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 August 31, 2000
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Commission file number 0-28839
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AUDIOVOX CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-1964841
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Marcus Blvd., Hauppauge, New York 11788
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (631) 231-7750
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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
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Number of shares of each class of the registrant's Common Stock outstanding as
of the latest practicable date.
Class Outstanding at October 11, 2000
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Class A Common Stock 20,294,538 Shares
Class B Common Stock 2,260,954 Shares
1
<PAGE>
AUDIOVOX CORPORATION
I N D E X
<TABLE>
Page
Number
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements:
<S> <C>
Consolidated Balance Sheets at November 30,
1999 and August 31, 2000 (unaudited) 3
Consolidated Statements of Income for the
Three and Nine Months Ended August 31, 1999
and August 31, 2000 (unaudited) 4
Consolidated Statements of Cash Flows
for the Nine Months Ended August 31, 1999
and August 31, 2000 (unaudited) 5
Notes to Consolidated Financial Statements 6-13
ITEM 2 Management's Discussion and Analysis of
Financial Operations and Results of
Operations 14-30
PART II OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 31
SIGNATURES 32
</TABLE>
2
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
November 30, August 31,
1999 2000
------------- --------------
(unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 5,527 $ 60,586
Accounts receivable, net 237,272 211,118
Inventory, net 136,554 149,877
Receivable from vendor 9,327 7,494
Prepaid expenses and other current assets 7,940 9,467
Deferred income taxes, net 7,675 8,795
------------- --------------
Total current assets 404,295 447,337
Investment securities 30,401 9,820
Equity investments 13,517 13,853
Property, plant and equipment, net 19,629 27,187
Excess cost over fair value of assets acquired and
other intangible assets, net 5,661 5,285
Other assets 1,580 1,800
------------- --------------
$ 475,083 $ 505,282
============= ==============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 76,382 $ 57,743
Accrued expenses and other current liabilities 29,068 78,457
Income taxes payable 8,777 6,802
Bank obligations 15,993 6,647
Notes payable -- 6,055
Documentary acceptances 1,994 --
------------- --------------
Total current liabilities 132,214 155,704
Bank obligations 102,007 --
Deferred income taxes, net 8,580 2,463
Long-term debt 5,932 5,457
Capital lease obligation 6,279 6,265
Deferred compensation -- 2,373
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Total liabilities 255,012 172,262
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Minority interest 3,327 3,277
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Stockholders' equity:
Preferred stock, liquidation preference of $2,500 2,500 2,500
Common stock:
Class A; 60,000,000 authorized; 17,827,946 and 20,294,538
issued at November 30, 1999 and August 31, 2000, respectively;
17,206,909 and 19,673,501 outstanding at November 30, 1999 and
August 31, 2000, respectively 179 202
Class B convertible; 10,000,000 authorized; 2,260,954 issued 22 22
Paid-in capital 149,278 248,087
Retained earnings 63,142 85,311
Accumulated other comprehensive income (loss) 5,165 (1,908)
Gain on hedge of available-for-sale securities, net 929 --
Treasury stock, at cost, 621,037 Class A common stock November 30,
1999 and August 31, 2000 (4,471) (4,471)
------------- --------------
Total stockholders' equity 216,744 329,743
------------- --------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 475,083 $ 505,282
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
For the Three and Nine Months Ended August 31, 1999 and August 31, 2000
(In thousands, except share and per share data)
(unaudited)
<TABLE>
Three Months Ended Nine Months Ended
August 31, August 31,
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 296,732 $ 470,334 $ 749,068 $ 1,192,124
Cost of sales 261,453 427,587 658,848 1,077,377
------------ ------------ ------------ ------------
Gross profit 35,279 42,747 90,220 114,747
------------ ------------ ------------ ------------
Operating expenses:
Selling 8,371 10,363 26,613 31,673
General and administrative 11,431 12,726 31,029 36,285
Warehousing, assembly and repair 3,962 4,600 10,641 13,639
------------ ------------ ------------ ------------
Total operating expenses 23,764 27,689 68,283 81,597
------------ ------------ ------------ ------------
Operating income 11,515 15,058 21,937 33,150
------------ ------------ ------------ ------------
Other income (expense):
Gain on issuance of subsidiary shares -- -- 3,800 --
Interest and bank charges (894) (1,060) (2,865) (5,366)
Equity in income of equity investments,
management fees and related income, net 342 474 1,644 2,253
Gain on sale of investments -- 541 1,896 2,814
Gain on hedge of available-for-sale securities -- 749 -- 1,499
Other, net (548) (335) (230) 920
------------ ------------ ------------ ------------
Total other income (expense), net (1,100) 369 4,245 2,120
------------ ------------ ------------ ------------
Income before provision for income taxes 10,415 15,427 26,182 35,270
Provision for income taxes 3,986 5,471 10,317 13,103
------------ ------------ ------------ ------------
Net income $ 6,429 $ 9,956 $ 15,865 $ 22,167
============ ============ ============ ============
Net income per common share (basic) $ 0.34 $ 0.45 $ 0.83 $ 1.04
============ ============ ============ ============
Net income per common share (diluted) $ 0.32 $ 0.44 $ 0.82 $ 0.98
============ ============ ============ ============
Weighted average number of common shares
outstanding (basic) 19,029,335 21,885,232 19,024,598 21,224,604
============ ============ ============ ============
