Audiovox 1997 Annual Report Download - page 24

Depreciation and amortization of plant and equipment amounted
to $1,503, $2,044, and $2,654 for the years ended November 30, 1997,
1996, and 1995, respectively, which includes amortization of comput-
er software costs of $19, $364, and $922 for the years ended
November 30, 1997, 1996, and 1995, respectively.
(8) Equity Investments
As of November 30, 1997, the Company had a 30.8% ownership inter-
est in TALK. As of November 30, 1997, the Company’s 72% owned
subsidiary, Audiovox Communications, had a 29% ownership interest
in Avx Posse (Malaysia) Sdn. Bhd. (Posse) which monitors car securi-
ty commands through a satellite based system in Malaysia. As of
November 30, 1997, the Company had a 20% ownership interest in
Bliss-Tel which distributes cellular telephones and accessories in
Thailand. Additionally, the Company had 50% non-controlling own-
ership interests in five other entities: Protector Corporation
(Protector) which acts as a distributor of chemical protection treat-
ments; ASA which acts as a distributor to specialized markets for RV’s
and van conversions, of televisions and other automotive sound,
security, and accessory products; Audiovox Pacific Pty., Limited
(Audiovox Pacific) which distributes cellular telephones and automo-
tive sound and security products in Australia and New Zealand;
G.L.M. Wireless Communications, Inc. (G.L.M.) which is in the cellu-
lar telephone, pager, and communications business in the New York
metropolitan area; and Quintex Communications West, LLC (Quintex
West), which is in the cellular telephone and related communication
products business, as well as the automotive aftermarket products
business on the West Coast of the United States.
On June 1, 1995, at an exercise price of $11.50 per share, an option
to purchase up to an aggregate of 1,500,000 shares of CellStar
Common Stock owned by the Company was exercised. As a result,
the Company recorded a gain, before provision for income taxes, of
approximately $8,400. This reduced the Company’s ownership in
CellStar below 20% and, as such, the Company discontinued the
equity method of accounting for CellStar. The remaining CellStar
shares owned by the Company are accounted for as an investment in
marketable equity securities (Note 6).
The following table presents financial information relating to
CellStar for the year ended November 30, 1995:
1995
Current assets $271,156
Non-current assets 43,765
Current liabilities 196,746
Non-current liabilities 6,880
Net sales 811,915
Gross profit 109,841
Net income 22,896
In August 1994, the Company invested 600 million Japanese Yen
(approximately $6,000) into a newly-formed company, TALK, in
exchange for 12,000 shares of TALK, representing a 33% ownership
interest. Five million dollars of this investment was financed by a
non-recourse note with a third party lender, which provides for the
repayment of the note either in cash or by surrendering 10,000 shares
in TALK. During 1997 and 1996, additional investments were made
by outside investors reducing the Company’s ownership to 30.8%.
The Company accounts for its investment in TALK under the equity
method of accounting.
TALK, which holds world-wide distribution rights for product
manufactured by Shintom, has given the Company exclusive distrib-
ution rights on all wireless personal communication products for all
countries except Japan, China, Thailand, and several mid-eastern
countries. The Company granted Shintom a license agreement per-
mitting the use of the Audiovox trademark to be used with TALK
video cassette recorders sold in Japan from August 29, 1994 to August
28, 1997, in exchange for royalty fees. For the years ended November
30, 1997, 1996 and 1995, no such royalty fees were earned by the
Company.
On July 31, 1995, the Company purchased a 50% equity invest-
ment in a newly-formed company, G.L.M., for approximately $36 in
contributed assets. In addition, the Company has guaranteed cer-
tain obligations of G.L.M. (Note 16(b)).
On December 1, 1995, the Company purchased a 50% equity
investment in a newly-formed company, Quintex West, for approxi-
mately $97 in contributed assets.
During 1997, the Company purchased a 20% equity investment in
Bliss-Tel in exchange for 250,000 shares of the Company’s Class A
Common Stock and a credit for open accounts receivable of $1,250.
The issuance of the common stock resulted in an increase to addi-
tional paid-in capital of approximately $1,248. The investment in
Bliss-Tel will be accounted for under the equity method of account-
ing.
During 1997, the Company purchased a 50% equity investment in
a newly-formed company, ASA, for approximately $11,131. The
Company contributed the net assets of its Heavy Duty Sound divi-
sion, its 50% interest in Audiovox Specialty Markets Co. (ASMC) and
$4,656 in cash. In connection with this investment, excess cost over
fair value of net assets acquired of $5,595 resulted, which is being
amortized on a straight-line basis over 20 years.The other investor
(Investor) contributed its 50% interest in ASMC and the net assets of
ASA Electronics Corporation. In connection with this investment,
the Company entered into a stock purchase agreement with the
Investor in ASA. The agreement provides for the sale of 352,194
shares of Class A Common Stock at $6.61 per share (aggregate pro-
ceeds of approximately $2,328) by the Company to the Investor. The
transaction resulted in a net increase to additional paid-in capital of
approximately $2,242. The selling price of the shares are subject to
adjustment in the event the Investor sells shares at a loss during a 90-
day period, beginning with the effective date of the registration state-
ment filed with the Securities and Exchange Commission to register
such shares. The adjustment to the selling price will equal the loss
incurred by the Investor up to a maximum of 50% of the shares. In
the event the Company does make an adjustment to the shares, addi-
tional goodwill will be recorded as the adjustment represents contin-
gent consideration. The Company received the following manage-
ment fees and related income from its equity investments:
November 30,
1997 1996 1995
Pacific – $ 22 $ 186
G.L.M. $ 12 100 14
Quintex West – 18 –
Posse 97 46 –
$109 $186 $200
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