 1995, and 1994, respectively.
On an ongoing basis, the Company reviews the valuation and
amortization of its intangible assets. As a part of its
ongoing review, the Company estimates the fair value of
intangible assets taking into consideration
(Continued)
37
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
any events and circumstances which may diminish fair
value. The Company will adopt the provisions of SFAS
No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of", on
December 1, 1996.
(k) Equity Investments
The Company has common stock investments in seven companies
which are accounted for by the equity method (Note 8).
(l) Cellular Telephone Commissions
Under various agreements, the Company typically receives an
initial activation commission for obtaining subscribers for
cellular telephone services. Additionally, the agreements
typically contain provisions for commissions based upon usage
and length of continued subscription. The agreements also
typically provide for the reduction or elimination of initial
activation commissions if subscribers deactivate service
within stipulated periods. The Company has provided a
liability for estimated cellular deactivations which is
reflected in the accompanying consolidated financial
statements as a reduction of accounts receivable.
The Company recognizes sales revenue for the initial
activation, length of service commissions, and residual
commissions based upon usage on the accrual basis. Such
commissions approximated $37,930, $43,307, and $51,793 for the
years ended November 30, 1996, 1995, and 1994, respectively.
Related commissions paid to outside selling representatives
for cellular activations are reflected as cost of sales in the
accompanying consolidated statements of income (loss) and
amounted to $20,443, $15,374, and $17,848 for the years ended
November 30, 1996, 1995, and 1994, respectively.
(m) Advertising
The Company expenses the production costs of advertising as
incurred and expenses the costs of communicating advertising
when the service is received. During the years ended November
30, 1996, 1995, and 1994, the Company had no direct response
advertising.
(Continued)
38
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(n) Warranty Expenses
Warranty expenses are accrued at the time of sale based on the
Company's estimated cost to repair expected returns for
products. At November 30, 1996 and 1995, the reserve for
future warranty expense amounted to $2,618 and $2,030,
respectively.
(o) Foreign Currency
Assets and liabilities of those subsidiaries and equity
investments located outside the United States whose cash flows
are primarily in local currencies have been translated at
rates of exchange at the end of the period. Revenues and
expenses have been translated at the weighted average rates of
exchange in effect during the period. Gains and losses
resulting from translation are accumulated in the cumulative
foreign currency translation account in stockholders' equity.
Exchange gains and losses on hedges of foreign net investments
and on intercompany balances of a long-term investment nature
are also recorded in the cumulative foreign currency
translation adjustment account. Other foreign currency
transaction gains and losses are included in net income, none
of which were material for the years ended November 30, 1996,
1995, and 1994.
The Company will, at times, enter into forward exchange
contracts to hedge foreign currency transactions and not to
engage in currency speculation. The Company's forward exchange
contracts do not subject the Company to risk from exchange
rate movements because gains and losses on such contracts
offset losses and gains, respectively, on the assets,
liabilities or transactions being hedged.
During 1994, the Company entered into foreign exchange
contracts denominated in the currency of its major suppliers.
These contracts were purchased to hedge identifiable foreign
currency commitments, principally purchases of inventory that
are not denominated in U.S. dollars. Accordingly, any gain or
loss associated with the contracts was included as a component
of inventory cost. Cash flows resulting from these contracts
are included in the net change in inventory for purposes of
the statements of cash flows.
(Continued)
39
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(p) Income Taxes
Effective December 1, 1993, the Company adopted the provisions
of SFAS No. 109, "Accounting for Income Taxes", (Statement
109) and has reported the cumulative effect of that change in
the method of accounting for income taxes in the 1994
consolidated statement of income (loss). Under the asset and
liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.
(q) Net Income (Loss) Per Common Share
Primary earnings per share are computed based on the weighted
average number of common shares outstanding and common stock
equivalents. For the year ended November 30, 1994, stock
options, stock grants, and stock warrants (Note 13) are common
stock equivalents. The computation of fully diluted earnings
per share for the year ended November 30, 1994 assumes
conversion of all outstanding debentures (Note 10) and
exercise of common stock equivalents, stock options,
performance accelerated grants, and warrants. For purposes of
this computation, net income was adjusted for the after-tax
interest expense applicable to the convertible debentures. The
Company did not compute fully-diluted earnings per share for
the years ended November 30, 1996 and 1995 as the addition of
potentially dilutive securities would result in anti-dilution.
The following weighted average shares were used for the
computation of primary and fully-diluted earnings per share:
For the Years Ended November 30,
1996 1995 1994
Primary 9,398,352 9,038,742 9,105,952
Fully diluted - - 12,769,221
(Continued)
40
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(r) Supplementary Financial Statement Information
Advertising expenses approximated $21,794, $13,538, and
$11,610 for the years ended November 30, 1996, 1995, and 1994,
respectively.
Interest income of approximately $1,097, $1,047, and $540 for
the years ended November 30, 1996, 1995, and 1994,
respectively, is included in other in the accompanying
consolidated statements of income (loss).
Included in accrued expenses and other current liabilities is
$4,405 and $4,601 of accrued wages and commissions at November
30, 1996 and 1995, respectively.
(s) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of the
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
(t) Reclassifications
Certain reclassifications have been made to the 1994
consolidated financial statements in order to conform to the
1996 and 1995 presentation.
(2) Business Acquisitions/Dispositions
On December 1, 1993, the Company acquired all of the assets and
liabilities of H & H Eastern Distributors, Inc. (H&H) for $148 in cash
and a warrant to purchase 50,000 shares of the Company's Class A Common
Stock valued at approximately $69. The Company acquired assets of
approximately $1,854, liabilities of approximately $1,922, and excess
cost over fair value of net assets acquired of $285 which is being
amortized on a straight-line basis over 20 years. Proforma financial
information has not been reflected for this acquisition as the impact
on the results of operations of the Company would not have been
material.
(Continued)
41
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In April 1996, the Company formed Audiovox Holdings
(Malaysia) Sdn. Bhd. (Audiovox Holdings), an 80%-owned
subsidiary of Audiovox Asia, Inc. (Audiovox Asia), which, in
turn, is a wholly-owned subsidiary of the Company. In July
1994, the Company formed Audiovox (Thailand) Co., Ltd., a
100%-owned subsidiary of Audiovox Asia. In December, 1993,
the Company formed Audiovox Singapore Pte. Ltd., a wholly-
owned subsidiary of Audiovox Asia, as well as Audiovox
Communications (Malaysia) Sdn. Bhd.(Audiovox Malaysia),
which is an 80%-owned subsidiary of Audiovox Asia. In 1996,
Audiovox Malaysia formed Vintage Electronics Holdings
(Malaysia) Sdn. Bhd., a wholly-owned subsidiary. The
Company formed these subsidiaries to assist in its planned
expansion of its international business.
In October 1996, the Company contributed the net assets of
its cellular division into a newly-formed, wholly-owned
subsidiary Audiovox Communications Corp. (ACC).
(3) Supplemental Cash Flow Information
The following is supplemental information relating to the consolidated
statements of cash flows:
<TABLE>
For the Years Ended November 30,
1996 1995 1994
Cash paid during the years for:
<S> <C> <C> <C>
Interest $7,666 $9,224 $ 5,291
Income taxes $ 272 $ 818 $15,409
</TABLE>
On February 9, 1996, the Company's 10.8% Series AA and 11.0% Series BB
convertible debentures matured. As of February 9, 1996, $1,100 of the
Series BB convertible debentures converted into 206,046 shares of
Common Stock (Note 10).
On November 25, 1996, the Company completed an exchange of $41,252 of
its $65,000 6 1/4% convertible subordinated debentures into 6,806,580
shares of Common Stock (Note 10).
As of November 30, 1996 and 1995, the Company recorded an unrealized
holding gain relating to available-for-sale marketable equity
securities, net of deferred income taxes, of $10,277 and $31,721,
respectively, as a separate component of stockholders' equity (Note 6).
(Continued)
42
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
During 1996, the Company contributed $97 of property, plant and
equipment in exchange for a 50% ownership interest in a newly-formed
joint venture (Note 8).
During 1995, the Company contributed $36 of property, plant, and
equipment in exchange for a 50% ownership interest in a newly-formed
joint venture (Note 8).
During 1995, the Company entered into lease agreements to acquire new
computer equipment. As a result, a capital lease obligation of $86, was
incurred (Note 7).
During 1994, a reduction of $37 to income taxes payable was made due to
the exercise of stock options.
During 1994, the Company acquired the assets and liabilities of H&H in
exchange for cash and warrants to purchase the Company's common stock
(Note 8).
(4) Transactions With Major Suppliers
The Company engages in transactions with Shintom Co., Ltd. (Shintom), a
stockholder who owns approximately 1.7% and 3.5% at November 30, 1996
and 1995 of the outstanding Class A Common Stock, respectively, and all
of the outstanding Preferred Stock of the Company. During 1994, the
Company formed TALK Corporation (TALK), a 31.6%-owned joint venture in
Japan (Note 8), with Shintom and other companies.