Weighted average number of common shares
outstanding (diluted) 19,876,435 22,883,444 19,485,145 22,614,472
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended August 31, 1999 and August 31, 2000
(In thousands)
(unaudited)
<TABLE>
August 31, August 31,
1999 2000
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 15,865 $ 22,167
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Gain on issuance of subsidiary shares (3,800) --
Gain on hedge of available-for-sale securities -- (1,499)
Depreciation and amortization 2,288 2,860
Provision for bad debt expense 1,641 1,443
Equity in income of equity investments, management fees and
related income, net (1,644) (2,252)
Minority interest 188 809
Gain on sale of investments (1,896) (2,387)
Gain from the sale of shares of equity investment -- (427)
Deferred income tax benefit (expense) 731 (2,106)
(Gain) loss on disposal of property, plant and equipment, net 3 (6)
Income tax benefits on exercise of stock options -- (1,251)
Change in:
Accounts receivable (34,291) 24,217
Inventory (12,974) (13,626)
Accounts payable, accrued expenses and other current liabilities 31,056 31,425
Receivable from vendor (5,745) 1,833
Income taxes payable 2,029 (721)
Investment securities trading -- (2,373)
Prepaid expenses and other, net (354) 2,524
--------- ---------
Net cash provided by (used in) operating activities (6,903) 60,630
--------- ---------
Cash flows from investing activities:
Proceeds from issuance of subsidiary shares 5,000 --
Purchases of property, plant and equipment, net (4,454) (10,128)
Net proceeds from sale of investment securities 14,016 13,227
Purchase of convertible debentures (8,280) --
Proceeds from distribution from equity investment 1,143 1,139
Proceeds from the sale of shares of equity investment -- 922
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Net cash provided by investing activities 7,425 5,160
--------- ---------
Cash flows from financing activities:
Net repayments of bank obligations (4,194) (111,223)
Payment of dividend -- (859)
Net borrowings (repayments) under documentary acceptances 1,092 (1,994)
Principal payments on capital lease obligation (49) (14)
Proceeds from exercise of stock options and warrants -- 734
Repurchase of Class A common stock (882) --
Net proceeds from sale of common stock -- 96,573
Issuance of notes payable -- 6,068
--------- ---------
Net cash used in financing activities (4,033) (10,715)
--------- ---------
Effect of exchange rate changes on cash (14) (16)
--------- ---------
Net increase (decrease) in cash (3,525) 55,059
Cash at beginning of period 9,398 5,527
--------- ---------
Cash and cash equivalents at end of period $ 5,873 $ 60,586
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three and Nine Months Ended August 31, 1999 and August 31, 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 August 31, 2000,
the consolidated statements of income for the three and nine month
periods ended August 31, 1999 and August 31, 2000, and the consolidated
statements of cash flows for the nine months ended August 31, 1999 and
August 31, 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:
Nine Months Ended
August 31, August 31,
1999 2000
------ -----
Cash paid during the period:
Interest (excluding bank charges) $1,680 $ 4,417
Income taxes $8,254 $15,380
During the nine months ended August 31, 1999 and August 31, 2000, the
Company recorded a net unrealized holding gain (loss) relating to
available-for-sale marketable securities, net of deferred taxes, of
$1,216 and $(7,533), respectively, as a component of accumulated other
comprehensive income (loss).
During the nine months ended August 31, 2000, the Company recorded a
reduction to income taxes payable and an increase to additional paid in
capital for the same amount of $1,251 for the tax benefit of stock
option exercises.
During the nine months ended August 31, 2000, $274 of the original
$65,000 6 1/4% subordinated debentures were converted into 15,480
shares of Class A common stock.
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 Nine Months Ended
August 31, August 31,
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (numerator for basic income
per share) $ 6,429 $ 9,956 $ 15,865 $ 22,167
Interest on 6 1/4% convertible subordinated
debentures, net of tax 21 7 63 24
----------- ----------- ----------- -----------
Adjusted net income (numerator for diluted
income per share) $ 6,450 $ 9,963 $ 15,928 $ 22,191
=========== =========== =========== ===========
Weighted average common shares
(denominator for basic income per
share) 19,029,335 21,885,232 19,024,598 21,224,604
Effect of dilutive securities:
6 1/4% convertible subordinated
debentures 128,192 42,147 128,192 47,307
Employee stock options and stock
warrants 645,458 953,075 254,005 1,335,695
Employee stock grants 73,450 2,990 78,350 6,866
----------- ----------- ----------- -----------
Weighted average common and potential
common shares outstanding
(denominator for diluted income per
share) 19,876,435 22,883,444 19,485,145 22,614,472
=========== =========== =========== ===========
Basic income per share $ 0.34 $ 0.45 $ 0.83 $ 1.04
=========== =========== =========== ===========
Diluted income per share $ 0.32 $ 0.44 $ 0.82 $ 0.98
=========== =========== =========== ===========
</TABLE>
Employee stock options and stock warrants totaling 210,250 and
1,166,950 for the three and nine months ended August 31, 1999,
respectively, 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 three or
nine months ended August 31, 2000.
(4) Comprehensive Income
The accumulated other comprehensive income (loss) of $5,165 and
$(1,908) at November 30, 1999 and August 31, 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 $2,396 at November 30, 1999 and August 31,
2000, respectively,
7
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AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
and the accumulated foreign currency translation adjustment of $(4,764)
and $(4,304) at November 30, 1999 and August 31, 2000, respectively.
