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FORM 10−K
AUDIOVOX CORP − VOXX
Filed: February 25, 2004 (period: November 30, 2003)
Annual report which provides a comprehensive overview of the company for the past year

Table of contents

  • Page 1
    FORM 10âˆ'K AUDIOVOX CORP âˆ' VOXX Filed: February 25, 2004 (period: November 30, 2003) Annual report which provides a comprehensive overview of the company for the past year

  • Page 2
    ... About Market Risk âˆ' Consolidated Financial Statements and Supplementary Data âˆ' Changes in and Disagreements with Accountants on Accounting and âˆ' Controls and Procedures PART III Item 10 Item 11 Item 12 Item 13 Item 14 âˆ' Directors and Executive Officers of the Registrant âˆ' Executive...

  • Page 3
    ...30, 2003 0âˆ'28839 AUDIOVOX CORPORATION (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 150 Marcus Blvd., Hauppauge, New York (Address of principal executive offices) Registrant's telephone number, including area code 13...

  • Page 4
    ... by reference in Part III of this Form 10âˆ'K or any amendment to this Form 10âˆ'K The aggregate market value of the common stock held by nonâˆ'affiliates of the Registrant was $159,259,586 (based upon closing price on the Nasdaq Stock Market on May 30, 2003). The number of shares outstanding...

  • Page 5
    ...Accounting and Financial Disclosure...140 Item 9a âˆ' Controls and Procedures...141 PART II PART III ...141 Item 10 âˆ' Directors and Executive Officers of the Registrant...141 Item 11 âˆ' Executive Compensation...142 Item 12 âˆ' Security Ownership of Certain Beneficial Owners and Management...142...

  • Page 6
    ...German Holdings GmbH. The Company designs and markets a diverse line of products and provides related services throughout the world. These products and services include: o o o o handsets and accessories for wireless communications mobile entertainment and security products mobile electronic products...

  • Page 7
    ... for portable DVD players, DVD in a bag products, satellite radios and flat panel screens have increased due to higher customer demand. In addition, the recent acquisitions of Recoton trademarks (Jensen(R), Magnate(R), Mac Audio(R), Heco(R), Acoustic Research(R) and Advent(R)) and Codeâˆ'Alarm have...

  • Page 8
    ... distribution and supply networks to capitalize on niche market opportunities, such as navigation, mobile video, satellite radio, DVD's, flat panel TV's, and vehicle tracking systems, in the electronics industry. The Company believes that focusing on highâˆ'demand, highâˆ'growth niche products...

  • Page 9
    ... without the fixed costs associated with manufacturing. Continue to provide valueâˆ'added services to customers and suppliers. The Company believes that it provides key services, such as product design, development and testing, sales support, product repair and warranty and software upgrading, more...

  • Page 10
    ... brand name and its relationship with carriers. In order to provide full service to its customers, Wireless warranties its wireless products to the endâˆ'user for periods ranging from up to one year for portable handsets to up to three years for mobile car phones. To support its warranties, Wireless...

  • Page 11
    ... and new manufacturers and distributors, some of whom sell the same or similar products directly to its customers. Historically, Wireless' competitors have also included some of its own suppliers and customers. Many of Wireless' competitors offer more extensive advertising and promotional programs...

  • Page 12
    ... security and remote start systems automotive power accessories navigation systems Sound products include: o autosound products, such as radios, speakers, and satellite radios amplifiers, CD changers entertainment major categories: Consumer electronics include: o o o o o o home and portable stereos...

  • Page 13
    ... of data, communications, navigation and entertainment products. Licensing In the late 1990's, the Company began to license its brand name for use on selected products, such as home and portable stereo systems. Actual sales of licensed products are not included in the Company's reported net...

  • Page 14
    ...order. The Electronics Group makes shipments from public warehouses in Virginia, Nevada, Florida, New Jersey, California and Venezuela and from leased facilities located in New York, Venezuela, Malaysia and Germany. Electronics product development, warranty and customer service The Electronics Group...

  • Page 15
    ... its warranties, the Electronics Group has independent warranty centers throughout the United States, Canada, Europe, Venezuela and Malaysia. At its Hauppauge facility, the Electronics Group has a customer service group that provides product information, answers questions and serves as a technical...

  • Page 16
    ...The Company markets products under several trademarks, including Audiovox(R), Prestige(R), Pursuit(R), Rampage(TM), Jensen(R), Acoustic Research(R), Codeâˆ'Alarm(R), Car Link(R), Movies 2 Go(R) and Advent(R). The trademark Audiovox(R) is registered in approximately 67 countries. The Company believes...

  • Page 17
    ...Mr. Shalam also serves as President and a Director of most of Audiovox's operating subsidiaries. Mr. Shalam is on the Board of Directors of the Electronics Industry Association and is on the Executive Committee of the Consumer Electronics Association. Philip Christopher, our Executive Vice President...

  • Page 18
    ... of electronic home control and security systems. Mr. Lesser is founder of and has also served as a director and stockholder of Xâˆ'10 Limited, the Hong Kong parent company of Xâˆ'10âˆ' (USA), Inc. since 1979. He is a Memberâˆ'atâˆ'Large of the Executive Board of the Consumer Electronics Association...