Transactions with Shintom and TALK include financing arrangements and
inventory purchases which approximated 26%, 20%, and 7% for the years
ended November 30, 1996, 1995, and 1994, respectively, of total
inventory purchases. At November 30, 1996 and 1995, the Company had
recorded $3,501 and $25, respectively, of liabilities due to Shintom
and TALK for inventory purchases included in accounts payable. The
Company also has documentary acceptance obligations outstanding from
TALK as of November 30, 1996 (Note 9). At November 30, 1996 and 1995,
the Company had recorded receivables from TALK in the amount of $4,565
and $5,097, respectively, payable with interest (Note 8).
Inventory purchases from a major supplier approximated 28%, 44%, and
45% of total inventory purchases for the years ended November 30, 1996,
1995, and 1994, respectively. Although there are a limited number of
manufacturers of the product, management believes that other suppliers
could provide similar products on comparable terms. A change in
suppliers, however, could cause a delay in product
(Continued)
43
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
availability and a possible loss of sales, which would affect operating
results adversely.
(5) Accounts Receivable
Accounts receivable is comprised of the following:
November 30,
1996 1995
Trade accounts receivable $127,854 $100,556
Receivables from equity investments
(Note 8) 2,626 4,196
-------- --------
130,480 104,752
Less:
Allowance for doubtful accounts 3,115 2,707
Allowance for cellular deactivations 1,666 1,725
Allowance for co-operative
advertising and cash discounts 7,291 3,390
-------- --------
$118,408 $ 96,930
======== ========
The provision for (recovery of) bad debt expense amounted to $429,
$1,816, and ($21) for the years ended November 30, 1996, 1995, and
1994, respectively. See Note 16 for
concentrations of credit risk.
(6) Investment Securities
The Company's investment securities consist primarily of 2,375,000
shares of CellStar Corporation (CellStar) Common Stock, which were
classified as available-for-sale marketable equity securities at
November 30, 1996. The aggregate fair value of available-for-sale
marketable equity securities was $27,758 at November 30, 1996, which is
comprised of a cost basis of $11,181 and a gross unrealized holding
gain of $16,577 recorded as a separate component of stockholders'
equity. A related deferred tax liability of $6,300 was recorded at
November 30, 1996 as a reduction to the unrealized holding gain
included as a separate component of stockholders' equity.
During 1994, the Company granted the majority owner of CellStar (the
Investor) an option (the Option) to purchase 250,000 shares of CellStar
Common Stock which is exercisable through December 3, 1996, in whole
and not in part, at an exercise price of $13.80 per share. Subsequent
to November 30, 1996, the Option expired. As of November 30, 1995, the
Investor has the right to vote up to 1,300,000 shares of CellStar
Common Stock owned by the Company pursuant to a voting rights agreement
entered into during 1994. The number of shares of CellStar Common Stock
the Investor is
(Continued)
44
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
entitled to vote is subject to reduction to the extent the Investor
sells his shares of CellStar Common Stock (with certain exceptions) or
exercises the Option. Subsequent to November 30, 1995, the voting
rights granted to the Investor by the Company expired. During the term
of the Option and the voting rights agreement, the Company cannot
transfer its shares of CellStar Common Stock which are held subject to
those agreements.
On November 29, 1995 and February 9, 1996, the Company entered into
pledge agreements with its financial institutions which provided that a
total of 2,125,000 shares of CellStar Common Stock be secured as
collateral for the bank obligations incurred by the Company (Note 9).
Subsequent to year end, the Company sold 1,360,000 shares of CellStar
Common Stock yielding net proceeds of approximately $30,182 and a gain,
net of taxes, of approximately $14,743.
(7) Property, Plant, and Equipment
A summary of property, plant, and equipment, net, is as follows:
November 30,
1996 1995
Land $ 363 $ 363
Buildings 1,782 1,491
Furniture, fixtures, and displays 3,277 3,581
Machinery and equipment 3,221 2,783
Computer hardware and software 12,658 11,422
Automobiles 954 723
Leasehold improvements 3,454 3,671
-------- -------
25,709 24,034
Less accumulated depreciation
and amortization (18,953) (17,979)
-------- --------
$ 6,756 $ 6,055
======== ========
At November 30, 1995 included in computer hardware and software is $937
pertaining to capital leases. Amortization of such equipment is
included in depreciation and amortization of plant and equipment, and
accumulated amortization was $729 at November 30, 1995. At November 30,
1996, the computer hardware and software pertaining to the capital
lease was fully amortized.
Computer software includes approximately $690 and $383 of unamortized
costs as of November 30, 1996 and 1995, respectively, related to the
acquisition and installation of
(Continued)
45
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
management information systems for internal use which are being
amortized over a five-year period.
Depreciation and amortization of plant and equipment amounted to
$2,044, $2,654, and $2,803 for the years ended November 30, 1996, 1995,
and 1994, respectively, which includes amortization of computer
software costs of $364, $922, and $1,259 for the years ended November
30, 1996, 1995, and 1994, respectively.
(8) Equity Investments
As of November 30, 1996, the Company had a 31.6% ownership interest in
TALK. As of November 30, 1996, the Company's 80% owned subsidiary,
Audiovox Holdings, had a 30% ownership interest in Avx Posse (Malaysia)
Sdn. Bhd. (Posse) which monitors car security commands through a
satellite based system in Malaysia. Additionally, the Company had 50%
non-controlling ownership in five other entities: Protector Corporation
(Protector) which acts as a distributor of chemical protection
treatments; Audiovox Specialty Markets Co., L.P. (ASMC) which acts as a
distributor to specialized markets for RV's and van conversions, of
televisions and other automotive sound, security, and accessory
products; Audiovox Pacific Pty., Limited (Audiovox Pacific) which
distributes cellular telephones and automotive sound and security
products in Australia and New Zealand; G.L.M. Wireless Communications,
Inc. (G.L.M.) which is in the cellular telephone, pager, and
communications business in the New York metropolitan area; and Quintex
Communications West, LLC (Quintex West), which is in the cellular
telephone and related communication products business, as well as the
automotive aftermarket products business on the West Coast of the
United States.
The Company has an agreement for product marketing with Protector.
Under the terms of this agreement, the Company was to receive monthly
payments as well as a fee based on a percentage of the sales of certain
products. In 1996, 1995, and 1994, the Company waived its right to
receive its monthly payments pursuant to the agreement and fees based
on the percentage of the sales of certain products. However, in 1994,
the Company recorded management fees of $1,108 for the Company's
support to Protector through various marketing programs.
In December 1993, CellStar, the successor to National Auto
Center, Inc. (National) and Audiomex Export Corp. (both 50%-
owned equity investments of the Company in 1993), completed
(Continued)
46
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
an initial public offering (the CellStar Offering) of 7,935,000 shares
of CellStar Common Stock. Of the total shares sold, the Company sold
2,875,000 shares of CellStar Common Stock at the initial public
offering price (net of applicable underwriting discount) of $10.695 per
share and received aggregate net proceeds of $29,433 (after giving
effect to expenses paid by the Company in connection with the
offering). As a result, the Company recorded a gain, before provision
for income taxes, of $27,783. In addition, the Company recorded a gain,
before provision for income taxes, of $10,565 on the increase in the
carrying value of its remaining shares of CellStar Common Stock due to
the CellStar Offering in 1994.
Of the proceeds received by CellStar from its initial public offering,
$13,656 was paid to the Company in satisfaction of amounts owed to the
Company by CellStar (as successor to National) under certain promissory
notes which evidenced National's liability to the Company for the
payment of management fees and in satisfaction of past due trade
receivables from National to the Company. As a result of the CellStar
Offering, the Company will no longer receive management fees from
CellStar.
In connection with the CellStar Offering, the Company granted the
Investor an option to purchase up to an aggregate of 1,500,000 shares
of CellStar Common Stock owned by the Company, which was exercised in
full on June 1, 1995, at an exercise price of $11.50 per share. As a
result, the Company recorded a gain, before provision for income taxes,
of approximately $8,400. This reduced the Company's ownership in
CellStar below 20% and, as such, the Company will no longer account for
CellStar under the equity method of accounting. The remaining 2,375,000
CellStar shares owned by the Company are accounted for as an investment
in marketable equity securities (Note 6).