The Company's total comprehensive income was as follows:
<TABLE>
Three Months Nine Months
Ended Ended
August 31, August 31,
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 6,429 $ 9,956 $ 15,865 $ 22,167
Other comprehensive income (loss):
Foreign currency translation
adjustments (108) 3 113 460
-------- -------- -------- --------
Unrealized gains (losses) on
securities:
Unrealized holding gains (losses)
arising during period, net of tax (2,911) 1,314 (40) (5,788)
Less: reclassification adjustment
for gains realized in net income,
net of tax -- (335) (1,176) (1,745)
-------- -------- -------- --------
Net unrealized gains (losses) (2,911) 979 (1,216) (7,533)
-------- -------- -------- --------
Other comprehensive income (loss), net
of tax (3,019) 982 (1,103) (7,073)
-------- -------- -------- --------
Total comprehensive income $ 3,410 $ 10,938 $ 14,762 $ 15,094
======== ======== ======== ========
</TABLE>
The change in the net unrealized gains (losses) arising during the
period presented above are net of tax benefit or expense of $(1,784)
and $600 for the three months ended August 31, 1999 and 2000,
respectively, and $(745) and $(4,617) for the nine months ended August
31, 1999 and 2000, respectively. The reclassification adjustment
presented above is net of tax expense of $206 for the three months
ended August 31, 2000 and $720 and $1,069 for the nine months ended
August 31, 1999 and 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,
8
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AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 for the Company as a whole. 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 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. During the nine months
ended August 31, 2000, certain advertising costs were not allocated to
the segments. These costs pertained to an advertising campaign that was
intended to promote overall Company awareness, rather than individual
segment products. The jointly-used fixed assets are the Company's
management information systems, which are 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.
9
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Effective December 1, 1999, a non-Quintex retail operation, previously
reported in the Wireless segment, has been included in the Electronics
segment.
<TABLE>
Consolidated
Wireless Electronics Corporate Eliminations Totals
Three Months Ended
August 31, 1999
<S> <C> <C> <C>
Net sales $ 233,395 $ 63,337 -- -- $ 296,732
Intersegment sales (purchases) (387) 387 -- -- --
Pre-tax income (loss) 9,475 3,245 $ (2,305) -- 10,415
Three Months Ended
August 31, 2000
Net sales $ 403,723 $ 66,611 -- -- $ 470,334
Intersegment sales (purchases) 20 (20) -- -- --
Pre-tax income (loss) 14,077 3,527 $ (2,177) -- 15,427
Nine Months Ended
August 31, 1999
Net sales $ 582,316 $ 166,752 -- -- $ 749,068
Intersegment sales (purchases) (3,216) 3,216 -- -- --
Pre-tax income 17,440 7,710 $ 1,032 -- 26,182
Total assets 156,265 94,694 171,910 $ (95,976) 326,893
Nine Months Ended
August 31, 2000
Net sales $ 992,410 $ 199,714 -- -- $1,192,124
Intersegment sales (purchases) (2,085) 2,085 -- -- --
Pre-tax income (loss) 26,886 10,559 $ (2,175) -- 35,270
Total assets 276,316 104,890 284,156 $ (160,080) 505,282
</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 at a price of
$45.00 per share. The Company received $96,573 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.
(7) Sale/Leaseback Transaction
During the quarter ended May 31, 2000, the Company incorporated AX
Japan, Inc. (AX Japan), a wholly-owned subsidiary, with 60,000,000 Yen
(approximately $564). In April 2000, AX Japan purchased land and a
building (herein referred to as the Property) from Shintom Co., Ltd.
(Shintom) for 770,000,000 Yen (approximately $7,300) and entered into
10
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
a leaseback agreement whereby Shintom has leased the Property from AX
Japan for a one- year period. This lease is being accounted for as an
operating lease by AX Japan. Shintom is a stockholder who owns all of
the outstanding preferred stock of the Company and is a manufacturer of
products purchased by the Company through its equity investment, TALK
Corporation (TALK). The Company currently holds stock in Shintom and
has previously invested in Shintom convertible debentures.
The purchase of the Property by AX Japan was financed with a
500,000,000 Yen ($4,671) subordinated loan obtained from Vitec Co.,
Ltd. (Vitec), a 150,000,000 Yen loan ($1,397) from Pearl First (Pearl)
and a 140,000,000 Yen loan ($1,291) from the Company. The land and
building have been included in property, plant and equipment, and the
loans have been recorded as notes payable on the accompanying
consolidated balance sheet as of August 31, 2000. Vitec is a major
supplier to Shintom, and Pearl is an affiliate of Vitec. The loans bear
interest at 5% per annum, and principle is payable in equal monthly
installments over a six- month period beginning six months subsequent
to the date of the loans. The loans from Vitec and Pearl are
subordinated completely to the loan from the Company, and, in
liquidation, the Company receives payment first.
Upon the expiration of six months after the transfer of the title to
the Property to AX Japan, Shintom has the option to repurchase the
Property or purchase all of the shares of stock of AX Japan. These
options can be extended for one additional six month period. The option
to repurchase the building is at a price of 770,000,000 Yen plus the
equity capital of AX Japan (which in no event can be less than
60,000,000 Yen) and can only be made if Shintom settles any rent due AX
Japan pursuant to the lease agreement. The option to purchase the
shares of stock of AX Japan is at a price not less than the aggregate
par value of the shares and, subsequent to the purchase of the shares,
AX Japan must repay the outstanding loan due to the Company. If Shintom
does not exercise its option to repurchase the Property or the shares
of AX Japan, or upon occurrence of certain events, AX Japan can dispose
of the Property as it deems appropriate. The events which result in the
ability of AX Japan to be able to dispose of the Property include
Shintom petitioning for bankruptcy, failing to honor a check, failing
to pay rent, etc. If Shintom fails, or at any time becomes financially
or otherwise unable to exercise its option to repurchase the Property,
Vitec has the option to repurchase the Property or purchase all of the
shares of stock of AX Japan under similar terms as the Shintom options.
