UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended February 29, 2000
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Commission file number 0-28839
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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 No.)
150 Marcus Blvd., Hauppauge, New York 11788
- ------------------------------------------------------------ ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (631) 231-7750
--------------
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 requirements for the past 90 days.
Yes X No
-------
Number of shares of each class of the registrant's Common Stock outstanding as
of the latest practicable date.
Class Outstanding at April 11, 2000
Class A Common Stock 20,245,865 Shares
Class B Common Stock 2,260,954 Shares
1
<PAGE>
AUDIOVOX CORPORATION
I N D E X
Page
Number
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements:
Consolidated Balance Sheets at November 30,
1999 and February 29, 2000 (unaudited) 3
Consolidated Statements of Income
for the Three Months Ended February 28, 1999
and February 29, 2000 (unaudited) 4
Consolidated Statements of Cash Flows
for the Three Months Ended February 28, 1999
and February 29, 2000 (unaudited) 5
Notes to Consolidated Financial Statements 6-9
ITEM 2 Management's Discussion and Analysis of
Financial Operations and Results of
Operations 10-21
PART II OTHER INFORMATION
ITEM 6 Reports on Form 8-K 21
SIGNATURES 22
2
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
November 30, February 29,
1999 2000
------------ ------------
(unaudited)
Assets
Current assets:
<S> <C> <C>
Cash $ 5,527 $ 12,231
Accounts receivable, net 237,272 168,538
Inventory, net 136,554 193,144
Receivable from vendor 9,327 12,119
Prepaid expenses and other current assets 7,940 9,955
Deferred income taxes, net 7,675 8,296
------------ ---------
Total current assets 404,295 404,283
Investment securities 30,401 25,905
Equity investments 13,517 13,905
Property, plant and equipment, net 19,629 19,725
Excess cost over fair value of assets acquired
and other intangible assets, net 5,661 5,564
Other assets 1,580 1,160
------------ ---------
$ 475,083 $ 470,542
============ =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 76,382 $ 55,103
Accrued expenses and other current liabilities 29,068 24,505
Income taxes payable 8,777 6,752
Bank obligations 15,993 8,315
Documentary acceptances 1,994 --
------------ ------------
Total current liabilities 132,214 94,675
Bank obligations 102,007 33,591
Deferred income taxes, net 8,580 7,283
Long-term debt 5,932 5,581
Capital lease obligation 6,279 6,274
------------ ------------
Total liabilities 255,012 147,404
------------ ------------
Minority interest 3,327 3,463
------------ ------------
Stockholders' equity:
Preferred stock, liquidation preference of $2,500 2,500 2,500
Common stock:
Class A; 30,000,000 authorized; 17,827,946 and
20,142,246 issued at November 30, 1999 and
February 29,2000, respectively; 17,206,909 and
19,521,209 outstanding at November 30, 1999 and
February 29, 2000, respectively 179 202
Class B convertible; 10,000,000 authorized;
2,260,954 issued 22 22
Paid-in capital 149,278 247,121
Retained earnings 63,142 68,443
Accumulated other comprehensive income 5,165 4,929
Gain on hedge of available-for-sale securities, net 929 929
Treasury stock, at cost, 621,037 Class A common stock
November 30, 1999 and February 29, 2000 (4,471) (4,471)
------------ -------------
Total stockholders' equity 216,744 319,675
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 475,083 $ 470,542
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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AUDIOVOX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
For the Three Months Ended February 28, 1999 and February 29, 2000
(In thousands, except share and per share data)
(unaudited)
<TABLE>
Three Months Ended
February 28, February 29,
1999 2000
------------ ------------
<S> <C> <C>
Net sales $ 210,266 $ 340,156
Cost of sales 184,046 305,288
------------ ------------
Gross profit 26,220 34,868
------------ ------------
Operating expenses:
Selling 8,685 10,359
General and administrative 9,161 11,048
Warehousing, assembly and repair 3,172 4,380
------------ ------------
Total operating expenses 21,018 25,787
------------ ------------
Operating income 5,202 9,081
------------ ------------
Other income (expense):
Interest and bank charges (1,107) (2,639)
Equity in income of equity investments, management fees and
related income, net 621 982
Gain on sale of investments 239 328
Other, net 132 1,021
------------ ------------
Total other expense, net (115) (308)
------------ ------------
Income before provision for income taxes 5,087 8,773
Provision for income taxes 2,105 3,473
------------ ------------
Net income $ 2,982 $ 5,300
============ ============
Net income per common share (basic) $ 0.16 $ 0.27
============ ============
Net income per common share (diluted) $ 0.16 $ 0.25
============ ============
Weighted average number of common shares outstanding (basic) 19,021,472 19,951,186
============ ============
Weighted average number of common shares outstanding (diluted) 19,277,942 21,575,569