The following table presents financial information relating to CellStar
for the years ended November 30, 1995, and 1994:
1995 1994
--------- --------
Current assets $271,156 $170,285
Non-current assets 43,765 16,069
Current liabilities 196,746 106,617
Non-current liabilities 6,880 3,095
Net sales 811,915 518,422
Gross profit 109,841 69,642
Net income 22,896 16,248
(Continued)
47
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In August 1994, the Company invested 600 million Japanese Yen
(approximately $6,000) into a newly-formed company, TALK, in exchange
for 12,000 shares of TALK, representing a 33% ownership interest. Five
million dollars of this investment was financed by a non-recourse note
with a third party lender, which provides for the repayment of the note
either in cash or by surrendering 10,000 shares in TALK. The Company
accounts for its investment in TALK under the equity method of
accounting. The Company discontinued recording its share of TALK's
losses beyond $1,000, which amount represented the Company's net
investment in TALK. Following discussions with the Securities and
Exchange Commission, the Company determined to change the manner in
which it applied the equity method of accounting for the fiscal year
ended November 30, 1995. As a result, the net loss for 1995 has
increased from $9,256 to $11,883 or from $1.02 to $1.31 primary net
loss per common share. There was no impact of this restatement on the
1996 consolidated statement of income (loss) as the Company's share of
TALK's 1996 losses were not material. The 1996 balance sheet reflects
the aforementioned decrease in the carrying value of the Company's
equity investments and retained earnings.
TALK, which holds world-wide distribution rights for product
manufactured by Shintom, has given the Company exclusive distribution
rights on all wireless personal communication products for all
countries except Japan, China, Thailand, and several mid-eastern
countries. The Company granted Shintom a license agreement permitting
the use of the Audiovox trademark to be used with TALK video cassette
recorders sold in Japan from August 29, 1994 to August 28, 1997, in
exchange for royalty fees. For the years ended November 30, 1996, 1995
and 1994, no such royalty fees were earned by the Company.
On July 31, 1995, the Company purchased a 50% equity investment in a
newly-formed company, G.L.M., for approximately $36 in contributed
assets. The Company also established a $100 loan receivable from G.L.M.
at 1% above prime which was 8.25% at November 30, 1996. In addition,
the Company has guaranteed certain obligations of G.L.M.
(Note 16).
On December 1, 1995, the Company purchased a 50% equity investment in a
newly-formed company, Quintex West, for approximately $97 in
contributed assets. The Company also established a $100 loan receivable
from Quintex West due in March 1997 at 8.5% interest.
(Continued)
48
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
On March 19, 1996, Audiovox Holdings purchased a 30% interest in a
newly-formed company, Posse, for approximately $12.
The Company received the following management fees and related income
from its equity investments:
November 30,
1996 1995 1994
Pacific $ 22 $ 186 $ 435
Protector - - 1,108
G.L.M. 100 14 -
Quintex West 18
Posse 46 - -
------ ------ ------
$ 186 $ 200 $1,543
====== ====== ======
The Company's net sales to the equity investments amounted to $6,483,
$17,864, and $32,630 for the years ended November 30, 1996, 1995, and
1994, respectively. The Company's purchases from the equity investments
amounted to $115,109, $83,858, and $5,715 for the years ended November
30, 1996, 1995, and 1994, respectively. The Company recorded $2,130 of
outside representative commission expenses for activations and
residuals generated by G.L.M. on the Company's behalf during fiscal
year 1996 (Note 1(l)).
Included in accounts receivable at November 30, 1996 and November 30,
1995 are trade receivables due from its equity investments aggregating
$2,576 and $4,182 and management fee receivables of $50 and $14,
respectively. Receivable from vendor is interest bearing and represents
claims on late deliveries, product modifications, and price protection
from TALK as well as prepayments on product shipments. Interest is
payable in monthly installments at rates which range from 6.5% to 8%.
Amounts representing claims of $1,012 are due in April and May 1997,
and amounts representing prepayments of $3,553 were repaid via receipt
of product shipments in December 1997. At November 30, 1996 and 1995,
other long-term assets include equity investment advances outstanding
and management fee receivables of $2,137 and $1,289, respectively. At
November 30, 1996 and 1995, included in accounts payable and other
accrued expenses were obligations to equity investments aggregating
$3,773 and $240, respectively. Documentary acceptance obligations were
outstanding from TALK at November 30, 1996 (Note 9).
During 1996, the Company recorded interest income from TALK relating to
the receivable from vendor, reimbursement of
(Continued)
49
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
interest expense incurred under the subordinated loan (Note 10), and
other short-term loans made to TALK during 1996 at market interest
rates. For the years ended November 30, 1996, 1995, and 1994, interest
income earned on equity investment notes and other receivables
approximated $725, $573, and $25, respectively. Interest expense on
equity investment documentary acceptances approximated $198 in 1996.
(9) Financing Arrangements
(a) Bank Obligations
During 1993, the Company had established a revolving credit
agreement with several financial institutions which was first
amended on March 15, 1994. On May 5, 1995, the Company entered
into the Second Amended and Restated Credit Agreement (the
Credit Agreement) which superseded the first amendment in its
entirety. During 1996, the Credit Agreement was amended six
times providing for various changes to the terms. The terms as
of November 30, 1996 are summarized below.
Under the Credit Agreement, the Company may obtain credit
through direct borrowings and letters of credit. The
obligations of the Company under the Credit Agreement continue
to be guaranteed by certain of the Company's subsidiaries and
is secured by accounts receivable and inventory of the Company
and those subsidiaries. The obligations were secured at
November 30, 1996 by a pledge agreement entered into by the
Company for 2,125,000 shares of CellStar Common Stock (Note 6)
and ten shares of ACC. Subsequent to year end, the shares of
CellStar common stock were released from the Pledge Agreement.
Availability of credit under the Credit Agreement is a maximum
aggregate amount of $85,000, subject to certain conditions,
and is based upon a formula taking into account the amount and
quality of its accounts receivable and inventory. The Credit
Agreement expires on February 28, 1998. As a result, bank
obligations under the Credit Agreement have been classified as
long-term at November 30, 1996.
(Continued)
50
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Outstanding obligations under the Credit Agreement at November
30, 1996 and 1995 were as follows:
November 30,
1996 1995
Bankers' Acceptances - $16,000
Revolving Credit Notes $11,700 3,000
Eurodollar Notes 20,000 30,000
------- -------
$31,700 $49,000
======= =======
For the year ended November 30, 1995 through and including
February 8, 1996, interest on revolving credit notes were .25%
above the prime rate, which was 8.75% at November 30, 1995.
For the same period, interest on Eurodollar Notes were 2%
above the Libor rate which was approximately 5.1% at November
30, 1995 and interest on bankers' acceptances were 2% above
the bankers' acceptance rate which was approximately 6.25% at
November 30, 1995. Pursuant to an amendment on February 9,
1996, the interest rates were increased to the following:
revolving credit notes at .50% above the prime rate, which was
approximately 8.25% at November 30, 1996 and Eurodollar Notes
at 2.75% above the Libor rate which was approximately 5.5% at
November 30, 1996. Interest on bankers' acceptances remained
at 2% above the bankers' acceptance rate which was
approximately 5.75% at November 30, 1996.
The Credit Agreement contains several covenants requiring,
among other things, minimum levels of pre-tax income and
minimum levels of net worth and working capital. Additionally,
the agreement includes restrictions and limitations on
payments of dividends, stock repurchases, and capital
expenditures. At November 30, 1996, the Company was not in
compliance with several financial covenants which were waived.
As of the date of the issuance of the financial statements,
the Company's creditors waived their right to call the bank
obligations.
The Company also has a revolving credit facility with a local
Malaysian bank (Malaysian Credit Agreement) to finance
additional working capital needs. As of November 30, 1996 and
1995, the available line of credit for direct borrowing,
letters of credit, bankers' acceptances and other forms of
credit approximated $9,320 and $2,200, respectively. The
credit facility is partially secured by two standby
(Continued)
51
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
letters of credit totaling $5,320, issued under the Credit
Agreement by the Company and is payable upon demand or upon
expiration of the standby letters of credit on August 31,
1997. The obligations of the Company under the Malaysian
Credit Agreement are secured by the property and building
owned by Audiovox Malaysia. Outstanding obligations under the
Malaysian Credit Agreement at November 30, 1996 and 1995 were
approximately $4,024 and $761, respectively. Interest on the
credit facility ranges between 1.0% and 1.5% above the
Malaysian base lending rate which was 9.2% and 8.7% at
November 30, 1996 and 1995, respectively.
The maximum month-end amounts outstanding under the Credit
Agreement and the Malaysian Credit Agreement borrowing
facilities during the years ended November 30, 1996, 1995, and
1994 were $44,213, $59,315, and $30,184, respectively. Average
borrowings during the years ended November 30, 1996, 1995, and
1994 were $33,662, $43,470, and $16,929, respectively, and the
weighted average interest rates were 8.9%, 8.7%, and 7.9%,
respectively.
(b) Documentary Acceptances
During 1996, the Company had various unsecured documentary
acceptance lines of credit available with suppliers to finance
inventory purchases. The Company does not have written
agreements specifying the terms and amounts available under
the lines of credit. At November 30, 1996, $3,501 of
documentary acceptances were outstanding of which all was due
to TALK.
The maximum month-end documentary acceptances outstanding
during the years ended November 30, 1996, 1995, and 1994 were
$9,792, $9,977, and $9,078, respectively. Average borrowings
during the years ended November 30, 1996, 1995, and 1994 were
$5,845, $5,876, and $3,787, respectively, and the weighted
average interest rates, including fees, were 5.1%, 4.4%, and
11.0%, respectively.