AX Japan has the option to delay the repayment of the loans for an
additional six months if Shintom extends its options to repurchase the
Property or stock of AX Japan.
In connection with this transaction, the Company received 100,000,000
Yen ($922) from Shintom for its 2,000 shares of TALK stock. The
Company had the option to repurchase the shares of TALK at a purchase
price of 50,000 Yen per share, with no expiration date. Given
11
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
the option to repurchase the shares of TALK, the Company did not
surrender control over the shares of TALK and, accordingly, had not
accounted for this transaction as a sale.
However, during the quarter ended August 31, 2000, the Company
surrendered its option to repurchase the shares of TALK. As such, the
Company recorded a gain on the sale of shares in the amount of $427
during the third quarter.
(8) Audiovox Communications Corp. Dividend
In February 2000, the Board of Directors of Audiovox Communications
Corp. (ACC), declared a dividend payable to its shareholders, Audiovox
Corporation, a 95% shareholder, and Toshiba Corporation (Toshiba), a 5%
shareholder. During the quarter ended May 31, 2000, ACC paid Toshiba
its share of the dividend, which approximated $859.
(9) Investment Securities
The Company entered into an equity collar on September 26, 1997 to
hedge some of the unrealized gains associated with its investment in
CellStar. The equity collar provided that on September 26, 1998, the
Company can put 100,000 shares of CellStar to the counter party to the
equity collar (the bank) at $38 per share in exchange for the bank
being able to call the 100,000 shares of CellStar at $51 per share. The
Company has designated this equity collar as a hedge of 100,000 of its
shares in CellStar being that it provides the Company with protection
against the market value of CellStar shares falling below $38. Given
the high correlation of the changes in the market value of the item
being hedged to the item underlying the equity collar, the Company
applied hedge accounting for this equity collar. The equity collar was
recorded on the balance sheet at fair value with gains and losses on
the equity collar reflected as a separate component of equity. During
1998, the Company sold its equity collar for $1,499. Also during 1998,
the CellStar stock split two-for-one, resulting in the equity collar
hedging 200,000 shares of CellStar stock. The transaction resulted in a
net gain on hedge of available-for-sale securities of $929 which is
reflected as a separate component of stockholders' equity.
During each of the quarters ended May 31, 2000 and August 31, 2000, the
Company sold 100,000 shares of CellStar common stock, yielding net
proceeds of approximately $581 and $271, respectively, and a gain of
approximately $424 ($263 net of taxes) and $114 ($70 net of taxes),
respectively.
In connection with the sale of the CellStar shares, during each of the
quarters ended May 31, 2000 and August 31, 2000, the Company recognized
other income of $750 ($465 net of taxes) and $749 ($464 net of taxes),
respectively, representing the net gain on the hedge of the
available-for-sale securities.
12
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Capital Structure
On April 6, 2000, the stockholders approved a proposal to amend the
Company's Certificate of Incorporation to increase the number of
authorized shares of Class A common stock, par value $.01, from
30,000,000 to 60,000,000.
In April 2000, the shareholders of the Company approved the 1999 Stock
Compensation Plan and Employee Stock Purchase Plan. These plans have
provisions which are similar to the existing Stock Compensation and
Employee Stock Purchase Plans.
(11) Deferred Compensation Plan
Effective December 1, 1999, the Company adopted a Deferred Compensation
Plan (the Plan) for a select group of management or highly-compensated
employees. The Plan is intended to provide certain executives with
supplemental retirement benefits as well as to permit the deferral of
more of their compensation than they are permitted to defer under the
Profit Sharing and 401(k) Plan. The Plan provides for a matching
contribution equal to 25% of the employee deferrals up to $20. The Plan
is not intended to be a qualified plan under the provisions of the
Internal Revenue Code. All compensation deferred under the Plan is held
by the Company in an investment trust which is considered an asset of
the Company. The investments, which amounted to $2,373 at August 31,
2000, have been classified as trading securities and are included in
investment securities on the accompanying consolidated balance sheet as
of August 31, 2000. The return on these underlying investments will
determine the amount of earnings credited to the employees. The Company
has the option of amending or terminating the Plan at any time. The
deferred compensation liability is reflected as long-term liability on
the accompanying consolidated balance sheet as of August 31, 2000.
(12) Unearned Revenue
During the quarter ended August 31, 2000, the Company received $43,874
from a customer representing prepayments for future product shipments.
The prepayment has been recorded as unearned revenue and is included in
accrued expenses and other current liabilities on the accompanying
consolidated balance sheet as of August 31, 2000. The Company will
recognize the revenue as product shipments are made.
13
<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 through 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 subsidiary for the direct sale of
handsets, accessories and wireless telephone service. For the first nine months
of 2000, sales through Quintex were $37,911 or 3.8 % 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 a customer's usage.