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended February 28, 1999 and February 29, 2000
(In thousands)
(unaudited)
<TABLE>
February 28, February 29,
1999 2000
------------ -----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 2,982 $ 5,300
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 718 860
Provision for (recovery of) bad debt expense 109 (74)
Equity in income of equity investments, management fees and
related income, net (628) (990)
Minority interest (140) 135
Gain on sale of investments (239) (328)
Deferred income tax benefit -- (1,289)
Provision for unearned compensation 48 --
(Gain) loss on disposal of property, plant and equipment, net 4 (1)
Change in:
Accounts receivable (2,675) 68,627
Inventory 6,344 (56,731)
Accounts payable, accrued expenses and other current liabilities (1,451) (25,517)
Receivable from vendor (4,591) (2,792)
Income taxes payable 2,083 (2,025)
Prepaid expenses and other, net 524 (834)
-------- --------
Net cash provided by (used in) operating activities 3,088 (15,659)
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment, net (1,304) (903)
Net proceeds from sale of investment securities 1,777 3,103
Proceeds from distribution from equity investment 202 338
-------- --------
Net cash provided by investing activities 675 2,538
-------- --------
Cash flows from financing activities:
Net repayments under line of credit agreements (8,706) (76,024)
Net repayments under documentary acceptances (1) (1,994)
Principal payments on capital lease obligation (16) (5)
Proceeds from exercise of stock options and warrants -- 166
Net proceeds from follow-on offering -- 97,677
-------- --------
Net cash (used in) provided by financing activities (8,723) 19,820
-------- --------
Effect of exchange rate changes on cash (5) 5
-------- --------
Net increase (decrease) in cash (4,965) 6,704
Cash at beginning of period 9,398 5,527
-------- --------
Cash at end of period $ 4,433 $ 12,231
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three Months Ended February 28, 1999 and February 29, 2000
(Dollars in thousands, except share and per share data)
(1) Basis of Presentation
The accompanying consolidated financial statements were prepared in
accordance with generally accepted accounting principles and include
all adjustments, which include only normal recurring adjustments,
which, in the opinion of management, are necessary to present fairly
the consolidated financial position of Audiovox Corporation and
subsidiaries (the Company) as of November 30, 1999 and February 29,
2000, the consolidated statements of income for the three month periods
ended February 28, 1999 and February 29, 2000, and the consolidated
statements of cash flows for the three months ended February 28, 1999
and February 29, 2000. The interim figures are not necessarily
indicative of the results for the year.
Accounting policies adopted by the Company are identified in Note 1 of
the Notes to Consolidated Financial Statements included in the
Company's 1999 Annual Report filed on Form 10-K.
(2) Supplemental Cash Flow Information
The following is supplemental information relating to the consolidated
statements of cash flows:
<TABLE>
Three Months Ended
February 28, February 29,
1999 2000
----------- ----------
Cash paid during the period:
<S> <C> <C>
Interest (excluding bank charges) $ 445 $2,500
Income taxes $ 178 $6,247
</TABLE>
During the first quarters ended February 28, 1999 and February 29,
2000, the Company recorded a net unrealized holding gain (loss)
relating to available-for-sale marketable securities, net of deferred
taxes, of $5,025 and $(1,082), respectively, as a component of
accumulated other comprehensive income.
6
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Net Income Per Common Share
A reconciliation between the numerators and denominators of the basic
and diluted income per common share is as follows:
<TABLE>
Three Months Ended
February 28, February 29,
1999 2000
----------- -----------
<S> <C> <C>
Net income (numerator for basic income per share) $ 2,982 $ 5,300
Interest on 6 1/4% convertible subordinated debentures, net of tax 21 10
----------- -----------
Adjusted net income (numerator for diluted income per share) $ 3,003 $ 5,310
=========== ===========
Weighted average common shares (denominator for basic income per
share) 19,021,472 19,951,186
Effect of dilutive securities:
6 1/4% convertible subordinated debentures 128,192 57,627
Employee stock options and stock warrants 47,478 1,553,106
Employee stock grants 80,800 13,650
----------- -----------
Weighted average common and potential common shares outstanding
(denominator for diluted income per share) 19,277,942 21,575,569
=========== ===========
Basic income per common share $ 0.16 $ 0.27
=========== ===========
Diluted income per common share $ 0.16 $ 0.25
=========== ===========
</TABLE>
Employee stock options and stock warrants totaling 1,695,300 for the
quarter ended February 28, 1999 were not included in the net income per
common share calculation because their effect would have been
anti-dilutive. There were no anti-dilutive stock options or stock
warrants for the quarter ended February 29, 2000.