  • Page 19
    .... The Electronics Business Is Highly Competitive; Our Electronics Business Also Faces Significant Competition from Original Equipment Manufacturers (OEMs). The market for electronics is highly competitive across all three of our product lines. We compete against many established companies who have...

  • Page 20
    ... order to maintain our sales levels, we must continue to provide these valueâˆ'added services at reasonable costs to our carrierâˆ'customers and suppliers, including: o o o o o o o product sourcing product distribution marketing custom packaging warranty support programming wireless handsets testing...

  • Page 21
    ... customers and selling prices subsequent to the respective balance sheet dates as well as indications from customers based upon the then current negotiations. There can be no assurance that this will not occur again given the emergence of new technologies. We Depend on a Small Sales. Number of Key...

  • Page 22
    ... as navigation, portable DVD players and mobile video systems, have fueled the recent growth of our electronics business. If we are not able to continually introduce new products that achieve consumer acceptance, our sales and profit margins will decline. Since We Do Not Manufacture Our Products, We...

  • Page 23
    ... manufactured domestically. This increases the risk that our products will become obsolete or face selling price reductions before we can sell our inventory. We Plan to Expand the International Marketing and Distribution of Our Products, Which Will Subject Us to Additional Business Risks. As part...

  • Page 24
    ...Retain Qualified Personnel. and Key Personnel and Our Ability to Our success depends on the continued efforts of John J. Shalam, Philip Christopher, C. Michael Stoehr and Patrick Lavelle, each of whom has worked with Audiovox for over two decades, as well as our other executive officers and key 22

  • Page 25
    ..., with Philip Christopher and none with any other executive officers or key employees. The loss or interruption of the continued fullâˆ'time service of certain of our executive officers and key employees could have a material adverse effect on our business. In addition, to support our continued...

  • Page 26
    .... In the past, several plaintiffs' groups have brought class actions against wireless handset manufacturers and distributors, including us, alleging that wireless handsets have caused cancer. To date, none of these actions has been successful. However, actions based on these or other claims may...

  • Page 27
    .... Mr. Shalam's voting power may have the effect of delaying or preventing a change in control of Audiovox. We have two classes of common stock: Class A common stock is traded on the Nasdaq Stock Market under the symbol VOXX, and Class B common stock, which is not publicly traded and substantially...

  • Page 28
    ..., Florida, Georgia, Massachusetts, New York, Ohio, Tennessee, Texas and Michigan. These facilities serve as offices, warehouses, distribution centers or retail locations for both Wireless and Electronics. Additionally, the Company utilizes public warehouse facilities located in Norfolk, Virginia and...

  • Page 29
    ... to a vote of security quarter of fiscal 2003. holders during the fourth PART II Item 5 âˆ' Market for the Matters Registrant's Common Equity and Related Stockholder Summary of Stock Prices and Dividend Data The Class A Common Stock of Audiovox are traded on the Nasdaq Stock Market under the...

  • Page 30
    four holders of Class B Convertible Common Stock. Class A Common Stock Fiscal Period 2002 First Quarter Second Quarter Third Quarter Fourth Quarter 2003 First Quarter Second Quarter Third Quarter Fourth Quarter High Low Average Daily Trading Volume 8.25 8.93 9.05 11.53 11.60 9.70 14.03 14.90 6....

  • Page 31
    ... Condition and Results of Operations", which are included elsewhere in this report. The consolidated statements of operations data for each of the five fiscal years in the period ended November 30, 2003, and the consolidated balance sheet data as of the end of each such fiscal year, are derived...

  • Page 32
    ... were not material and were recorded in fiscal 2000. Years Ended November 30 1999 2000 (1) 2001 (1) 2002 2003 Consolidated Statement of Operations Data Net sales (2)(3) Operating income Income (loss) before extraordinary item and cumulative effect of a change in accounting for negative goodwill...

  • Page 33
    ... automotive, mobile and consumer electronics businesses quality and consumer acceptance of newly introduced products the relationships with key suppliers the relationships with key customers possible increases in warranty expense changes in the Company's business operations the loss of key employees...

  • Page 34
    ... and Audiovox Venezuela, C.A. The Electronics Group markets, both domestically and internationally, automotive sound and security systems, electronic car accessories, home and portable sound products, twoâˆ'way radios, inâˆ'vehicle video systems, flatâˆ'screen televisions, DVD players and navigation...

  • Page 35
    ... reduced cost of service and expanded feature options consolidation of carrier customers price competition increased competition shortened product life cycle product testing and acceptance complexity In fiscal 2001, 2002 and 2003, the Company recorded inventory writeâˆ'downs to market of $20,650...

  • Page 36
    ...and 2003, the Company introduced several new products in our Electronics segment, which included an extended line of portable DVD products for the consumer market, new flat panel TV's and satellite radios. In our Wireless group, the technology has evolved to new 1X technology, color view screens and...

  • Page 37
    ... monitors and tracks such product returns and records the provision for the estimated amount of such future returns, based on historical experience and any notification the Company receives of pending returns. The Electronics segment's selling price to its customers is a fixed amount that...