The Electronics Group consists of wholly-owned subsidiaries, Audiovox
Electronics Corp. (AEC) and American Radio Corp., and three majority-owned
subsidiaries, Audiovox Communications (Malaysia) Sdn. Bhd., Audiovox Holdings
(M) Sdn. Bhd. and Audiovox Venezuela, C.A. 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.
14
<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 Nine Months Ended
August 31, August 31,
1999 2000 1999 2000
----- ----- ----- -----
Net sales:
Wireless
<S> <C> <C> <C> <C>
Wireless products 76.5% 84.1% 74.5% 81.1%
Activation commissions 1.6 1.7 2.3 1.8
Residual fees 0.3 0.1 0.4 0.1
Other 0.2 -- 0.6 0.2
----- ----- ----- -----
Total Wireless 78.7 85.8 77.8 83.2
----- ----- ----- -----
Electronics
Mobile electronics 9.7 7.6 11.2 8.8
Consumer electronics 3.2 2.5 2.9 2.5
Sound 8.1 3.9 7.7 5.1
Other 0.4 0.2 0.4 0.3
----- ----- ----- -----
Total Electronics 21.3 14.2 22.2 16.8
Total net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 88.1 90.9 88.0 90.4
----- ----- ----- -----
Gross profit 11.9 9.1 12.0 9.6
Selling 2.8 2.2 3.6 2.7
General and administrative 3.9 2.7 4.1 3.0
Warehousing, assembly and repair 1.3 1.0 1.4 1.1
----- ----- ----- -----
Total operating expenses 8.0 5.9 9.1 6.8
----- ----- ----- -----
Operating income 3.9 3.2 2.9 2.8
Gain on issuance of subsidiary shares -- -- 0.5 --
Interest and bank charges (0.3) (0.2) (0.4) (0.5)
Income in equity investments, management
fees and related income, net 0.1 0.1 0.2 0.2
Gain on sale of investments -- -- 0.3 0.2
Gain on hedge of available-for-sale
securities -- 0.2 -- 0.1
Other (0.2) -- -- 0.1
----- ----- ----- -----
Income before provision for income taxes 3.5 3.3 3.5 3.0
Provision for income taxes 1.3 1.2 1.4 1.1
----- ----- ----- -----
Net income 2.2% 2.1% 2.1% 1.9%
===== ===== ===== =====
</TABLE>
15
Consolidated Results
Three months ended August 31, 1999 compared to three months ended August 31,
2000
The net sales and percentage of net sales by marketing line and product
group for the three months ended August 31, 1999 and August 31, 2000 are
reflected in the following table:
<TABLE>
Three Months Ended
August 31, August 31,
1999 2000
------------------ -------------------
Net sales:
Wireless
<S> <C> <C> <C> <C>
Wireless products $227,105 76.5% $395,346 84.1%
Activation commissions 4,893 1.6 7,827 1.7
Residual fees 881 0.3 550 0.1
Other 516 0.2 -- --
-------- ------ -------- ------
Total Wireless 233,395 78.7 403,723 85.8
-------- ------ -------- ------
Electronics
Mobile electronics 28,802 9.7 35,534 7.6
Consumer electronics 9,352 3.2 11,692 2.5
Sound 24,049 8.1 18,319 3.9
Other 1,134 0.4 1,066 0.2
-------- ------ -------- -----
Total Electronics 63,337 21.3 66,611 14.2
-------- ------ -------- ------
Total $296,732 100.0% $470,334 100.0%
======== ====== ======== ======
</TABLE>
Net sales for the third quarter of 2000 were $470,334, an increase of
$173,602, or 58.5%, from 1999. The increase in net sales was in both the
Wireless and Electronics Groups. Sales from our international subsidiaries
increased slightly from 1999 by approximately $398 or 6.1%. Gross margins were
9.1% in 2000 compared to 11.9% in 1999. Operating expenses increased to $27,689
from $23,764, a 16.5% increase. However, as a percentage of sales, operating
expenses decreased to 5.9% in 2000 from 8.0% in 1999. Operating income for 2000
was $15,058 compared to $11,515 in 1999, an increase of $3,543 or 30.8%.
16
<PAGE>
Nine months ended August 31, 1999 compared to nine months ended August 31,
2000
The net sales and percentage of net sales by marketing line and product
group for the nine months ended August 31, 1999 and August 31, 2000 are
reflected in the following table:
<TABLE>
Nine Months Ended
August 31, August 31,
1999 2000
--------------------- --------------------
Net sales:
Wireless
<S> <C> <C> <C> <C>
Wireless products $ 558,043 74.5% $ 966,704 81.1%
Activation commissions 17,529 2.3 21,566 1.8
Residual fees 2,705 0.4 1,307 0.1
Other 4,039 0.6 2,833 0.2
---------- ------ ---------- ------
Total Wireless 582,316 77.8 992,410 83.2
---------- ------ ---------- ------
Electronics
Mobile electronics 84,195 11.2 105,466 8.8
Consumer electronics 21,487 2.9 30,280 2.5
Sound 58,044 7.7 60,830 5.1
Other 3,026 0.4 3,138 0.3
---------- ------ ---------- ------
Total Electronics 166,752 22.2 199,714 16.8
---------- ------ ---------- ------
Total $ 749,068 100.0% $1,192,124 100.0%
========== ====== =========== ======
</TABLE>
Net sales were $1,192,124 for 2000, an increase of $443,056, or 59.1%,
from 1999. The increase in net sales was in both the Wireless and Electronics
Groups. Sales from our international subsidiaries increased from 1999 by
approximately $1,605 or 8.9%. Gross margins were 9.6% in 2000 compared to 12.0%
in 1999. Operating expenses increased to $81,597 from $68,283, a 19.5% increase.