(4) Comprehensive Income
The accumulated other comprehensive income of $5,165 and $4,929 at
November 30, 1999 and February 29, 2000, respectively, on the
accompanying consolidated balance sheets is the net accumulated
unrealized gain on the Company's available-for-sale investment
securities of $9,929 and $8,847 at November 30, 1999 and February 29,
2000, respectively, and the accumulated foreign currency translation
adjustment of $(4,764) and $(3,918) at November 30, 1999 and February
29, 2000, respectively.
7
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Company's total comprehensive income was as follows:
<TABLE>
Three Months Ended
February 28, February 29,
1999 2000
------------ ------------
<S> <C> <C>
Net income $ 2,982 $ 5,300
------- -------
Other comprehensive income:
Foreign currency translation adjustments 49 846
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period, net of tax 5,173 (879)
Less: reclassification adjustment for gains
realized in net income, net of tax (148) (203)
------- -------
Net unrealized gains (losses) 5,025 (1,082)
------- -------
Other comprehensive income, net of tax 5,074 (236)
------- -------
Total comprehensive income $ 8,056 $ 5,064
======= =======
</TABLE>
The change in net unrealized gain (loss) on marketable securities
presented above of $5,025 and $(1,082) for the periods ended February
28, 1999 and February 29, 2000 is net of tax of $3,080 and $(663),
respectively. The reclassification adjustment presented above is net of
tax expense of $91 and $125 for the three months ended February 28,
1999 and February 29, 2000, respectively.
(5) Segment Information
The Company has two reportable segments which are organized by
products: Wireless and Electronics. The Wireless segment markets
wireless handsets and accessories through domestic and international
wireless carriers and their agents, independent distributors and
retailers. The Electronics segment sells autosound, mobile electronics
and consumer electronics, primarily to mass merchants, power retailers,
specialty retailers, new car dealers, original equipment manufacturers
(OEM), independent installers of automotive accessories and the U.S.
military.
The Company evaluates performance of the segments based upon income
before provision for income taxes. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies. The Company allocates interest and certain shared
expenses, including treasury, legal and human resources, to the
segments based upon estimated usage. Intersegment sales are reflected
at cost and have been eliminated in consolidation. A royalty fee on the
intersegment sales, which is eliminated in consolidation, is recorded
by the segments and included in other income (expense). Certain items
are
8
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
maintained at the Company's corporate headquarters (Corporate) and are
not allocated to the segments. They primarily include costs associated
with accounting and certain executive officer salaries and bonuses and
certain items including investment securities, equity investments,
deferred income taxes, certain portions of excess cost over fair value
of assets acquired, jointly-used fixed assets and debt. The
jointly-used fixed assets are the Company's management information
systems, which are jointly used by the Wireless and Electronics
segments and Corporate. A portion of the management information systems
costs, including depreciation and amortization expense, are allocated
to the segments based upon estimates made by management. Segment
identifiable assets are those which are directly used in or identified
to segment operations.
Effective December 1, 1999, a non-Quintex retail operation, previously
reported in the Wireless segment, has been included in the other
category.
