Audiovox 2003 Annual Report Download - page 36

of the introduction of new consumer goods
o the introduction of mobile video entertainment systems and other new
technologies
o growth of OEM business o acquisition of Recoton in fiscal 2003 and the
formation of Audiovox Europe
Both of the Company's segments, Electronics and Wireless, are influenced by
the introduction of new products and changes in technology (see Cautionary
Factors That May Affect Future Results: Our success depends on our ability to
keep pace with technological advances in the wireless industry).
During fiscal 2002 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 camera phones, PDA's with built−in wireless capabilities and certain
1X phones have the availability to utilize the new GPS locator systems. As a
result of the continuous introduction of new products, the Company must sell
existing older models prior to new product introduction or the value of the
inventory may be impacted (see Critical Accounting Policies − Inventory, MD&A
Discussions).
Gross margins in the Company's electronics business have decreased to 16.6%
for fiscal 2003 from 18.1% in 2000 due to increased sales to mass merchants and
a change in the product mix, partially offset by higher margins in mobile video
products, other new technologies and products and the growth of the
international business.
In fiscal 2001, 2002 and 2003, Electronics recorded $298, $716 and $886,
respectively, into income upon the expiration of unclaimed sales incentive
accruals. As a result, Electronics' gross profit margins were positively
impacted by 0.1, 0.2 and 0.2 percentage points, respectively.
The Company's total operating expenses have increased at a slower rate than
sales since 1999. Total consolidated operating expenses were $96.4 million in
1999 and $102.4 million in 2003. In fiscal 2003, operating expenses have
increased 6.2% since 1999, compared to sales growth of 15.2% since 1999. The
Company has invested in management information systems and its operating
facilities to increase its efficiency.
During fiscal 2002, the Company's financial position was improved by the
sale of 20% of its previously 95%−owned subsidiary, ACC, to Toshiba for $27.2
million. This sale was offset by the Recoton acquisition in fiscal 2003 which
approximated $40.0 million, net of cash acquired.
All financial information, except share and per share data, is presented in
thousands.
Critical Accounting Policies and Estimates
General
The consolidated financial statements of the Company are prepared in
conformity with accounting principles generally accepted in the United States of
America. As such, the Company is required to make certain estimates, judgments
34