However, as a percentage of sales, operating expenses decreased to 6.8% in 2000
from 9.1% in 1999. Operating income for 2000 was $33,150 compared to $21,937 in
1999, an increase of $11,213 or 51.1%.
17
<PAGE>
Wireless Results
Three months ended August 31, 1999 compared to three months ended August 31,
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
August 31, August 31,
1999 2000
------------------------ --------------------
Net sales:
<S> <C> <C> <C> <C>
Wireless products $ 227,105 97.3% $ 395,373 97.9%
Activation commissions 4,893 2.1 7,827 1.9
Residual fees 881 0.4 550 0.2
Other 516 0.2 (27) --
---------- ------ ---------- ------
233,395 100.0% 403,723 100.0%
Gross profit 20,982 9.0 28,078 7.0
Total operating expenses 10,169 4.4 12,811 3.2
---------- ------ ---------- ------
Operating income 10,813 4.6 15,267 3.8
Other expense (1,338) (0.6) (1,190) (0.3)
---------- ------ ---------- ------
Pre-tax income $ 9,475 4.1% $ 14,077 3.5%
=========== ====== ========== ========
</TABLE>
Net sales were $403,723 in the third quarter of 2000, an increase of
$170,328, or 73.0%, from last year. Unit sales of wireless handsets increased by
934,000 units in 2000, or 60.8%, to approximately 2,471,000 units from 1,537,000
units in 1999. This increase was attributable to increased sales of digital
handsets, partially offset by a decrease in analog handsets. The average selling
price of handsets increased to $154 per unit in 2000 from $141 per unit in 1999.
The number of new wireless subscriptions processed by Quintex increased 60.3% in
2000, with a corresponding increase in activation commissions of approximately
$2,934 in 2000. The average commission received by Quintex per activation
remained the same from 1999. Unit gross profit margins
18
<PAGE>
decreased to 5.5% in 2000 from 8.1% in 1999, reflecting the higher average unit
cost of the newer digital phones and lower margins associated with analog
handsets, 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 $12,811 from $10,169. As a percentage of net sales, however,
operating expenses decreased to 3.2% during 2000 compared to 4.4% in 1999.
Selling expenses increased from last year, primarily in divisional marketing and
commissions. General and administrative expenses increased from 1999, primarily
in salaries and temporary personnel. Warehousing and assembly expenses increased
during 2000 from last year, primarily due to an increase in direct labor.
Operating income for 2000 was $15,267 compared to last year's $10,813, and
increase of $4,454 or 41.2%.
19
<PAGE>
Nine months ended August 31, 1999 compared to nine months ended August 31,
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>
Nine Months Ended
August 31, August 31,
1999 2000
---------------------- -----------------------
Net sales:
<S> <C> <C> <C> <C>
Wireless products $ 558,043 95.8% $ 966,704 97.4%
Activation commissions 17,529 3.0 21,566 2.2
Residual fees 2,705 0.5 1,307 0.1
Other 4,039 0.7 2,833 0.3
--------- ------ --------- ------
582,316 100.0% 992,410 100.0%
Gross profit 53,164 9.1 71,388 7.2
Total operating expenses 31,789 5.5 38,238 3.9
--------- ------ --------- ------
Operating income 21,375 3.7 33,150 3.3
Other expense (3,935) (0.7) (6,264) (0.6)
--------- ------ --------- ------
Pre-tax income $ 17,440 3.0% $ 26,886 2.7%
========= ====== ========= ======
</TABLE>
Net sales were $992,410 for the nine months ended August 31, 2000, an
increase of $410,094, or 70.4%, from last year. Unit sales of wireless handsets
increased by 2,376,000 units in 2000, or 61.8%, to approximately 6,223,000 units
from 3,847,000 units in 1999. This increase was attributable to sales of digital
handsets. 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 $149 per unit in 2000 from $139 per unit in 1999.
The number of new wireless subscriptions processed by Quintex increased 34.8% in
2000, with a corresponding increase in activation commissions of approximately
$4,038 in 2000. The average commission received by
20
<PAGE>
Quintex per activation decreased by approximately 8.8% in 2000 from 1999. Unit
gross profit margins decreased to 5.7% in 2000 from 7.8% 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 $38,238 from $31,789.
As a percentage of net sales, however, operating expenses decreased to 3.9%
during 2000 compared to 5.5% in 1999. Selling expenses increased from last year,
primarily in divisional marketing, trade show expense and commissions. General
and administrative expenses increased during 2000 from 1999, primarily in
salaries, temporary personnel and bad debt expenses. Warehousing and assembly
expenses increased during 2000 from last year, primarily in tooling expenses and
direct labor. Operating income for 2000 was $33,150 compared to last year's
$21,375, an increase of $11,775 or 55.1%.
Management believes that the wireless industry is extremely competitive
in both price and technology. This could affect gross margins and the carrying
value of inventories in the future, particularly with the continuing shift to
digital technologies from analog. As the market for digital products becomes
stronger and if the market for analog phones continues to decline, the Company
may be required to adjust the carrying value of its remaining analog inventory.
In addition, the industry-wide shortage of certain wireless components and parts
may affect our vendors' ability to provide handsets to us on a timely basis,
which may result in delayed shipments to our customers.