<TABLE>
Consolidated
Wireless Electronics Other Corporate Totals
First Quarter 1999
<S> <C> <C> <C> <C> <C>
Net sales $ 162,725 $ 44,942 $ 2,599 -- $ 210,266
Intersegment sales (purchases) (1,297) 1,335 (38) -- --
Pre-tax income (loss) 3,431 1,815 92 $ (251) 5,087
Total assets 120,505 75,024 4,115 83,089 282,733
First Quarter 2000
Net sales $ 276,624 $ 60,519 $ 3,013 -- $ 340,156
Intersegment sales (purchases) (1,036) 1,077 (41) -- --
Pre-tax income (loss) 5,639 3,230 99 $ (195) 8,773
Total assets 261,869 112,998 4,174 91,501 470,542
</TABLE>
(6) Follow-on Offering
In February 2000, the Company sold, pursuant to an underwritten public
offering, 2,300,000 shares of its Class A common stock as a price of
$45.00 per share. The Company received $97,677 in net proceeds after
deducting underwriting commission and offering expenses. The net
proceeds from the offering were used to repay a portion of amounts
outstanding under the revolving credit facility.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company markets its products under the Audiovox brand as well as
private labels to a large and diverse network both domestically and
internationally. The Company operates through two marketing groups: Wireless and
Electronics. The Wireless Group consists of Audiovox Communications Corp. (ACC),
a 95%-owned subsidiary of Audiovox, and Quintex, which is a wholly-owned
subsidiary of ACC. ACC markets wireless handsets and accessories primarily on a
wholesale basis to wireless carriers in the United States and, to a lesser
extent, carriers overseas. Quintex is a small operation for the direct sale of
handsets, accessories and wireless telephone service. For the first three months
of 2000, sales through Quintex were $12,115 or 4.4% of the Wireless Group sales.
Quintex receives activation commissions and residual fees from retail sales, in
addition to a monthly residual payment which is based upon a percentage of the
customer's usage.
The Electronics Group consists of Audiovox Electronics (AE), a division of
Audiovox, Audiovox Communications (Malaysia) Sdn. Bhd., Audiovox Holdings (M)
Sdn. Bhd. and Audiovox Venezuela, C.A., which are majority-owned subsidiaries.
The Electronics Group markets automotive sound and security systems, electronic
car accessories, home and portable sound products, FRS radios and in-vehicle
video systems. Sales are made through an extensive distribution network of mass
merchandisers, power retailers and others. In addition, the Company sells some
of its products directly to automobile manufacturers on an OEM basis.
The Company allocates interest and certain shared expenses to the
marketing groups based upon estimated usage. General expenses and other income
items that are not readily allocable are not included in the results of the two
marketing groups.
10
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain
statements of income data for the Company expressed as a percentage of net
sales:
<TABLE>
Percentage of Net Sales
Three Months Ended
February 28, February 29,
1999 2000
---------- ------------
Net sales:
Wireless
<S> <C> <C>
Wireless products 72.7% 78.8%
Activation commissions 3.3 2.0
Residual fees 0.4 0.1
Other 0.8 0.4
----- -----
Total Wireless 77.4 81.3
----- -----
Electronics
Sound 7.2 6.4
Mobile electronics 12.1 9.1
Consumer electronics 2.1 2.3
----- -----
Total Electronics 21.4 17.8
----- -----
Other 1.2 0.9
----- -----
Total net sales 100.0 100.0
Cost of sales 87.5 89.7
----- -----
Gross profit 12.5 10.3
Selling 4.1 3.0
General and administrative 4.4 3.2
Warehousing, assembly and repair 1.5 1.3
----- -----
Total operating expenses 10.0 7.5
----- -----
Operating income 2.5 2.7
Interest and bank charges 0.5 0.8
Income in equity investments, management fees and related
income, net 0.3 0.3
Gain on sale of investments 0.1 0.1
Other income 0.1 0.3
Income before provision for income taxes 3.7 2.4
Provision for income taxes 1.0 1.0
----- -----
Net income 1.4% 1.6%
===== =====
</TABLE>
11
<PAGE>
Consolidated Results
Three months ended February 28, 1999 compared to three months ended
February 29, 2000
The net sales and percentage of net sales by product line and marketing
group for the three months ended February 28, 1999 and February 29, 2000 are
reflected in the following table:
<TABLE>
Three Months Ended
February 28, February 29,
1999 2000
------------------ ------------------
Net sales:
Wireless
<S> <C> <C> <C> <C>
Wireless products $153,049 72.8% $267,968 78.8%
Activation commissions 7,007 3.3 6,736 2.0
Residual fees 889 0.4 484 0.1
Other 1,780 0.8 1,436 0.4
-------- ----- -------- -----
Total Wireless 162,725 77.4 276,624 81.3
-------- ----- -------- -----
Electronics
Sound 15,043 7.2 21,727 6.4
Mobile electronics 25,508 12.1 31,079 9.1
Consumer electronics 4,391 2.1 7,713 2.3
-------- ----- -------- -----
Total Electronics 44,942 21.4 60,519 17.8
Other 2,599 1.2 3,013 0.9
-------- ----- -------- -----
Total $210,266 100.0% $340,156 100.0%
======== ===== ======== =====
</TABLE>
Net sales for the first quarter of 2000 were $340,156, an increase of
$129,890, or 61.7%, from 1999. The increase in net sales was in both the
Wireless and Electronics Groups. Sales from our Malaysian subsidiary were
unchanged from 1999 at approximately $4,300. Sales in Venezuela increased 44.7%
over last year. Gross margins were 10.3% in 2000 compared to 12.5% in 1999.