(Continued)
52
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) Long-Term Debt
A summary of long-term debt follows:
November 30,
1996 1995
Convertible subordinated debentures:
6 1/4%, due 2001, convertible at
$17.70 per share $23,748 $ 65,000
Convertible debentures:
Series AA, 10.8%, due 1996,
convertible at $5.34 per share - 77
Series BB, 11.0%, due 1996,
convertible at $5.34 per share - 5,385
Subordinated note payable 4,417 4,938
Secured term loan - 664
Capital lease obligations - 158
------- -------
28,165 76,222
Less current installments - 5,688
------- -------
$28,165 $70,534
======= =======
On March 15, 1994, the Company completed the sale of $65,000, 6 1/4%
convertible subordinated debentures (Subordinated Debentures) due 2001
and entered into an Indenture Agreement. The Subordinated Debentures
are convertible into shares of the Company's Class A Common Stock, par
value $.01 per share at an initial conversion price of $17.70 per
share, subject to adjustment under certain circumstances. The Indenture
Agreement contains various covenants. The bonds are subject to
redemption by the Company in whole, or in part, at any time after March
15, 1997, at certain specified amounts. On May 9, 1995, the Company
issued warrants to certain beneficial holders of these Subordinated
Debentures (Note 13(d)).
On November 25, 1996, the Company completed an exchange of $41,252 of
its $65,000 Subordinated Debentures for 6,806,580 shares of Class A
Common Stock (Exchange). As a result of the Exchange, a charge of
$26,318 was recorded. The charge to earnings represents (i) the
difference in the fair market value of the shares issued in the
Exchange and the fair market value of the shares that would have been
issued under the terms of the original conversion feature plus (ii) a
write-off of the debt issuance costs associated with the Subordinated
Debentures (Note 1(h)) plus (iii) expenses associated with the Exchange
offer. The Exchange resulted in taxable income due to the difference in
the face value of the bonds converted and the fair market value of the
shares issued and, as such, a current tax expense of $2,888 was
(Continued)
53
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
recorded. An increase to paid in capital was reflected for the face
value of the bonds converted, plus the difference in the fair market
value of the shares issued in the Exchange and the fair market value of
the shares that would have been issued under the terms of the original
conversion feature for a total of $63,564.
During January 1997, the Company completed additional exchanges of
$21,479 of it $65,000 Subordinated Debentures for 2,860,925 shares of
Class A Common Stock (Additional Exchanges). As a result of the
Additional Exchanges, similar to that of the Exchange described
earlier, a charge of $10,035, tax expense of $1,725 and an increase to
paid in capital of $31,335, will be reflected in the first quarter of
the Company's 1997 fiscal year. As a result of the Exchange and
Additional Exchanges, the remaining Subordinated Debentures are $2,269.
On March 8, 1994, the Company entered into a Debenture Exchange
Agreement and exchanged certain debentures for Series AA and Series BB
Convertible Debentures (Debentures). The Debentures were convertible at
any time at $5.34 per share, which is subject to adjustment in certain
circumstances, and were secured by a standby letter of credit (Note
16(a)). Although the Debenture Exchange Agreement provides for optional
prepayments under certain circumstances, such prepayments are
restricted by the Credit Agreement (Note 9). On February 9, 1996, the
holders of $1,100 of the Series BB Convertible Debentures exercised
their right to convert into 206,046 shares of Class A Common Stock. The
remaining balance of the Debentures were repaid during 1996; thereby
extinguishing the remaining conversion features of these Debentures.
On October 20, 1994, the Company issued a note payable for 500,000
Japanese Yen (approximately $4,417 and $4,938 on November 30, 1996 and
1995, respectively) to finance its investment in TALK (Note 8). The
note is scheduled to be repaid on October 20, 2004 and bears interest
at 4.1%. The note can be repaid by cash payment or by giving 10,000
shares of its TALK investment to the lender. The lender has an option
to acquire 2,000 shares of TALK held by the Company in exchange for
releasing the Company from 20% of the face value of the note at any
time after October 20, 1995. This note and the investment in TALK are
both denominated in Japanese Yen, and, as such, the foreign currency
translation adjustments are accounted for as a hedge. Any foreign
currency translation adjustment resulting from the note will be
recorded in stockholders'
(Continued)
54
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
equity to the extent that the adjustment is less than or equal to the
adjustment from the translation of the investment in TALK. Any portion
of the adjustment from the translation of the note that exceeds the
adjustment from the translation of the investment in TALK is a
transaction gain or loss that will be included in earnings.
During 1995, Audiovox Malaysia entered into a Secured Term Loan for
1,700 Malaysian Ringgits (approximately $675) to acquire a building.
The loan was secured by the property acquired and bears interest at
1.5% above the Malaysian base lending rate which was 9.2% on November
30, 1996. The loan was payable in 120 monthly equal installments
commencing October 1995, however, was fully repaid in November 1996.
Maturities on long-term debt for the next five fiscal years are as
follows:
1997 $ -
1998 -
1999 -
2000 -
2001 23,748
======
(11) Income Taxes
As discussed in Note 1(p), the Company adopted Statement 109 as of
December 1, 1993. The cumulative effect of this change in accounting
for income taxes of $178, or $.02 per share, is determined as of
December 1, 1993 and is reported separately as a reduction to the
consolidated statement of income (loss) for the year ended November 30,
1994.
The components of income (loss) before the provision for (recovery of)
income taxes and cumulative effect are as follows:
November 30,
1996 1995 1994
--------- --------- --------
Domestic Operations $(21,899) $(12,424) $47,032
Foreign Operations 1,264 (2,262) (498)
--------- --------- --------
$(20,635) $(14,686) $46,534
========= ========= =======
(Continued)
55
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Total income tax expense (recovery) was allocated as follows:
November 30,
1996 1995
Income (loss) from continuing
operations $ 5,834 $(2,803)
Stockholders' equity
Unrealized holding gain on
investment securities
recognized for financial
reporting purposes (13,143) 19,441
--------- -------
Total income tax expense
(recovery) $ (7,309) $16,638
========= =======
The provision for (recovery of) income taxes attributable to income
from continuing operations is comprised of:
Federal Foreign State Total
-------- ------- ------- -------
1994:
Current $12,042 $ 68 $2,078 $14,188
Deferred 5,365 - 775 6,140
-------- ------ ------- -------
$17,407 $ 68 $2,853 $20,328
======== ====== ======= =======
1995:
Current $ 1,455 $ 570 $ 330 $ 2,355
Deferred (4,189) - (969) (5,158)
-------- ------ ------- --------
$(2,734) $ 570 $ (639) $(2,803)
======== ====== ======= ========
1996:
Current $ 3,711 $ 802 $ 853 $ 5,366
Deferred 330 - 138 468
-------- ------ ------- -------
$ 4,041 $ 802 $ 991 $ 5,834
======== ====== ======= =======
(Continued)
56
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
A reconciliation of the provision for (recovery of) income taxes
attributable to income (loss) from continuing operations computed at
the Federal statutory rate to the reported provision for income taxes
attributable to income (loss) from continuing operations is as follows:
<TABLE>
November 30,
1996 1995 1994
-------------------- --------------------- -----------------
Tax provision (recovery) at
<S> <C> <C> <C> <C> <C> <C>
Federal statutory rates $(7,222) (35.0)% $(5,140) (35.0)% $16,287 35.0%
Expense relating to exchange
of subordinated debentures 11,421 55.3 - - - -
Undistributed earnings (loss)
from equity investments 128 0.6 1,330 9.1 1,558 3.4
State income taxes, net of
Federal benefit 275 1.3 (415) (2.8) 1,854 4.0
Increase in beginning-of-the-
year balance of the valuation
allowance for deferred tax
assets 1,270 6.2 644 4.3 306 0.7
Foreign tax rate differential 30 0.1 (34) (0.2) (7) (0.1)
Expense relating to the
issuance of warrants - - 1,022 6.9 - -
Other, net (68) (0.2) (210) (1.4) 330 0.7
-------- ------- -------- ------- -------- ----
$ 5,834 28.3 % $(2,803) (19.1)% $20,328 43.7%
======== ======= ======== ======= ======== =====
</TABLE>
The significant components of deferred income tax expense (recovery)
for the years ended November 30, 1996 and 1995 are as follows:
November 30,
1996 1995
Deferred tax expense (recovery)
(exclusive of the effect of other
components listed below) $ (802) $(5,802)
Increase in beginning-of-the-year
balance of the valuation
allowance for deferred tax assets 1,270 644
------- -------
$ 468 $(5,158)
======= ========
(Continued)
57
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred liabilities are
presented below:
<TABLE>
November 30,
1996 1995
Deferred tax assets:
Accounts receivable, principally due
to allowance for doubtful accounts
<S> <C> <C>
and cellular deactivations $ 1,593 $ 1,601
Inventory, principally due to
additional costs capitalized for
tax purposes pursuant to the Tax
Reform Act of 1986 306 455
Inventory, principally due to
valuation reserve 930 1,373
Accrual for future warranty costs 978 790
Plant, equipment, and certain
intangibles, principally due to
depreciation and amortization 714 588
Net operating loss carryforwards,
state and foreign 2,458 1,689
Accrued liabilities not currently
deductible 491 359
Other 664 477
--------- --------
Total gross deferred tax assets 8,134 7,332
Less: valuation allowance (2,893) (1,623)
--------- ---------
Net deferred tax assets 5,241 5,709
--------- --------
Deferred tax liabilities:
Equity investments, principally due
to undistributed earnings (10,548) (23,690)
--------- ---------
Total gross deferred tax
liabilities (10,548) (23,690)
--------- ---------
Net deferred tax liability $ (5,307) $(17,981)
========= =========
</TABLE>
The net change in the total valuation allowance for the year ended
November 30, 1996 was an increase of $1,270. A valuation allowance is
provided when it is more likely than not that some portion, or all, of
the deferred tax assets will not be realized. The Company has
established valuation allowances primarily for net operating loss
carryforwards in certain states and foreign countries as well as other
deferred tax assets in foreign countries. Based on the Company's
ability to carry back future reversals of deferred tax assets to taxes
paid in current and prior years and the Company's historical taxable
income record, adjusted for extraordinary items, management believes it
is likely that
(Continued)
58
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
the Company will realize the benefit of the net deferred tax assets
existing at November 30, 1996. Further, management believes the
existing net deductible temporary differences will reverse during
periods in which the Company generates net taxable income. There can be
no assurance, however, that the Company will generate any earnings or
any specific level of continuing earnings in the future. The amount of
the deferred tax asset considered realizable, however, could be reduced
in the near term if estimates of future taxable income during the
carryforward period are reduced.