  • Page 38
    ... 01âˆ'9, the Company records the provision for these additional sales incentives at the later of when the sales incentive is offered or when the related revenue is recognized. Such additional sales incentives are based upon a fixed percentage of the selling price to the customer, a fixed amount per...

  • Page 39
    ..., that it is remote that the customer will claim the sales incentive. The methodology applied for determining the amount and timing of reversals for the Wireless segment is disciplined, consistent and rational. The methodology is not systematic (formula based), as the Company makes an estimate as to...

  • Page 40
    ... and obsolete inventory based primarily on open purchase orders from customers and selling prices subsequent to the balance sheet date as well as indications from customers based upon the then current negotiations. As demonstrated in recent years, demand for the Company's products can fluctuate...

  • Page 41
    ... orders from customers and selling prices subsequent to the respective balance sheet dates as well as indications from our customers based upon current negotiations. It is reasonably possible that additional writeâˆ'downs to market may be required in the future given the continued emergence of new...

  • Page 42
    ... users or customers. The Company records an estimate for warranty related costs based upon its actual historical return rates and repair costs at the time of sale, which are included in cost of sales. The estimated liability for future warranty expense amounted to $12,006 at November 30, 2003, which...

  • Page 43
    ... 2003 Net sales (2): Wireless Wireless products Activation commissions Residual fees Other Total Wireless Electronics Mobile electronics Sound Consumer electronics Other Total Electronics Total net sales Cost of sales Gross profit Selling General and administrative Warehousing and technical support...

  • Page 44
    ... to fiscal 2003 in order to conform 2003 presentation. marketing reflected have been to fiscal Fiscal Years Ended November 30 2001 (1) 2002 2003 Net sales: Wireless Products Activation commissions Residual fees Other Total Wireless Electronics Mobile electronics Sound Consumer electronics Other...

  • Page 45
    ...new product introductions in digital video. Furthermore, this increase was also due to the addition of $26,377 in sales by Audiovox Europe (see Note 6) from the Recoton acquisition. Sound sales increased as a result of the Jensen(R), Magnate(R), Mac Audio(R), Heco(R), Acoustic Research(R) and Advent...

  • Page 46
    ... Audiovox Europe which was acquired in the third quarter of fiscal 2003. In addition, direct labor costs increased $1,771 as a result of increased production, primarily in the Electronics Group, and employee benefits increased $2,785 due to a payment made to certain Venezuela executives, increased...

  • Page 47
    ... open purchase orders from customers and selling prices as well as indications from our customers based upon current negotiations. The decrease in inventory writeâˆ'downs was primarily due to Wireless maintaining lower inventory levels in fiscal 2003, which consisted primarily of newer products as...

  • Page 48
    ... the above commission deals, base salaries of salesman increased $299. Trade show expenses increased $158 as the Wireless group was attending more shows and promotions as new products were being introduced. $4,749 in fiscal 2003 o o General and administrative expenses decreased compared...

  • Page 49
    ...for fiscal 2003 Warehousing and technical support expenses from 2002, primarily as a result of: o Increases in direct labor, payroll taxes and benefits of $470 due to additional personnel in engineering for product development, testing and warranty call center for customer service as products have...

  • Page 50
    ... products. Consumer Electronics increased $57,768 (66.8%) to $144,240 in fiscal 2003 from $86,472 in fiscal 2002, primarily in sales of DVD/videoâˆ'inâˆ'aâˆ'bag and portable DVD players. Sound sales also increased as a result of the Jensen(R), Magnate(R), Mac Audio(R), Heco(R), Acoustic Research...

  • Page 51
    ... achieved in Audiovox Europe from Jensen(R), Magnate(R), Mac Audio(R), Heco(R), Acoustic Research(R) and Advent(R) products as well as an increase in Codeâˆ'Alarm margins due to a decline in production and warranty costs. This increase was offset by an increase in the sales of video products sold...

  • Page 52
    ... 2003 was $29,540, compared to $17,729 for fiscal 2002. 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 and general economic conditions. Also, all of its products are subject to price...

  • Page 53
    ... 2003. Effective May 29, 2002, the Company's ownership in the Wireless Group was decreased to 75% (see Note 3). As such, the Company now files two consolidated U.S. Federal tax returns, one for the Wireless Group and one for the Electronics Group. As a result, the realizability of the Wireless Group...

  • Page 54
    ... sales in the mobile video and consumer electronics product lines as newer digital video products were offered to our customers. Offsetting some of this increase were sound sales, which continue to decline given the change in the marketplace as fullyâˆ'featured sound systems are being incorporated...

  • Page 55
    ... years indicated certain data for Wireless expressed as a percentage of net 2001 (1 Net sales: Wireless products Activation commissions Residual fees Other Total net sales Gross profit Operating expenses Selling General and administrative Warehousing and technical support Total operating expenses...

  • Page 56
    ...downs recorded in previous quarters, the Company determined the valuation of the older technology digital models on hand as of November 30, 2002 by reviewing open purchase orders from customers and selling prices subsequent to the balance sheet date as well as indications from customers based upon...

  • Page 57
    ... performance. These new products require extensive testing and software development which could delay entry into the market and affect our sales in the future. In addition, given the anticipated emergence of new technologies in the wireless industry, the Company will need to sell existing inventory...