Operating expenses increased to $25,787 from $21,018, a 22.7% increase. However,
as a percentage of sales, operating expenses decreased to 7.6% in 2000 from
10.0% in 1999. Operating income for 2000 was $9,081 compared to $5,202 in 1999,
an increase of $3,879 or 74.6%.
12
<PAGE>
Wireless Results
Three months ended February 28, 1999 compared to three months ended February 29,
2000
The Wireless Group is composed of ACC and Quintex, both subsidiaries of the
Company.
The following table sets forth for the periods indicated certain income
statement data for the Wireless Group as expressed as a percentage of net sales:
<TABLE>
Three Months Ended
February 28, February 29,
1999 2000
------------------- -------------------
Net sales:
<S> <C> <C> <C> <C>
Products $ 153,049 94.1% $ 267,968 96.9%
Activations 7,007 4.3 6,736 2.4
Residuals 889 0.5 484 0.2
Other 1,780 1.1 1,436 0.5
--------- ----- --------- -----
162,725 100.0 276,624 100.0
--------- ----- --------- -----
Gross profit 15,404 9.5 20,960 7.6
Total operating expenses 10,561 6.5 12,411 4.5
--------- ----- --------- -----
Operating income 4,843 3.0 8,549 3.1
Other expense (1,412) (0.9) (2,910) (1.1)
--------- ----- --------- -----
Pre-tax income $ 3,431 2.1% $ 5,639 2.0%
========= ===== ========= =====
</TABLE>
Net sales were $276,624 in the first quarter of 2000, an increase of
$113,899, or 70.0%, from last year. Unit sales of wireless handsets increased by
775,000 units in 2000, or 71.7%, to approximately 1,856,000 units from 1,081,000
units in 1999. This increase was attributable to sales of portable, digital
products. The addition of new suppliers also provided a variety of new digital,
wireless products that contributed to the sales increase. The average selling
price of handsets increased to $140 per unit in 2000 from $134 per unit in 1999.
The number of new wireless subscriptions processed by Quintex increased 16.0% in
2000, but with a corresponding decrease in
13
<PAGE>
activation commissions of approximately $271 in 2000. The average commission
received by Quintex per activation decreased by approximately 17.1% in 2000 from
1999. Unit gross profit margins decreased to 6.3% in 2000 from 7.4% in 1999,
reflecting the higher average unit cost of the newer portable phones, partially
offset by the increase in unit selling price. This also reflects the competitive
nature of the wireless marketplace and the pressure of supporting various
wireless carrier programs and promotions. Operating expenses increased to
$12,411 from $10,561. As a percentage of net sales, however, operating expenses
decreased to 4.5% during 2000 compared to 6.5% in 1999. Selling expenses
increased $645 from last year, primarily in advertising, divisional marketing
and trade show expense, partially offset by decreases in commissions. General
and administrative expenses increased during 2000 by $551 from 1999, primarily
in salaries, temporary personnel and professional fees. Warehousing and assembly
expenses increased by $654 during 2000 from last year, primarily due to an
increase in tooling expenses and direct labor. Operating income for 2000 was
$8,549 compared to last year's $4,843, and increase of $3,706 or 76.5%.
Management believes that the wireless industry is extremely competitive
and that this competition could affect gross margins and the carrying value of
inventories in the future.