At November 30, 1996, the Company had net operating loss carryforwards
for state and foreign income tax purposes of approximately $19,108,
which are available to offset future state and foreign taxable income,
if any, which will expire through the year ended November 30, 2010.
The Company has not recognized a deferred tax liability of
approximately $140 and $268 at November 30, 1996 and 1995,
respectively, for the undistributed earnings of a foreign corporate
joint venture that arose in 1995 and prior years because the Company
currently does not expect those unremitted earnings to reverse and
become taxable to the Company in the foreseeable future. A deferred tax
liability will be recognized when the Company expects that it will
recover those undistributed earnings in a taxable manner, such as
through receipt of dividends or sale of the investments.
(Continued)
59
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) Capital Structure
The Company's capital structure is as follows:
<TABLE>
Voting
Rights
Par Shares Issued Per Liquidation
Security Value Shares Authorized and Outstanding Share Rights
November 30, November 30,
1996 1995 1996 1995
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Class A $ 0.01 30,000,000 30,000,000 14,040,414 6,777,788 One Ratably with
Common Class B
Stock
Class B 0.01 10,000,000 10,000,000 2,260,954 2,260,954 Ten Ratably with
Common Class A
Stock
Preferred
Stock 50.00 50,000 50,000 50,000 50,000 - $50 per share
Series
Preferred
Stock 0.01 1,500,000 1,500,000 - - - -
====== ========== ========== ========= ========= === ==========
</TABLE>
The holders of Class A and Class B Common Stock are entitled to receive
cash or property dividends declared by the Board of Directors. The
Board can declare cash dividends for Class A Common Stock in amounts
equal to or greater than the cash dividends for Class B Common Stock.
Dividends other than cash must be declared equally for both classes.
Each share of Class B Common Stock may, at any time, be converted into
one share of Class A Common Stock.
The 50,000 shares of non-cumulative Preferred Stock outstanding are
owned by Shintom and have preference over both classes of common stock
in the event of liquidation or dissolution.
As of November 30, 1996 and 1995, 969,500 shares of the Company's Class
A Common Stock are reserved for issuance under the Company's Stock
Option and Restricted Stock Plans and 5,491,192 and 4,845,345 for all
convertible securities and warrants outstanding at November 30, 1996
and 1995, respectively, (Notes 10 and 13).
Undistributed earnings from equity investments included in retained
earnings amounted to $3,728 and $3,431 at November 30, 1996 and 1995,
respectively.
(Continued)
60
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) Common Stock and Compensation Plans
(a) Stock Option Plans
In April 1987, the Board of Directors approved the adoption of
the 1987 Stock Option Plan for the granting of options to
directors and key employees of the Company. Under the 1987
Stock Option Plan, the options can be either incentive or
non-qualified.
In April 1987, non-qualified options to purchase 200,000
shares of Class A Common Stock were granted at $11 per share
which represents the estimated fair market value at the date
of grant. Such options became exercisable in full in October
1988 and expire in April 1997.
In May 1993, the stockholders approved the 1993 Stock Option
Plan which authorizes the granting of incentive stock options
to key employees and non-qualified stock options to employees
and/or directors of the Company. The incentive stock options
may be granted at a price not less than the market value of
the Company's common stock on the date of grant and must be
exercisable no later than ten years after the date of grant.
The exercise price of non-qualified stock options may not be
less than 50% of the market value of the Company's Class A
Common Stock on the date of grant.
In December 1993, non-qualified options to purchase 113,500
shares of Class A Common Stock were granted at $13 per share
which was less than the market value of $17 per share on the
date of grant. Such options became exercisable in full in
December 1996 and expire in December 2003.
In November 1994, non-qualified options to purchase 75,000
shares of Class A Common Stock were granted at $11 per share,
which exceeded fair market value at the date of grant, to a
director and officer of the Company. Such options became
exercisable in full on May 22, 1996 and expire on November 22,
2004.
In May 1994, the stockholders approved the 1994 Stock Option
Plan which authorizes the granting of incentive stock options
to key employees and non-qualified stock options to employees
and/or directors of the Company. The incentive stock options
may be granted at a price not less than 110% of the market
value of the Company's
(Continued)
61
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
common stock on the date of grant and must be exercisable no
later than ten years after the date of grant. The exercise
price of non-qualified stock options may not be less than 50%
of market value of the Company's Class A Common Stock on the
date of grant.
In August 1995, non-qualified options to purchase 279,000
shares of Class A Common Stock were granted under the 1994
Stock Option Plan at an exercise price of $5.88 per share,
which represents the estimated fair market value of the shares
at the date of grant. No options can be exercised until
February 9, 1997 or August 9, 1998, as the case may be, after
which they can be exercised in whole or in part, until
expiration on August 9, 2005.
Compensation expense is recorded with respect to the options
based upon the quoted market value of the shares and the
exercise provisions at the date of grant. Compensation expense
for the years ended November 30, 1996 and 1995 was $97 and
$113, respectively.
The Company will adopt the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", on December
1, 1996.
(Continued)
62
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Information regarding the Company's stock option plans is
summarized below:
<TABLE>
1994 1993 1987
Stock Stock Stock
Option Option Option
Plan Plan Plan
-------- -------- -------
Shares under option:
Outstanding at
<S> <C> <C> <C>
December 1, 1992 - - 157,500
Granted - - -
Exercised - - (16,000)
Canceled - - -
-------- -------- -------
Outstanding at
November 30, 1993 - - 141,500
Granted - 188,500 -
Exercised - - (15,500)
Canceled - (500) (1,000)
-------- -------- --------
Outstanding at
November 30, 1994 - 188,000 125,000
Granted 279,000 - -
Exercised - - -
Canceled - (12,750) (21,000)
-------- -------- --------
Outstanding at
November 30, 1995 279,000 175,250 104,000
Granted - - -
Exercised - - -
Canceled (3,500) (5,000) (1,000)
-------- -------- --------
Outstanding at
November 30, 1996 275,500 170,250 103,000
======== ======== =======
Options exercisable,
November 30, 1996 - 89,750 103,000
======== ======== =======
</TABLE>
(b) Restricted Stock Plan
In April 1987, the Board of Directors approved the adoption of
the 1987 Restricted Stock Plan for the granting of restricted
stock awards to directors and key employees of the Company. In
May 1993, the stockholders approved an amendment to the 1987
Restricted Stock Plan which provides that restrictions on
stock awarded pursuant to the Plan will lapse at the
discretion of the Compensation Committee of the Company. In
addition, the Plan's original expiration date of April 27,
1997 was extended through April 27, 2007.
(Continued)
63
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In December 1993, 38,300 shares of Class A Common Stock were
awarded under the 1987 Restricted Stock Plan, one half of such
shares to be performance accelerated restricted stock and one
half of such shares to be performance restricted stock. The
performance accelerated shares will vest in five years or
earlier depending upon whether the Company meets certain
earnings per share goals. The performance restricted shares
will only vest in five years to the extent the Company
achieves certain earnings per share goals. To the extent the
earnings per share goals have not been achieved during the
five years after the date of grant, the award will lapse.