  • Page 58
    ... in sales of videoâˆ'inâˆ'aâˆ'bag and portable DVD players. These increases were partially offset by a decrease in the sound category, particularly AV and Prestige(R) audio lines. Given change in the marketplace, fullyâˆ'featured sound systems are being incorporated into vehicles at the factory...

  • Page 59
    ... video and consumer goods product categories, which has a different commission rate structure and grew faster than other product groups, salaries of $598 primarily due to Code, a new company, newly hired international salesmen and travel and entertainment of $144 due to increased travel to support...

  • Page 60
    ... was $17,729, 2001. 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 and general economic conditions. Also, all of its products are subject to price fluctuations which could affect the...

  • Page 61
    ... capital stock of Recoton German Holdings GmbH (the "international audio business"), the parent holding company of Recoton Corporations Italian, German and Japanese subsidiaries, for $40,046, net of cash acquired, including transaction costs of $1.9 million (see Note 6). In June 2003 the Company...

  • Page 62
    ...repayments of bank obligations. The Company's Board of Directors approved the repurchase of 1,563,000 shares of the Company's Class A common stock in the open market under a share repurchase program (the Program). No shares were purchased under the Program during fiscal 2003. As of November 30, 2002...

  • Page 63
    ... 16,000 Euros and a working capital facility, secured by accounts receivable and inventory, up to 5,000 Euros. The facilities are renewable on an annual basis. On September 2, 2003, the Company's subsidiary, Audiovox Europe Holdings GmbH. borrowed 12 million Euros under a new term loan agreement to...

  • Page 64
    ... into several related party described below. Leasing Transactions During 1998, the Company entered into a 30âˆ'year capital lease for a building with its principal stockholder and chief executive officer, which is the headquarters of the Wireless operation. Payments on the lease were based upon the...

  • Page 65
    ...and interest were payable in equal annual installments beginning July 1, 1999 through July 1, 2003. The notes have been paid in full. In addition, no new notes with officers or directors of the Company have been entered into. Transactions with Shintom and TALK In April 2000, Audiovox Japan (AX Japan...

  • Page 66
    ... to purchase the shares of stock of AX Japan was at a price not less than the aggregate par...change the name of AX Japan to RMS Co., Ltd., and the Company resigned from all officer and Board of Directors positions. The Company has no further relationship or obligations, whether contingent or direct...

  • Page 67
    ... engages in transactions with Shintom and TALK. TALK, which holds worldâˆ'wide distribution rights for product manufactured by Shintom, has given the Company exclusive distribution rights on all wireless personal communication products for all countries except Japan, China, Thailand and several...

  • Page 68
    ... with the President and Chief Executive Officer (the Executive) of ACC through May 29, 2007. Under the agreement, ACC is required to pay the Executive an annual base salary of $500 in addition to an annual bonus equal to 2% of ACC's annual earnings before income taxes. Audiovox Corp., under the...

  • Page 69
    ... States dollars, price negotiations depend in part on the relationship between the foreign currency of the foreign manufacturers and the United States dollar. This relationship is dependent upon, among other things, market, trade and political factors. Seasonality The Company typically experiences...

  • Page 70
    ...is moreâˆ'thanâˆ'incidental to the products or services as a whole are included with the scope of SOP 97âˆ'2 "Software Revenue Recognition". This new pronouncement will not have an impact on the Company's financial condition or results of operations. In December 2003, the SEC issued Staff Accounting...

  • Page 71
    ...risk inherent in the Company's market risk sensitive instruments and positions is the potential loss arising from adverse changes in marketable equity security prices, foreign currency exchange rates and interest rates. Marketable Securities Marketable securities at November 30, 2003, which value of...

  • Page 72
    ... 8. 70 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Audiovox Corporation We have audited the accompanying consolidated balance sheet of Audiovox Corporation and subsidiaries (the "Company") as of November 30, 2003, and the related consolidated statements...

  • Page 73
    Independent Auditors' Report The Board of Directors and Stockholders Audiovox Corporation: We have audited the accompanying consolidated balance sheet of Audiovox Corporation and subsidiaries as of November 30, 2002, and the related consolidated statements of operations, stockholders' equity and ...

  • Page 74
    AUDIOVOX CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets November 30, 2002 and 2003 (In thousands, except share and per share data) 2002 Assets Current assets: Cash Accounts receivable Inventory Receivables from vendors Prepaid expenses and other current assets Deferred income taxes Total...

  • Page 75
    ... and per share data) 2001 Note 2 2002 2003 Net sales Cost of sales Gross profit $ 1,276,591 1,205,201 71,390 $ 1,100,382 1,025,783 74,599 $ 1,323,902 1,199,696 124,206 Operating expenses: Selling General and administrative Warehousing and technical support Total operating...

  • Page 76
    ... Unrealized gain on marketable securities, net of tax effect of $1,063 Other comprehensive income Comprehensive income Exercise of stock options into 96,200 shares of common stock Tax benefit of stock options exercised Issuance of stock warrants Balances at November 30, 2003 Class A and Class...