14
<PAGE>
Electronics Results
Three months ended February 28, 1999 compared to three months ended
February 29, 2000
The following table sets forth for the periods indicated certain income
statement data and percentage of net sales by product line for the Electronics
Group:
<TABLE>
Three Months Ended
February 28, February 29,
1999 2000
------------------ ----------------------
Net sales:
<S> <C> <C> <C> <C>
Sound $ 15,043 33.5% $ 21,727 35.9%
Mobile electronics 25,508 56.8 31,079 51.4
Consumer electronics 4,391 9.8 7,713 12.7
--------- ----- -------- -----
Total net sales 44,942 100.0 60,519 100.0
--------- ----- -------- -----
Gross profit 9,198 20.5 12,229 20.2
Total operating expenses 6,734 15.0 8,764 14.5
--------- ----- -------- -----
Operating income 2,464 5.5 3,465 5.7
Other expense (649) (1.4) (235) (0.4)
--------- ----- -------- -----
Pre-tax income $ 1,815 4.0% $ 3,230 5.3%
======== ===== ======== =====
</TABLE>
Net sales increased $15,577 compared to last year, an increase of
34.7%. Automotive sound sales increased 44.4% from last year, primarily in AV
and Prestige Audio product categories, partially offset by decreases in SPS
models. Mobile electronics sales increased 21.8% compared to last year,
primarily due to an increase in mobile video sales of approximately $8,700,
partially offset by declines in Protector Hardgoods. Consumer electronics sales
also increased 75.7% from last year to $7,713. Net sales in the Company's
Malaysian subsidiary were unchanged from last year at approximately $4,300. The
Company's Venezuelan subsidiary also experienced an increase of 44.7% in sales,
over last year. Gross margins decreased to 20.2% in 2000 from 20.5% in 1999.
Operating expenses increased $2,030 from last year. Selling expenses increased
from last year by $917, primarily in advertising and divisional marketing.
General and administrative expenses increased from 1999 by
15
<PAGE>
$710, primarily in occupancy costs, depreciation, salaries and office expenses.
Warehousing and assembly expenses increased from 1999 by $403, primarily in
tooling and field warehousing, partially offset by a decrease in direct labor.
Operating income was $3,465 compared to last year's $2,464, an increase of
$1,001 or 40.6%.
The Company believes that the Electronics Group has an expanding market
with a certain level of volatility related to both domestic and international
new car sales. Also, certain of its products are subject to price fluctuations
which could affect the carrying value of inventories and gross margins in the
future.
Other Income and Expense
Interest expense and bank charges increased by $1,532 for the three
months ended February 29, 2000 compared to the same period last year. The
increase in interest expense and bank charges is due to higher average
borrowings. Equity in income of equity investments increased $361 for the three
months ended February 29, 2000 compared to the same period last year. A major
component of equity in income of equity investments is income recorded for
Audiovox Specialty Applications, LLC. The Company received $579 of reimbursement
of expenses incurred in previous years on behalf of The Protector Corporation, a
50%-owned equity investment, which has been included in other, net in the
accompanying consolidated statements of income. The Company also recorded
currency translation gains of $251 during the quarter.
Provision for Income Taxes
The effective tax rate decreased for the three months ended February
29, 2000 compared to the same period last year principally due to changes in the
proportion of domestic and foreign
16
<PAGE>
earnings and benefits from reduced state taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at February 29, 2000 increased $6,704 from
the November 30, 1999 level. Operating activities used $15,659, primarily from
increases in inventory of $56,731 and decreases in accounts payable of $25,517,
partially offset by a decrease of $68,827 in accounts receivable. Accounts
receivable days on hand decreased to 53 days at February 29, 2000 from 61 days
at February 28, 1999. Inventory days on hand increased from 35 days last year to
69 days this year. The increase in inventory value and days on hand were due to
an end of quarter shipment of one specific phone that was still afloat on
February 29, 2000. Investing activities provided $2,537, primarily from the sale
of investment securities, partially offset by the purchase of property, plant
and equipment. Financing activities provided $19,820, primarily from the
proceeds of the follow-on offering offset by repayments on the line of credit
agreement.
On July 28, 1999, the Company entered into the Fourth Amended and
Restated Credit Agreement (the Revised Credit Agreement) which superseded the
Third Amended and Restated Credit Agreement in its entirety. The major changes
in the Revised Credit Agreement included an increase in the maximum aggregate
amount of borrowings from $112,500 to $200,000. Effective December 20, 1999, the
Company amended the credit agreement to increase its maximum borrowings to
$250,000. The amended and restated credit agreement contains covenants
requiring, among other things, minimum quarterly and annual levels of pre-tax
income and net worth. Further, the Company may not incur a pre-tax loss in
excess of $1,000 for any fiscal quarter and may not incur a pre-tax loss for two
consecutive fiscal quarters. In addition, the Company must maintain a net worth
base amount of $175,000, plus 50% of consolidated net income for each fiscal
year ending on or after November 30, 1999. Further, the Company must, at all
times, maintain a debt to worth ratio of not more than
17
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1.75 to 1. The amended and restated credit agreement includes restrictions and
limitations on payments of dividends, stock repurchases and capital
expenditures. The amended and restated credit agreement expires on July 28,
2004.