21
<PAGE>
Electronics Results
Three months ended August 31, 1999 compared to three months ended August 31,
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
August 31, August 31,
1999 2000
------------------------ -----------------------
Net sales
<S> <C> <C> <C> <C>
Mobile electronics $ 28,802 45.5% $ 35,534 53.3%
Consumer electronics 9,352 14.8 11,692 17.6
Sound 24,049 38.0 18,319 27.5
Other 1,134 1.8 1,066 1.6
-------- ----- -------- -----
Total net sales 63,337 100.0 66,611 100.0
Gross profit 14,304 22.6 14,680 22.0
Total operating expenses 10,333 16.3 11,013 16.5
-------- ----- -------- -----
Operating income 3,971 6.3 3,667 5.5
Other expense (726) (1.1) (140) (0.2)
-------- ----- -------- -----
Pre-tax income $ 3,245 5.1% $ 3,527 5.3%
======== ====== ======== =====
</TABLE>
Net sales increased $3,274 compared to last year, an increase of 5.2%.
Automotive sound sales decreased 23.8% from last year to $18,319, primarily in
the AV product line. Mobile electronics sales increased 23.4% compared to last
year to $35,534, primarily due to an increase in mobile video sales of
approximately $5,989, partially offset by declines in sales of Protector
Hardgoods. Consumer electronics sales also increased 25.0% from last year to
$11,692 due to increased sales of FRS and home stereo products. Net sales in the
Company's Malaysian subsidiary increased from last year by approximately $724 or
21.4%. The Company's Venezuelan subsidiary experienced a decrease of $154 or
5.2% in sales, from last year. Gross margins of the Electronics Group were 22.0%
in 2000 and 22.6% in 1999. Operating expenses increased $680 from last year to
16.5% of sales up from last year's 16.3% of sales. Selling expenses increased
from last year,
22
<PAGE>
primarily in divisional marketing and trade show expense. General and
administrative expenses increased from 1999, primarily in salaries, payroll
taxes, depreciation, and office expenses. Warehousing and assembly expenses
increased from 1999, primarily in field warehousing, partially offset by a
decrease in direct labor. Operating income was $3,667 compared to last year's
$3,971, a decrease of $304 or 7.7%.
Nine months ended August 31, 1999 compared to nine months ended August 31,
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>
Nine Months Ended
August 31, August 31,
1999 2000
---------------------- ----------------------
Net sales
<S> <C> <C> <C> <C>
Mobile electronics $ 84,195 50.5% $ 105,466 52.8%
Consumer electronics 21,487 12.9 30,280 15.2
Sound 58,044 34.8 60,830 30.5
Other 3,026 1.8 3,138 1.6
--------- ----- --------- -----
Total net sales 166,752 100.0 199,714 100.0
Gross profit 37,079 22.2 43,572 21.8
Total operating expenses 27,423 16.4 31,943 16.0
--------- ----- --------- -----
Operating income 9,656 5.8 11,629 5.8
Other expense (1,946) (1.2) (1,070) (0.5)
--------- ----- --------- -----
Pre-tax income $ 7,710 4.6% $ 10,559 5.3%
========= ===== ========= =====
</TABLE>
Net sales increased $32,962 compared to last year, an increase of
19.8%. Automotive sound sales increased 4.8% from last year, primarily in AV and
Prestige Audio product categories. Mobile electronics sales increased 25.3% from
last year to $105,466, primarily due to an increase in mobile video sales of
approximately $25,581, partially offset by declines in Protector Hardgoods.
Consumer
23
<PAGE>
electronics sales also increased 40.9% from last year to $30,280 due to
increased sales of FRS and home stereo products. Net sales in the Company's
Malaysian subsidiary increased from last year by approximately $676 or 6.4%. The
Company's Venezuelan subsidiary experienced an increase of $1,132, or 16.9% in
sales, over last year. Gross margins decreased to 21.8% in 2000 from 22.2% in
1999. Operating expenses increased $4,520 from last year. As a percentage of
sales, however, operating expenses decreased to 16.0% from last year's 16.4%.
Selling expenses increased from last year, primarily in advertising and
divisional marketing. General and administrative expenses increased from 1999,
primarily in occupancy costs, depreciation, salaries and office expenses.
Warehousing and assembly expenses increased from 1999, primarily in tooling and
field warehousing, partially offset by a decrease in direct labor. Operating
income was $11,629 compared to last year's $9,656, an increase of $1,973 or
20.4%.
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. The Electronics Group may also experience additional competition in the
mobile video category as more competitors enter the market.
Other Income and Expense
Interest expense and bank charges increased by $166 and $2,501 for the
three and nine months ended August 31, 2000, respectively, compared to the same
periods last year. The increase in interest expense and bank charges is due to
higher average borrowings to finance increases in inventories and accounts
receivable. Equity in income of equity investments increased $132 and $609 for
the three and nine months ended August 31, 2000, respectively, compared to the
same periods
24
<PAGE>
last year. For the nine months ended August 31, 2000, Audiovox Specialty
Applications, LLC represents the majority of equity in income of equity
investments.
For the nine months ended August 31, 2000, the Company exercised its
option to convert Shintom debentures into shares of Shintom common stock. The
Company then sold the Shintom common stock, yielding net proceeds of $12,398 and
gains on the sale of investments of $1,850 for the nine months ended August 31,
2000, respectively. For the three and nine months ended August 31, 2000, the
Company also sold 100,000 and 200,000 shares, respectively, of CellStar common
stock, yielding net proceeds of approximately $271 and $852, and a gain, net of
taxes, of approximately $70 and $333, respectively.