  • Page 77
    ... shares Otherâˆ'thanâˆ'temporary decline in market value of investment security Deferred income tax expense (benefit), net (Gain) loss on disposal of property, plant and equipment, net Tax benefit on stock options exercised Cumulative effect of a change in accounting for negative goodwill Non...

  • Page 78
    Audiovox Corporation Consolidated Statements of Cash Flows (continued) Years Ended November 30, 2001, 2002 and 2003 (In thousands) 2001 Note 2 Effect of exchange rate changes on cash Net increase (decrease) in cash Cash at beginning of period Cash at end of period (41 3,406) 6,431 3,025 ...

  • Page 79
    ...and consumer electronics (Electronics). The Electronics Group sells autosound, mobile electronics and consumer electronics primarily to mass merchants, power retailers, specialty retailers, new car dealers, original equipment manufacturers (OEMs), independent installers of automotive accessories and...

  • Page 80
    ... monitors and tracks such product returns and records the provision for the estimated amount of such future returns, based on historical experience and any notification the Company receives of pending returns. The Electronics segment's selling price to its customers is a fixed amount that...

  • Page 81
    ... aggressive tiered levels of volume purchase, the Wireless segment recognizes a liability for the rebate as the underlying revenue transactions that result in progress by the customer toward earning the rebate or refund on a program by program basis are recognized. The Electronics segment makes an...

  • Page 82
    ... related revenue is recognized. Such additional sales incentives are based upon a fixed percentage of the selling price to the customer, a fixed amount per unit, or a lumpâˆ'sum amount. The accrual for sales incentives at November 30, 2002 and 2003 was $12,151 and $21,894, respectively. The Company...

  • Page 83
    ...the end of the program. (f) Accounts Receivable The majority of the Company's accounts receivable are due from companies in the wireless, retail, mass merchant and OEM industries. Credit is extended based on an evaluation of a customer's financial condition and, generally, collateral is not required...

  • Page 84
    ... and obsolete inventory based primarily on open purchase orders from customers and selling prices subsequent to the balance sheet date as well as indications from customers based upon the then current negotiations. As demonstrated in recent years, demand for the Company's products can fluctuate...

  • Page 85
    ... of selling prices primarily related to digital handâˆ'held phones during the first quarter of 2002 in anticipation of new digital technologies. During the year ended November 30, 2002, Wireless recorded inventory writeâˆ'downs to market of $13,823. During the year ended November 30, 2003, Wireless...

  • Page 86
    ...âˆ'forâˆ'sale securities are recorded at fair value. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of the related tax effect, on availableâˆ'forâˆ'sale securities are excluded from earnings and are reported as a component...

  • Page 87
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2001, 2002 and 2003 (Dollars in thousands, except share and per share data) (i) Derivative Financial Instruments The Company... hedge is highly effective in achieving offsetting changes in the fair...

  • Page 88
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2001, 2002 and 2003 (Dollars in thousands, except share and per share data) inventory purchase commitments and of trade receivables due in foreign currencies. Gains and losses on the forward ...

  • Page 89
    ...provisions of SFAS No. 142, the Company did not record amortization expense relating to its goodwill and the Company reassessed the useful lives and residual lives of all acquired intangible assets to make any necessary amortization period adjustments. Based upon that assessment, no adjustments were...

  • Page 90
    ... with indefinite lives, including goodwill, recorded subsequent to the adoption of SFAS No. 142, the Company performed its annual impairment test which indicated no reduction is required. The following table presents adjusted net income (loss) and income (loss) per share data restated to include the...

  • Page 91
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2001, 2002 and 2003 (Dollars in thousands, except share and per share data) Goodwill The change in carrying amount of goodwill is as follows: November 30 2002 2003 Net beginning balance Write ...

  • Page 92
    ... discussed in Note 10. (n) Cellular Telephone Commissions Under various agency agreements, the Company receives an initial activation commission for obtaining subscribers for cellular telephone services. The agreements may contain provisions for additional commissions based upon usage and length of...

  • Page 93
    ... 30, 2001, 2002 and 2003, the Company had no direct response advertising. (p) Product Warranties and Product Repair Costs The Company generally warrants its products against certain manufacturing and other defects. The Company provides warranties for all of its products ranging from 90 days to...

  • Page 94
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2001, 2002 and 2003 (Dollars in thousands, except share and per share data) The following table provides the changes in the Company's product warranties and product repair costs for 2002 and 2003...

  • Page 95
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2001, 2002 and 2003 (Dollars in thousands, except share and per share data) liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and ...

  • Page 96
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2001, 2002 and 2003 (Dollars in thousands, except share and per share data) Employee stock options and stock warrants totaling 2,595,108 and 1,540,000 for the years ended November 30, 2002 and ...

  • Page 97
    ... and related interpretations in accounting for stock options and share units granted under these programs. Under the intrinsic value method, no compensation expense is recognized if the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date...

  • Page 98
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2001, 2002 and 2003 (Dollars in thousands, except share and per share data) Years Ended November 30 2001 2002 2003 Note (2) Net income (loss) per common share (diluted): As reported Proâˆ'...

  • Page 99
    ... subordinated financial support, or (2) in which the equity investors lack an essential characteristic of a controlling financial interest. In December 2003, the FASB completed deliberations of proposed modifications to FIN 46 (Revised Interpretations) resulting in multiple effective dates based on...