In November 1994, 25,000 shares of Class A Common Stock were
awarded under the 1987 Restricted Stock Plan to a director and
officer of the Company. One half of such shares are to be
performance accelerated restricted stock and one half of such
shares are to be performance restricted stock. The terms of
the grant are identical to the December 1993 grant as
previously discussed.
In August 1995, 21,000 shares of Class A Common Stock were
awarded under the 1987 Restricted Stock Plan, one half of such
shares to be performance accelerated restricted stock and one
half of such shares to be performance restricted stock. The
terms of the grant are identical to the December 1993 grant as
previously discussed.
In May 1994, the Board of Directors approved the adoption of
the 1994 Restricted Stock Plan for the granting of restricted
stock awards to directors and key employees of the Company. No
awards were granted under this plan as of November 30, 1996.
Subsequent to year end, non-qualified options to purchase
348,000 shares of Class A Common Stock were granted at $5.50
per share, which represents the estimated fair market value at
the date of grant, to certain directors and officers of the
Company. The options become exercisable in full on July 3,
1998 and expire on January 3, 2007 or earlier under certain
circumstances.
Compensation expense is recorded with respect to the grants
based upon the quoted market value of the shares on the date
of grant for the performance accelerated
(Continued)
64
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
shares and on the balance sheet date for the performance
restricted shares. Total restricted stock outstanding at
November 30, 1996 and 1995 was 79,500 and 80,800,
respectively. Compensation expense for these grants for the
years ended November 30, 1996 and 1995 were $200 and $127,
respectively.
(c) Employee Stock Purchase Plan
In May 1993, the stockholders approved the 1993 Employee Stock
Purchase Plan. The stock purchase plan provides eligible
employees an opportunity to purchase shares of the Company's
Class A Common Stock through payroll deductions up to 15% of
base salary compensation. Amounts withheld are used to
purchase Class A Common Stock on or about the last business
day of each month at a price equal to 85% of the fair market
value. The total number of shares available for purchase under
this plan is 1,000,000.
(d) Stock Warrants
During the third quarter of fiscal 1993, pursuant to a
consulting agreement effective April 1993, the Company granted
warrants to purchase 100,000 shares of Class A Common Stock,
which have been reserved, at $7.50 per share. The warrants,
which are exercisable in whole or in part at the discretion of
the holder, expire on December 31, 1998. There were no
warrants exercised as of November 30, 1996. The consulting
agreement, valued at $100, was expensed in 1994 when the
services to be provided pursuant to the consulting agreement
were completed.
In December 1993, the Company granted warrants to purchase
50,000 shares of Class A Common Stock at a purchase price of
$14.375 per share as part of the acquisition of H&H (Note 2).
The per share purchase price and number of shares purchasable
are each subject to adjustment upon the occurrence of certain
events described in the warrant agreement. The warrants are
exercisable, in whole or in part, from time-to-time, until
September 22, 2003. If the warrants are exercised in whole,
the holder thereof has the right to require the Company to
file with the Securities Exchange Commission a registration
statement relating to the sale by the holder of the Class A
Common Stock purchasable pursuant to the warrant.
(Continued)
65
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
On May 9, 1995, the Company issued 1,668,875 warrants in a
private placement, each convertible into one share of Class A
Common Stock at $7 1/8, subject to adjustment under certain
circumstances. The warrants were issued to the beneficial
holders as of June 3, 1994, of approximately $57,600 of the
Company's Subordinated Debentures in exchange for a release of
any claims such holders may have against the Company, its
agents, directors and employees in connection with their
investment in the Subordinated Debentures. As a result, the
Company incurred a warrant expense of $2,900 and recorded a
corresponding increase to paid in capital. The warrants are
not exercisable after March 15, 2001, unless sooner terminated
under certain circumstances. Subsequent to November 30, 1995,
the Company has filed a registration statement for the
warrants and the underlying common stock pursuant to a
registration rights agreement dated as of May 9, 1995, between
the Company and the holders of the warrants. John J. Shalam,
Chief Executive Officer of the Company, has granted the
Company an option to purchase 1,668,875 shares of Class A
Common Stock from his personal holdings. The exercise price of
this option is $7 1/8, plus the tax impact, if any, should the
exercise of this option be treated as dividend income rather
than capital gains to Mr. Shalam.
(e) Profit Sharing Plans
The Company has established two non-contributory employee
profit sharing plans for the benefit of its eligible employees
in the United States and Canada. The plans are administered by
trustees appointed by the Company. In fiscal 1996 and 1994,
contributions of $150 and $225, respectively, were made by the
Company to the United States plan. No contributions were made
to the plan for fiscal year 1995. Contributions required by
law to be made for eligible employees in Canada were not
material.
(14) Export Sales
Export sales of approximately $87,334 for the year ended November 30,
1996 exceeded 10% of sales. Export sales for the years ended November
30, 1995 and 1994 did not exceed 10% of sales.
(Continued)
66
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) Lease Obligations
At November 30, 1996, the Company was obligated under non-cancelable
leases for equipment and warehouse facilities for minimum annual rental
payments as follows:
Operating
Leases
1997 $1,673
1998 977
1999 511
2000 287
2001 and thereafter 123
------
Total $3,571
======
Rental expense for the above-mentioned operating lease agreements and
other leases on a month-to-month basis approximated $2,292, $4,080 and
$3,107 for the years ended November 30, 1996, 1995 and 1994,
respectively.
The Company leases certain facilities from its principal stockholder
and several officers. Rentals for such leases are considered by
management of the Company to approximate prevailing market rates. At
November 30, 1996, minimum annual rental payments on these related
party leases, which are included in the above table, are as follows:
1997 $162
1998 162
1999 23
(16) Financial Instruments
(a) Off-Balance Sheet Risk
Commercial letters of credit are issued by the Company during
the ordinary course of business through major domestic banks
as requested by certain suppliers. The Company also issues
standby letters of credit principally to secure certain bank
obligations of Audiovox Malaysia (Note 9) and its Debentures
(Note 10). The Company had open commercial letters of credit
of approximately $23,785 and $22,000, of which $17,400 and
$10,800 were accrued for as of November 30, 1996 and 1995,
respectively. The terms of these letters of credit are all
less than one year. No material loss is anticipated due to
nonperformance by the counterparties
(Continued)
67
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
to these agreements. The fair value of these open commercial
and standby letters of credit is estimated to be the same as
the contract values based on the nature of the fee
arrangements with the issuing banks.
The Company is a party to a joint and several guarantee on
behalf of G.L.M. up to the amount of $200. There is no market
for this guarantee and it was issued without explicit cost.
Therefore, it is not practicable to establish its fair value.
At November 30, 1996, the Company has a $5,451 forward
exchange contract outstanding relating to foreign currency
denominated accounts receivable. The forward exchange contract
requires the Company to exchange Spanish Pesetas for U.S.
Dollars at maturity, at rates agreed to at the inception of
the contract. If the counterpart to the forward exchange
contract does not fulfill their obligations to deliver the
contracted currencies, the Company could be at risk for any
currency related fluctuations. There were no open foreign
exchange contracts at November 30, 1995.
(b) Concentrations of Credit Risk
Financial instruments, which potentially subject the Company
to concentrations of credit risk, consist principally of trade
receivables. The Company's customers are located principally
in the United States and Canada and consist of, among others,
cellular carriers and service providers, distributors, agents,
mass merchandisers, warehouse clubs and independent retailers.
At November 30, 1996, two customers, a Bell Operating Company
and a cellular carrier and service provider, accounted for
approximately 10% and 11%, respectively, of accounts
receivable. At November 30, 1995, three customers, which
included two cellular carriers and service providers and a
Bell Operating Company accounted for approximately 6%, 7% and
5%, respectively, of accounts receivable.
During the year ended November 30, 1996, two customers, a Bell
Operating Company and a cellular carrier and service provider,
accounted for approximately 12% and 9%, respectively, of the
Company's sales. During the year ended November 30, 1995, two
Bell Operating
(Continued)
68
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Companies and a cellular carrier and service provider
accounted for approximately 6%, 7% and 7%, respectively, of
the Company's 1995 sales. A Bell Operating Company accounted
for approximately 7% of the Company's 1994 sales.
The Company generally grants credit based upon analyses of its
customers' financial position and previously established
buying and payment patterns. The Company establishes
collateral rights in accounts receivable and inventory and
obtains personal guarantees from certain customers based upon
management's credit evaluation. At November 30, 1996 and 1995,
44 and 36 customers, respectively, representing approximately
70% and 63%, of outstanding accounts receivable, had balances
owed greater than $500.
A significant portion of the Company's customer base may be
susceptible to downturns in the retail economy, particularly
in the consumer electronics industry. Additionally, customers
specializing in certain automotive sound, security and
accessory products may be impacted by fluctuations in
automotive sales. A relatively small number of the Company's
significant customers are deemed to be highly leveraged.