The Company had entered into an equity collar on September 26, 1997 to
hedge some of the unrealized gains associated with its investment in CellStar
and applied hedge accounting to this transaction. During 1998, the Company sold
its equity collar for $1,499, which resulted in a net gain on hedge of
available-for-sale securities of $929 which was reflected as a separate
component of stockholders' equity. In connection with the sale of the CellStar
shares, the Company recognized other income of $749 ($464 net of taxes) and
$1,499 ($929 net of taxes) for the three and nine months ended August 31, 2000,
respectively, representing the net gain on the hedge of the available- for-sale
securities.
The Company also recorded currency translation gain of $2,000 during the
nine months ended August 31, 2000.
Provision for Income Taxes
The effective tax rate for the three and nine months ended August 31,
2000 was 35.5% and 37.1% compared to last year's 38.3% and 39.4%. These
decreases were principally due to changes
25
<PAGE>
in the proportion of domestic and foreign earnings, utilization of a Canadian
tax loss carryforward and benefits from reduced state taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at August 31, 2000 increased $55,059 from
the November 30, 1999 level. Operating activities provided $60,630, primarily
from a decrease of $24,217 in accounts receivable and an increase in accounts
payable and accrued expenses of $31,425, partially offset by increases in
inventory of $13,626. Accounts receivable days on hand decreased to 42 days at
August 31, 2000 from 47 days at August 31, 1999. Inventory days on hand
increased from 28 days last year to 33 days this year. The increase in inventory
value and days on hand was primarily in the Wireless Group. The increase in
accounts payable and accrued expenses is primarily due to $43,874 received from
a customer as a prepayment for future product shipments (See Note 12). Investing
activities provided $5,160, primarily from the sale of investment securities,
partially offset by the purchase of property, plant and equipment (See Note 7).
Financing activities used $10,715, primarily from repayments on the line of
credit agreement, partially offset by the proceeds of the follow-on offering.
During the quarter ended May 31, 2000, the Company purchased land and a
building (the Property) located in Japan for approximately $7,300 from Shintom
Co., Ltd. (Shintom). The purchase of the Property was partially financed with
the proceeds of subordinated loans from third parties of approximately $6,068.
Concurrently with the purchase of the Property, the Company entered into a one
year leaseback agreement with Shintom. The loans bear 5% interest per annum, and
principle is payable in equal monthly installments over a six-month period
beginning six months subsequent to the date of the loans (See Note 7).
26
<PAGE>
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 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 and inventory.
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 expiring August 31,
2001 and one standby letter of credit expiring January 15, 2001 and are payable
upon demand or upon expiration. 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.
The Company also has revolving credit facilities in Venezuela to
finance additional working capital needs. The Venezuelan credit facility is
secured by the Company under a standby letter of credit which expires on May 31,
2001 and is payable upon demand or upon expiration of the standby
27
<PAGE>
letter of credit.
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 shares and 1,265,000
shares were offered by selling shareholders. Audiovox received approximately
$96,573 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.
Recent Accounting Pronouncements
In June 1999 and June 2000, respectively, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral
of the "Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities". SFAS 137 and
138 amend SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," which was issued in June 1998. SFAS 137 deferred the effective date
of SFAS 133 to all fiscal quarters of fiscal years beginning after June 15,
2000. SFAS 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
28
<PAGE>
SFAS 133 will have on its financial position, results of operations or
liquidity.
On December 3, 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101 - "Revenue Recognition in Financial
Statements" (SAB No. 101). SAB No. 101 provides the SEC staff's views in
applying generally accepted accounting principles to revenue recognition in the
financial statements. SAB No. 101B delayed the implementation date for
registrants to adopt the accounting guidance contained in SAB No. 101 by no
later than the fourth fiscal quarter of the fiscal year beginning after December
15, 1999. Management of the Company does not believe that applying the
accounting guidance of SAB No. 101 will have a material effect on its financial
position or results of operations.
In May 2000, the Emerging Issues Task Force issued EITF-00-14 "Accounting
for Certain Sales Incentives". The issue addresses the recognition, measurement
and income statement classification for sales incentives offered voluntarily by
a vendor without charge to customers that can be used in, or that are
exercisable by a customer as a result of a single exchange transaction.
Implementation of the EITF is by no later than the fourth fiscal quarter of the
fiscal year beginning after December 15, 1999. Management has not determined the
impact, if any, that applying EITF-00- 14 will have on the Company's financial
position or results of operations.
During the quarter ended August 31, 2000, the Company implemented FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation", an interpretation of Accounting Principles Board Opinion No. 25
(Opinion 25). This interpretation clarifies the application of Opinion 25 for
certain issues. The effects of applying this interpretation are required to be
recognized on a prospective basis from July 1, 2000. Implementation of the FASB
interpretation did not have an impact on the Company's financial position
results of operations or liquidity.
29
<PAGE>
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 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
30
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits - Exhibit 27. Financial Data Schedule August 31, 2000
(b) Reports on Form 8-K - No reports were filed on Form 8-K for the
quarter ended August 31, 2000.
31
<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
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John J. Shalam
President and Chief
Executive Officer
Dated: October 16, 2000
By:s/Charles M. Stoehr
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Charles M. Stoehr
Senior Vice President and
Chief Financial Officer
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