  • Page 100
    ...is moreâˆ'thanâˆ'incidental to the products or services as a whole are included with the scope of SOP 97âˆ'2 "Software Revenue Recognition". This new pronouncement will not have an impact on the Company's financial condition or results of operations. In December 2003, the SEC issued Staff Accounting...

  • Page 101
    ...30, 2002 for details. (3) Issuance of Subsidiary Shares On May 29, 2002, Toshiba Corporation (Toshiba) purchased an additional 20% of Audiovox Communications Corp. (ACC), a majorityâˆ'owned subsidiary of the Company. Such purchase accounted for approximately 31 shares at approximately $774 per share...

  • Page 102
    ... Chief Executive Officer resigns within 90 days from the change of control date. Further, as these specified events were not considered probable at the grant date and since these units had no value at November 30, 2002 and 2003, no expense has been recorded with respect to these stock appreciation...

  • Page 103
    ...857 $10,556 Nonâˆ'cash Transactions: During the years ended November 30, 2001, 2002 and 2003, the Company recorded an unrealized holding gain (loss) relating to availableâˆ'forâˆ'sale marketable equity securities, net of deferred income taxes, of $(831), $422 and $1,734, respectively, as a separate...

  • Page 104
    ... (Dollars in thousands, except share and per share data) shares of common stock to nonâˆ'employees and recorded a charge to operations of $297,000 (Note 16). As a result of stock option exercises, the Company recorded a tax benefit of $216 during fiscal 2003 which is included in paidâˆ'in capital in...

  • Page 105
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2001, 2002 and 2003 (Dollars in thousands, except share and per share data) beginning six months subsequent to the date of the loans. The loans from Vitec and Pearl were subordinated completely ...

  • Page 106
    ... adversely. (6) Business Acquisitions Code Systems, Inc. On March 15, 2002, Code Systems, Inc. (Code), a whollyâˆ'owned subsidiary of Audiovox Electronics Corp. (AEC), a whollyâˆ'owned subsidiary of the Company, purchased certain assets of Code, an automotive security product company. The purpose...

  • Page 107
    ... such as Jensen(R), Acoustic Research(R) and others. The Company also acquired an obligation with a German financial institution as a result of the purchase of the common stock of Recoton German Holdings GmbH. This obligation is secured by the acquired company's accounts receivable and inventory...

  • Page 108
    ... valuation study, and the purchase price is final. Subsequent to July 8, 2003, the Company sold accounts receivable, inventory and trademarks ($524, $816 and $2,260, respectively) attributable to the marine products division of the Electronics Group based upon their estimated fair values which...

  • Page 109
    ... expense based on 20% of the increase in Audiovox Europe's net assets representing the incremental change of the put price over the call option price. Compensation expense for these options amounted to $388 for the year ended November 30, 2003. (7) Receivables from Vendors The Company has recorded...

  • Page 110
    ... availableâˆ'forâˆ' sales marketable securities, which relates to 306,000 shares of CellStar Common Stock and trading securities of $5,280 which consist of mutual funds that are held in connection with the deferred compensation plan. During fiscal 2002 and 2003, the Company recorded a $1,158 and $21...

  • Page 111
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2001, 2002 and 2003 (Dollars in thousands, except share and per share data) During fiscal 2002 and 2003, the net unrealized holding (loss)/gain on trading securities that has been included in ...

  • Page 112
    ... specialized markets for RV's and van conversions, of televisions and other automotive sound, security and accessory products; and G.L.M. Wireless Communications, Inc. (G.L.M.) which is in the cellular telephone, pager and communications business in the New York metropolitan area. The Company's net...

  • Page 113
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2001, 2002 and 2003 (Dollars in thousands, except share and per share data) has been provided herein: November 30 2002 2003...2002 2003 Commissions Employee compensation Future warranty Freight ...

  • Page 114
    ... credit through direct borrowings and letters of credit. The obligations of the Company under the credit agreement are guaranteed by certain of the Company's subsidiaries and are secured by accounts receivable, inventory and the Company's shares of ACC common stock. At November 30, 2003, the amount...

  • Page 115
    ..., 2002 and 2003 (Dollars in thousands, except share and per share data) The Company's ability to borrow under its credit facility is a maximum aggregate amount of $150,000, subject to certain conditions, based upon a formula taking into account the amount and quality of its accounts receivable and...

  • Page 116
    ... a change of control occurs without permission of the financial institution. Audiovox Corporation guarantees 3 million Euros of this term loan. The term loan is secured by the pledge of the stock of Audiovox Europe Holdings GmbH and on all brands and trademarks of the Audiovox Europe Holdings Group...

  • Page 117
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2001, 2002 and 2003 (Dollars in thousands, except share and per share data) the Company pays 0.4% of its gross sales as a fee for this arrangement. The amount outstanding under this agreement was...

  • Page 118
    ...follows: November 30 2001 2002 2003 Note (2) Statement of operations Stockholders' equity: Unrealized holding gain (loss) on investment securities recognized for financial reporting purposes Tax benefit of stock options exercised Total income tax expense (benefit) $ (3,627) $ 12,932 $ 9,407 (509...