The Company's ability to borrow under its credit facility is
conditioned on a formula that takes into account the amount and quality of its
accounts receivable and inventory. The Company's obligations under the credit
agreement are guaranteed by its subsidiaries and are secured by its accounts
receivable.
The Company also has revolving credit facilities in Malaysia to finance
additional working capital needs. The Malaysian credit facilities are partially
secured by the Company under two standby letters of credit and one standby
letter of credit and are payable upon demand or upon expiration of the standby
letters of credit on August 31, 2000 and January 15, 2001, respectively. The
obligations of the Company under the Malaysian credit facilities are secured by
the property and building in Malaysia owned by Audiovox Communications Sdn.
Bhd.
In February 2000, the Company completed a follow on offering of
3,565,000 Class A common shares at a price to the public of $45.00 per share. Of
the 3,565,000 shares sold, the Company offered 2,300,000 and 1,265,000 were
offered by selling shareholders. Audiovox received approximately $97,677 after
deducting expenses. The Company used these net proceeds to repay a portion of
amounts outstanding under their revolving credit facility, any portion of which
can be reborrowed at any time. The Company did not receive any of the net
proceeds from the sale of shares by the selling shareholders.
The Company believes that it has sufficient liquidity to satisfy its
anticipated working capital and capital expenditure needs through November 30,
2000 and for the reasonable foreseeable future.
18
<PAGE>
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued Statement 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." Statement 137 amends Statement 133,
"Accounting for Derivative Instruments and Hedging Activities," which was issued
in June 1998 and was to be effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Statement 137 defers the effective date of
Statement 133 to all fiscal quarters of fiscal years beginning after June 15,
2000. Earlier application is permitted. Statement 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measures those instruments at fair value.
Management of the Company has not yet determined the impact, if any, that the
implementation of Statement 133 will have on its financial position, results of
operations or liquidity.
Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Words such as "may," "believe,"
"estimate," "expect," "plan," "intend," "project," "anticipate," "continues,"
"could," "potential," "predict" and similar expressions may identify
forward-looking statements. The Company has based these forward-looking
statements on its current expectations and projections about future events,
activities or developments. The Company's actual results could differ materially
from those discussed in or implied by these forward-looking statements.
Forward-looking
19
<PAGE>
statements include statements relating to, among other things:
o growth trends in the wireless, automotive and consumer electronic
businesses
o technological and market developments in the wireless, automotive and
consumer electronics businesses
o liquidity
o availability of key employees
o expansion into international markets
o the availability of new consumer electronic products
These forward-looking statements are subject to numerous risks,
uncertainties and assumptions about the Company including, among other things:
o the ability to keep pace with technological advances
o significant competition in the wireless, automotive and consumer
electronics businesses
o quality and consumer acceptance of newly introduced products
o the relationships with key suppliers
o the relationships with key customers
o possible increases in warranty expense
o the loss of key employees
o foreign currency risks
o political instability
o changes in U.S. federal, state and local and foreign laws
o changes in regulations and tariffs
o seasonality and cyclicality
o inventory obsolescence and availability
PART II - OTHER INFORMATION
Item 6 REPORTS ON FORM 8-K
-------------------
During the first quarter, the Registrant filed one report on Form 8-K.
The Form 8-K dated January 10, 2000 and filed January 13, 2000 reported that the
Company had announced that its Class A Common Stock would begin trading on the
NASDAQ Stock Market on January 13, 2000 under the symbol VOXX and that the
Company had executed an amendment to the Credit Agreement to
20
<PAGE>
increase its bank credit facility to $250 million, up from $200 million. The
Company also announced its earnings for the fourth quarter and the fiscal year
ended November 30, 1999.
21
<PAGE>
SIGNATURES
Pursuant to the requirements 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
By:s/John J. Shalam
John J. Shalam
President and Chief
Executive Officer
Dated: April 14, 2000
By:s/Charles M. Stoehr
Charles M. Stoehr
Senior Vice President and
Chief Financial Officer
22
<PAGE>
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<ARTICLE> 5
<CIK> 0000807707
<NAME> Audiovox Corporation
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Nov-30-2000
<PERIOD-END> Feb-29-2000
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