(c) Fair Value
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for
which it is practicable to estimate that value. The carrying
value of all financial instruments classified as a current
asset or liability is deemed to approximate fair value, with
the exception of current installments of long-term debt,
because of the short maturity of these instruments.
Investment Securities
The carrying amount represents fair value, which is based upon
quoted market prices at the reporting date (Note 6).
Long-Term Debt Including Current Installments
The carrying amount of bank debt under the Company's revolving
Credit Agreement and Malaysian Credit Agreement approximates
fair value because of the short
(Continued)
69
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
maturity of the related obligations. With respect to the
Subordinated Debentures, fair values are based on published
statistical data. The Debentures were valued at the closing
market price of the Company's Class A Common Stock for the
number of shares convertible at November 30, 1996 and 1995.
Management believes that the carrying value of the secured
term loan approximates fair value because it bears interest at
rates currently offered to the Company for similar debt
instruments of comparable maturities by the Company's bankers.
Other long-term borrowings are valued by the present value of
future cash flows at current market interest rates.
Forward Exchange Contract
The fair value of the forward exchange contract is based upon
exchange rates at November 30, 1996 as the contract is short
term.
The estimated fair value of the Company's financial
instruments are as follows:
<TABLE>
November 30, 1996 November 30, 1995
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Long-term
obligations
including
current
<S> <C> <C> <C> <C>
installments $ 59,865 $56,046 $125,221 $103,699
Forward exchange
contract
obligation - 5,316 - -
</TABLE>
Limitations
Fair value estimates are made at a specific point in time,
based on relevant market information and information about the
financial instrument. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment
and, therefore, cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
(Continued)
70
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(17) Contingencies
In 1993, the Company, along with other suppliers and manufacturers of
cellular telephones, were named as defendants in a class action suit
alleging negligence and breach of contract arising from the sale of
portable hand-held cellular telephones. An order dismissing the Company
as a defendant was granted in 1993 and is currently being appealed. The
impact of the final resolution of this matter on the Company's results
of operations or liquidity in a particular reporting period is not
known. Management is of the opinion, however, that there are
meritorious defenses to the claims made in this case and that the
ultimate outcome of this matter will not have a material adverse effect
on the Company's consolidated financial position.
In 1996, Toshiba America Consumer Products, Inc. (Toshiba) and the
Company have been named as a defendant in a complaint seeking in excess
of $16,000. The complaint contains several allegations, including
anti-trust violations and tortious interference arising out of the
termination of alleged distributorship arrangements with Toshiba. The
Company was granted a motion to dismiss the complaint on August 12,
1996 subsequent to which the plaintiff has filed an appeal. The impact
of the final resolution of this matter on the Company's results of
operations or liquidity in a particular reporting period is not known.
Management is of the opinion, however, that there are meritorious
defenses to the claims made in this complaint and that the ultimate
outcome of this matter will not have a material adverse effect on the
Company's consolidated financial position.
The Company is also a defendant in litigation arising from the normal
conduct of its affairs. The impact of the final resolution of these
matters on the Company's results of operations or liquidity in a
particular reporting period is not known. Management is of the opinion,
however, that the litigation in which the Company is a defendant is
either subject to product liability insurance coverage or, to the
extent not covered by such insurance, will not have a material adverse
effect on the Company's consolidated financial position.
71
<PAGE>
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10 - Directors and Executive Officers of the Registrant
Information regarding this item is set forth under the captions "Election of
Directors" of the Company's Proxy Statement to be dated March 27, 1997, which
will be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934 (the Proxy State ment) and is incorporated herein by reference. Information
with regard to Executive Officers is set forth in Item 1 of this Form 10-K.
Item 11 - Executive Compensation
The information regarding this item is set forth under the caption "Executive
Compensation" of the Proxy Statement and is incorporated herein by reference.
72
<PAGE>
Item 12 - Security Ownership of Certain Beneficial Owners and
Management
The information regarding this item is set forth under the caption
"Beneficial Ownership of Common Stock" of the Proxy State ment and is
incorporated herein by reference. The following is a table of "Beneficial
Ownership of Common Stock and Voting Power". The Company knows of no
arrangements which may result at a subsequent date in a change of control of the
Company.
<TABLE>
BENEFICIAL OWNERSHIP OF COMMON STOCK AND VOTING POWER
Sole
Title of Voting Combined
Class or Percent Voting or Percent
Name and of Common Investment of Investment of
Address(1) Stock (2) Power Class Power (5) Class
- ---------- --------- ---------- ------- ---------- ------
John J. Shalam
<S> <S> <C> <C> <C> <C>
150 Marcus Blvd. Class A 5,634,939(3) 30.0% 24,466,919 61.2%
Hauppauge, NY Class B 1,883,198 83.3%
Philip Christopher
150 Marcus Blvd. Class A 340,154(4) 2.0% 2,949,694 7.4%
Hauppauge, NY Class B 260,954 11.5%
All directors and
officers as a
group Class A 5,977,093 31.4% 27,418,613 68.8%
(10 persons) Class B 2,144,152 94.8%
</TABLE>
(1) Cede & Co., nominee of Depository Trust Co., 55 Water Street, New York,
New York 10041, was the owner of 13,091,084 shares of Class A and it is
believed that none of such shares was beneficially owned.
(2) Includes as beneficially owned for each person listed those shares of
Class A Common Stock into which Class B Common Stock beneficially owned
by such person may be converted upon the exercise of the conversion
right of the Class B Common Stock.
(3) The amount shown excludes 2,202 and 116,802 shares of Class A and Class
B Common Stock, respectively, held in three irrevocable trusts for the
benefit of Marc, David and Ari, the children of John J. Shalam, with
respect to which shares Mr. Shalam disclaims any beneficial ownership.
(4) Includes for Mr. Christopher, 75,000 shares issuable with respect to
options exercisable within 60 days under the Company's Stock Option
Plans.
(5) Holders of Class A Common Stock, voting separately as a class, are
entitled to elect 25% of the board of directors (provided that the
number of outstanding shares of Class A Common Stock is at least 10% of
the total number of outstanding in both classes of common stock);
holders of Class B Common Stock, voting separately as a class, are
entitled to elect the directors not elected by the holders of Class A
Common Stock.
Item 13 - Certain Relationships and Related Transactions
Information regarding this item is set forth under the caption
"Beneficial Ownership of Common Stock", "Election of Directors" and "Executive
Compensation" of the Proxy Statement.
73
<PAGE>
PART IV
Item 14 - Exhibits, Consolidated Financial Statement Schedules,
and Reports on Form 8-K
(a) (1)
The following financial statements are included in Item 8 of this Report:
Independent Auditors' Report
Consolidated Balance Sheets of Audiovox Corporation and Subsidiaries as of
November 30, 1996 and 1995.
Consolidated Statements of Income (Loss) of Audiovox Corporation
and Subsidiaries for the Years Ended November 30, 1996, 1995 and
1994.
Consolidated Statements of Stockholders' Equity of Audiovox
Corporation and Subsidiaries for the Years Ended November 30,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows of Audiovox Corporation and Subsidiaries
for the Years Ended November 30, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
(a) (2)
Financial Statement Schedules of the Registrant for the
Years Ended November 30, 1996, 1995 and 1994.
Independent Auditors' Report on Financial Statement Schedules
SCHEDULE PAGE
NUMBER DESCRIPTION NUMBER
II Valuation and Qualifying 80
Accounts
All other financial statement schedules not listed are omitted
because they are either not required or the information is otherwise
included.
74
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Audiovox Corporation:
Under the date of January 23, 1997, except for Paragraph 7 of Note 8 which is as
of March 6, 1998, we reported on the consolidated balance sheets of Audiovox
Corporation and subsidiaries as of November 30, 1996 and 1995, and the related
consolidated state ments of income (loss), stockholders' equity, and cash flows
for each of the years in the three-year period ended November 30, 1996, which
are included in the Company's 1996 annual report on Form 10-K. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedules in the 1996
annual report on Form 10-K. These consolidated financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
Our report refers to changes in the methods of accounting for certain
investments in equity securities and income taxes.
s/KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Jericho, New York
January 23, 1997, except for Paragraph 7 of Note 8 which is as of March 6, 1998
75
<PAGE>
(3) Exhibits See Item 14(c) for Index of Exhibits.
(b) Reports on Form 8-K
During the fourth quarter, the Registrant filed one report on Form 8-K:
On October 18, 1996, the Registrant filed its current report on Form
8-K which reported the Registrant's authorization to exchange its 6
1/4% convertible subordinated debentures for its Class A Common Stock.
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION
3.1 Certificate of Incorporation of the Company
(incorporated by reference to the Company's
Registration Statement on Form S-1; No. 33-107,
filed May 4, 1987).
3.1a Amendment to Certificate of Incorporation
(incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended November 30,
1993).
3.2 By-laws of the Company (incorporated by reference
to the Company's Registration Statement on Form S-
1; No. 33-10726, filed May 4, 1987).