  • Page 119
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2001, 2002 and 2003 (Dollars in thousands, except share and per share data...2001 2002 2003 Note (2) Tax provision at Federal statutory rates State income taxes, net of Federal benefit Increase (...

  • Page 120
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2001, 2002 and 2003 (Dollars in thousands, except share and per share data) the years ended November 30, 2002 and 2003 are as follows: November 30 2002 2003 Deferred tax expense (recovery) (...

  • Page 121
    ... level of continuing earnings in the future. The amount of the deferred tax asset considered realizable by the Electronics Group, therefore, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. At November 30, 2003, the Wireless Group...

  • Page 122
    .... The Company's Board of Directors approved the repurchase of 1,563,000 shares of the Company's Class A common stock in the open market under a share repurchase program (the Program). As of November 30, 2002 and 2003, 1,072,737 shares were repurchased under the Program at an average price of $7.93...

  • Page 123
    ...the market price on the date of issuance. In accordance with APB No. 25 and SFAS 123, the Company recorded an expense equal to the fair value of the warrants, as these warrants were issued to nonâˆ'employees for services performed. Accordingly, the Company recorded $297 of expense during fiscal 2003...

  • Page 124
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2001, 2002 and 2003 (Dollars in thousands, except share and per share data) Information regarding summarized below: the Company's stock options and warrants is Number of Shares Outstanding at ...

  • Page 125
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2001, 2002 and 2003 (Dollars in thousands, except share and per share data) (c) Restricted Stock Plan The Company has restricted stock plans under which key employees and directors may be awarded...

  • Page 126
    ... 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 $5,280 at November 30, 2003, have been classified as trading securities and are included in...

  • Page 127
    .... No gain or loss was recorded on the transaction as the book value of the equipment equaled the fair market value. At November 30, 2003, the Company was obligated under nonâˆ'cancelable capital and operating leases for equipment and warehouse facilities for minimum annual rental payments as follows...

  • Page 128
    ... potentially subject the Company to concentrations of credit risk, consist principally of trade receivables. The Company's customers are located principally in the United States and Canada and consist of, among others, wireless carriers and service providers, distributors, agents, mass (Continued...

  • Page 129
    ... credit evaluation. A portion of the Company's customer base may be susceptible to downturns in the retail economy, particularly in the consumer electronics industry. Additionally, customers specializing in certain automotive sound, security and accessory products may be impacted by fluctuations in...

  • Page 130
    ... and retailers. The Electronics segment sells autosound, mobile electronics and consumer electronics, primarily to mass merchants, specialty retailers, new car dealers, original equipment manufacturers (OEM), independent installers of automotive accessories and the U.S. military. The Company's chief...

  • Page 131
    ...jointlyâˆ'used fixed assets are the Company's management information systems, which is 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...

  • Page 132
    ... 30, 2002. The implementation of SFAS No. 142 was immaterial to the segments. Goodwill was acquired in connection with the purchase of certain assets of Codeâˆ'Alarm, Inc. by Code Systems, Inc., a whollyâˆ'owned subsidiary of Audiovox Electronics Corp. (Note 6). (Continued) 131

  • Page 133
    .... Principal and interest were payable in equal annual installments beginning July 1, 1999 through July 1, 2003. The notes have been paid in full. In addition, no new notes with officers or directors of the Company have been entered into. The Company also leases certain principal stockholder (Note...

  • Page 134
    ... in a distribution agreement with Toshiba, which is 30 days. For certain inventory items, the Company is entitled to receive price protection in the event the selling price to its customers is less than the purchase price from the manufacturer. The Company records such price protection, as...

  • Page 135
    ... of the State of New York, County of Suffolk. During 2001, the Company, along with other suppliers, manufacturers and distributors of handâˆ' held wireless telephones, was named as a defendant in five class action lawsuits alleging damages relating to exposure to radio frequency radiation from hand...

  • Page 136
    ...an employment agreement with the President and Chief Executive Officer (the Executive) of ACC through May 29, 2007 (Note 3). Under the agreement, ACC is required to pay the Executive an annual base salary of $500 in addition to an annual bonus equal to 2% of ACC's annual earnings before income taxes...

  • Page 137
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2001, 2002 and 2003 (Dollars in thousands, except share and per share data) (22) Unaudited Quarterly Financial Data Selected unaudited, quarterly financial data of the Company for the years ended...

  • Page 138
    ... reserve related to certain customers whose financial condition and ability to pay their outstanding receivables became doubtful during the fourth quarter; and (v) the reversal of unearned sales incentives of $763 and $947 for the Wireless Group and Electronics Group, respectively. The Company has...

  • Page 139
    ... in 2002, the Company has reclassified coâˆ'operative advertising, market development funds and volume incentive rebate costs (collectively sales incentives), which were previously included in selling expenses, to net sales as the Company does not receive an identifiable benefit in connection with...

  • Page 140
    ...On February 19, 2004, the Company announced that it signed a nonâˆ'binding letter of intent to sell a controlling interest in the Company's wireless subsidiary, ACC, to Curitel Communications Inc., (or one of its affiliates or subsidiaries) a leading mobile phone manufacturer in South Korea (Curitel...