10.1 Renewal, dated October 21, 1996, of Lease by and
between Registrant and John J. Shalam dated October
22, 1986 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year
ended November 30, 1996 filed via EDGAR on February
28, 1997).
10.2 Fourth Amendment, dated as of July 29, 1996, to the
Second Amended and Restated Credit Agreement among
the Registrant and the several banks and financial
institutions (incorporated by reference to the
Company's Annual Report on Form 10-K for the year
ended November 30, 1996 filed via EDGAR on February
28, 1997).
10.3 Fifth Amendment, dated as of September 10, 1996, to
the Second Amended and Restated Credit Agreement
among the Registrant and the several banks and
financial institutions (incorporated by reference
to the Company's Annual Report on Form 10-K for the
year ended November 30, 1996 filed via EDGAR on
February 28, 1997).
76
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
10.4 Sixth Amendment, dated as of November 27, 1996, to
the Second Amended and Restated Credit Agreement
among the Registrant and the several banks and
financial institutions (incorporated by reference
to the Company's Annual Report on Form 10-K for the
year ended November 30, 1996 filed via EDGAR on
February 28, 1997).
11 Statement of Computation of Income (Loss) Per Common
Share (filed via EDGAR herewith).
21 Subsidiaries of the Registrant (filed via EDGAR
herewith).
23 Independent Auditors' Consent (filed via EDGAR
herewith).
27 Financial Data Schedule (filed via EDGAR herewith)
(d) All other schedules are omitted because the required information is
shown in the financial statements or notes thereto or because they are
not applicable.
77
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AUDIOVOX CORPORATION
March 10, 1998 BY:s/John J. Shalam
John J. Shalam, President
and Chief Executive Officer
78
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
s/John J. Shalam President; March 10, 1998
John J. Shalam Chief Executive Officer
(Principal Executive
Officer) and Director
s/Philip Christopher Executive Vice President March 10, 1998
Philip Christopher and Director
s/Charles M. Stoehr Senior Vice President, March 10, 1998
Charles M. Stoehr Chief Financial Officer
(Principal Financial and
Accounting Officer) and
Director
s/Patrick M. Lavelle Director March 10, 1998
Patrick M. Lavelle
s/Ann Boutcher Director March 10, 1998
Ann Boutcher
s/Gordon Tucker Director March 10, 1998
Gordon Tucker
s/Irving Halevy Director March 10, 1998
Irving Halevy
s/Richard Maddia Director March 10, 1998
Richard Maddia
s/Paul C. Kreuch, Jr. Director March 10, 1998
Paul C. Kreuch, Jr.
79
<PAGE>
Schedule II
AUDIOVOX CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years Ended November 30, 1996, 1995 and 1994
(In thousands)
<TABLE>
Column A Column B Column C Column D Column E
- -------- -------- -------- ---------- --------
Additions
Balance at Charged to Charged Balance
Beginning Costs and To Other At End
Description Of Year Expenses Accounts Deductions Of Year
1996
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts $ 2,707 $ 430 - $ 22 $ 3,115
Cash discount allowances 165 149 - - 314
Co-op advertising and
volume rebate allow-
ances 3,225 17,629 - 13,877 6,977
Allowance for cellular
deactivations 1,725 - - 59 1,666
Reserve for warranties
and product repair costs 3,948 3,784 - 2,757 4,975
------- -------- ----- ------- -------
$11,770 $21,992 - $16,715 $17,047
======= ======== ===== ======= =======
1995
Allowance for doubtful
accounts $ 1,623 $ 1,816 - $ 732 $ 2,707
Cash discount allowances 237 - - 72 165
Co-op advertising and
volume rebate allow-
ances 2,688 7,621 - 7,084 3,225
Allowance for cellular
deactivations 1,234 491 - - 1,725
Reserve for warranties
and product repair costs 3,207 3,834 - 3,093 3,948
------- -------- ----- ------- -------
$ 8,989 $13,762 - $10,981 $11,770
======= ======== ===== ======= =======
1994
Allowance for doubtful
accounts $ 2,063 $ (21) $ 419 $ 1,623
Cash discount allowances 302 - - 65 237
Co-op advertising and
volume rebate allow-
ances 1,429 5,898 - 4,639 2,688
Allowance for cellular
deactivations 1,739 - - 505 1,234
Reserve for warranties
and product repair costs 3,805 2,970 - 3,568 3,207
------- -------- ----- ------- -------
$ 9,338 $ 8,847 - $ 9,196 $ 8,989
======= ======== ===== ======= =======
</TABLE>
80
AUDIOVOX CORPORATION
Computation of Income (Loss) Per Common Share
Years Ended November 30, 1996, 1995 and 1994
(In thousands, except per share data)
<TABLE>
1996 1995 1994
--------- --------- --------
Primary earnings:
Income (loss) before cumulative effect of a change
<S> <C> <C> <C>
in an accounting principle $(26,469) $(11,883) $26,206
Cumulative effect of change in accounting principle - - (178)
--------- --------- --------
Net income (loss) $(26,469) $(11,883) $26,028
========= ========= =======
Shares
Weighted average number of common shares
outstanding 9,398 9,039 9,037
Additional shares assuming conversion of:
Stock options, performance share awards, and
warrants - - 69
--------- -------- -------
Weighted average common shares outstanding, as
adjusted 9,398 9,039 9,106
========= ======== =======
Primary earnings per common share:
Before cumulative effect $ (2.82) $ (1.31) $ 2.88
Cumulative effect - - $ (0.02)
--------- -------- --------
Net income (loss) $ (2.82) $ (1.31) $ 2.86
========= ======== =======
Fully diluted earnings*:
Income (loss) before cumulative effect of a change
in an accounting principle - - $26,206
Net interest expense related to convertible debt - - 2,074
--------- -------- -------
Income before cumulative effect of a change in an
accounting principle - - 28,280
Cumulative effect of change in accounting principle - - (178)
--------- -------- --------
Net income (loss) applicable to common stock - - $28,102
========= ======== =======
Shares
Weighted average number of common shares
outstanding - - 9,037
Additional shares assuming conversion of:
Stock options, performance share awards, and
warrants - - 88
Convertible debentures - - 3,644
--------- -------- -------
Weighted average common shares outstanding, as
adjusted - - 12,769
========= ======== =======
Fully diluted earnings per common share:
Before cumulative effect - - $ 2.21
Cumulative effect - - $ (0.01)
--------- -------- --------
Net income (loss) - - $ 2.20
========= ======== =======
</TABLE>
*The Company did not compute fully-diluted earnings per share as the addition of
potentially dilutive securities would result in anti-dilution.
NOTE: Certain amounts have been restated as discussed in Note 8 to the
consolidated financial statements.
Exhibit 11
SUBSIDIARIES OF REGISTRANT
Jurisdiction of
Subsidiaries Incorporation
Audiovox Communications Corp. Delaware
Quintex Communications Corp. New York
Quintex Mobile Communications Corp. Delaware
American Radio Corp. Georgia
Audiovox Holding Corp. New York
Audiovox Canada Limited Ontario
Audiovox Communications (Malaysia) Sdn. Bhd. Malaysia
Exhibit 21
Independent Auditor's Consent
The Board of Directors and Stockholders
Audiovox Corporation:
We consent to incorporation by reference in the registration statements (No.
33-18119 and 33-65580) on Form S-8 and (No. 333- 00811) on Form S-3 of Audiovox
Corporation and subsidiaries of our report dated January 23, 1997, except for
Paragraph 7 of Note 8 which is as of March 6, 1998, relating to the consolidated
balance sheets of Audiovox Corporation and subsidiaries as of November 30, 1996
and 1995, and the related consolidated statements of income (loss),
stockholders' equity and cash flows for each of the years in the three-year
period ended November 30, 1996, and all related schedules, which report appears
in the November 30, 1996 annual report on Form 10-K of Audiovox Corporation and
subsidiaries.
Our report refers to changes in the methods of accounting for certain
investments in equity securities and income taxes.
s/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Jericho, New York
March 10, 1998
Exhibit 23
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000807707
<NAME> Audiovox Corp.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<CASH> 12350
<SECURITIES> 0
<RECEIVABLES> 121523
<ALLOWANCES> 3115
<INVENTORY> 72785
<CURRENT-ASSETS> 220673
<PP&E> 25709
<DEPRECIATION> 18953
<TOTAL-ASSETS> 265545
<CURRENT-LIABILITIES> 62496
<BONDS> 28165
0
2500
<COMMON> 163
<OTHER-SE> 128836
<TOTAL-LIABILITY-AND-EQUITY> 265545
<SALES> 559985
<TOTAL-REVENUES> 597915
<CGS> 481084
<TOTAL-COSTS> 501527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 429
<INTEREST-EXPENSE> 8480
<INCOME-PRETAX> (20635)
<INCOME-TAX> 5834
<INCOME-CONTINUING> (26469)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26469)
<EPS-PRIMARY> (2.82)
<EPS-DILUTED> (2.82)
</TABLE>