  • Page 141
    ... Accountants and Auditors. (i) On October 16, 2003, the Board of Directors of Registrant approved a resolution authorizing the dismissal of KPMG LLP ("KPMG") effective as of the close of business on that date. The decision of the Board of Directors was based on the recommendation of the Audit...

  • Page 142
    ... officer, other executive officers, principal finance officer and other financial personnel. A copy of the code of ethics is available free of charge upon request. Any such request should be directed to the attention of: Chris Lis Johnson, Company Secretary, 150 Marcus Boulevard, Hauppauge, New York...

  • Page 143
    ... are included in Item 8 of this Report: Report of Independent Certified Public Accountants: Independent Auditors' Report: KPMG LLP Grant Thornton LLP Consolidated Balance Sheets of Audiovox Corporation and Subsidiaries as of November 30, 2002 and 2003. Consolidated Statements of Operations of...

  • Page 144
    ... Schedules of the Registrant for the Years Ended November 30, 2001, 2002 and 2003. Independent Auditors' Report on Financial Statement Schedule: Schedule Number II All other financial statement schedules not listed are omitted because they are either not required or the information is otherwise...

  • Page 145
    Independent Auditors' Report The Board of Directors and Stockholders Audiovox Corporation: Under the date of May 30, 2003 we reported on the consolidated balance sheet of Audiovox Corporation and subsidiaries as of November 30, 2002, and the related consolidated statements of operations, ...

  • Page 146
    ... the Registrant and the several banks and financial institutions (incorporated by reference to the Company's Form 8âˆ'K filed via EDGAR on January 13, 2000). Securities Purchase Agreement made and entered into as of May 29, 2002, by and among Toshiba Corporation, Audiovox Communications Corp. and...

  • Page 147
    ... effective as of May 29, 2002 by and among Audiovox Communications Corp., Philip Christopher and Audiovox Corporation (incorporated by reference to the Company's Form 8âˆ'K filed via EDGAR on June 6, 2002). Trademark License Agreement made as of May 29, 2002 between Audiovox Corporation and Audiovox...

  • Page 148
    ...2003, by and among Recoton Recoton Audio Corporation, Recoton Home Audio, Inc., Recoton Mobile Electronics, Inc., Recoton International Holdings, Inc. ("RIH"), Recoton Corporation and Recoton Canada Ltd. (collectively, the "Sellers") , JAX Assets Corp. ("Buyer") and Audiovox Corporation ("Registrant...

  • Page 149
    ...of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AUDIOVOX CORPORATION February 24, 2004 BY:s/John J. Shalam John J. Shalam, President and Chief Executive Officer 148

  • Page 150
    ... Financial and Accounting Officer) and Director Director Date s/John J. Shalam John J. Shalam s/Philip Christopher Philip Christopher February 24, 2004 February 24, 2004 February 24, 2004 s/Charles M. Stoehr Charles M. Stoehr s/Patrick M. Lavelle Patrick M. Lavelle s/Ann Boutcher Ann...

  • Page 151
    ... accounts receivable by carrier customers for deactivations of previously activated wireless customers. For the reserve for warranties and product repair costs, deductions represent payments for labor and parts made to service centers and vendors for the repair of units returned under warranty. See...

  • Page 152

  • Page 153
    ... Communications Corp. Audiovox Electronics Corporation Quintex Mobile Communications Corp. American Radio Corp. Audiovox Holding Corp. Audiovox Communications Canada Co. Audiovox Communications (Malaysia) Sdn. Bhd. Audiovox Holdings (M) Sdn. Bhd. Audiovox Venezuela C.A. Audiovox Europe Holdings GmbH...

  • Page 154
    ... ended November 30, 2003. We hereby consent to the incorporation by reference of said report in the Registration Statements of Audiovox Corporation on Forms Sâˆ'8 (Registration Nos. 333âˆ'36762 and 333âˆ'82073). /s/ GRANT THORNTON LLP GRANT THORNTON LLP Melville, New York February 19, 2004 Exhibit...

  • Page 155
    Independent Auditors' Consent The Board of Directors and Stockholders Audiovox Corporation: We consent to the incorporation by reference in registration statement Nos. 333âˆ'36762 and 333âˆ' 82073 on Form Sâˆ'8 of Audiovox Corporation of our report dated May 30, 2003, with respect to the ...

  • Page 156
    ... and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 24, 2004 By: /s/ John J. Shalam John J. Shalam Chief Executive Officer...

  • Page 157
    ...'s internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and to the audit committee of the registrant's board of directors (or...

  • Page 158
    ... on Form 10âˆ'K for the year ended November 30, 2003 (the "Report") of Audiovox Corporation (the "Company"), as filed with the Securities and Exchange Commission on the date hereof, I, John J. Shalam, the Chief Executive Officer of the Company certify, to the best of my knowledge, that: (1) The...

  • Page 159
    ... on Form 10âˆ'K for the year ended November 30, 2003, (the "Report") of Audiovox Corporation (the "Company"), as filed with the Securities and Exchange Commission on the date hereof, I, Charles M. Stoehr, the Chief Financial Officer of the Company certify, to the best of my knowledge, that: (1) The...