Audiovox 1998 Annual Report Download

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AUDIOVOX
1998 ANNUAL REPORT
Technology for the way we live.

Table of contents

  • Page 1
    A U D I O V O X 1998 ANNUAL REPORT Te c h n o l o g y f o r t h e w a y w e l i v e .

  • Page 2
    ... marketing of wireless products, auto sound, vehicle security, mobile video systems, FRS Radios (Family Radio Service) and home and portable leisure products. Marketing of the Company's products in the US is separated into two groups: Communications and Electronics. In addition, Audiovox maintains...

  • Page 3
    ... installments...retail operations and a pre-tax gain on the sale of an equity investment of $8.4 million. (e) Includes a $4.2 million unrealized gain on marketable securities, net, and a $929,000 gain on hedge of available-for-sale securities in 1998...Stock and a pre-tax gain of $23.8 million on the sale...

  • Page 4
    ... on a high note. Third and fourth quarter sales were fueled by the introduction of CDMA digital phones, our first CDMA/PCS phone and two exciting new product lines in our electronics division-Mobile Video and FRS (Family Radio Service). Sales of these products allowed us to overcome losses posted in...

  • Page 5
    ... those quality standards as our Electronics Division achieved QS/ISO 9001 Registration and our wireless subsidiary was granted ISO 9001 Registration. In addition, two of our joint venture companies also achieved registrations, Audiovox Venezuela for QS/ISO 9001 and Audiovox Specialized Application...

  • Page 6
    ... products in AMPS and N-AMPS as well as the digital technologies of CDMA, CDMA/PCS and GSM/PCS, and will add GSM during 1999. 32% of total. Our CDM 3000 was the number one selling digital phone in the market. -Philip Christopher President and Chief Executive Officer Audiovox Communications Corp...

  • Page 7
    ... market i n 1 9 8 4 , AC C h a s ke p t p a c e w i t h t he ra p id l y g ro w i ng w i re l e s s i ndu s t r y. In 1998 we began the shift from ACC: 1998 DIGITAL HANDSETS SHIPPED 32% 18.7% 10.8% ana log to digita l p ho nes and ended t h e y e a r w i t h o v e r 1 8 % of a l l phones s hippe...

  • Page 8
    ... t e of t he a r t fa c i l i t y i n Ha u p p a u ge. T h i s 7 0 , 0 0 0 s q ua re fo o t b u i l d i ng p ro v ide s o u r compa ny with the s p ac e and fac i li ties needed t o re sp o nd t o t he g ro wi ng wi re l e ss i ndu st r y. "We don't say we're better, other people do." The CDM 4000...

  • Page 9
    ... funds, advertising brochures and literature. We intend to continue investing in our brand to further leverage its presence in our expanding sales channels. â- Limit Fixed Plant and Capital Risk. A key component of our operating strategy has been to bring to market quality products under our own...

  • Page 10
    ... introduction of video products such as TV's, VCR/TV combos, portable DVD players, and audio products such as mini disc players and Home Theater. The Division's auto sound and vehicle security groups posted slight decreases in sales, primarily due to industry wide decreases in selling prices and the...

  • Page 11
    ...NET SALES (in millions) 1998 1997 1996 $0 $20 $40 $60 $80 $100 SOUND SECURITY & ACCESSORIES CONSUMER GOODS C l o c kwi s e f rom top le f t: vehicle specific video c o n s o l e, remote start t r a n s m i t t e r, In-dash mo b i l e t he a t e r, u n i v e r sal overhead mobile v ide...

  • Page 12
    Clockwise from top left: p o r t a b l e D V D p l a y e r, F R S r a d i o , Pe r s o n a l N a v i g a t o r and Under Co u nter T V. 10

  • Page 13
    ... to market a variety of different products to different channels. We are targeting new technologies such as GPS (Global Positioning Service), Navigation, Video, including portable DVD and satellite radios for inclusion into the division's product mix. We intend to continue our policy controlling the...

  • Page 14
    ... the shareholders, we have made several changes to the Company's operating systems during 1998. We have completed an upgrade of our Management Information Systems that resolves issues related to international business, foreign currency and addresses Y2K issues. In addition, we have made substantial...

  • Page 15
    ... phone billings generated by the base of customers activated by the Company on a particular cellular carrier's system. The Automotive group consists of Audiovox Automotive Electronics (AAE) and, through February 28, 1997, Heavy Duty Sound, which are divisions of the Company, Audiovox Communications...

  • Page 16
    ...the result of a software problem in certain analog cellular phones, as well as a continuing decrease in the selling prices of analog telephones due to pressure from the growing digital presence in the market. While the analog market is still quite large, the Communications group may experience lower...

  • Page 17
    The following table sets forth for the periods indicated certain statements of income data for the Communications group expressed as a percentage of net sales: C O M M U N I C A T I O N S 1998 Net sales: Cellular product- wholesale...Cellular product- retail ...Activation commissions...Residual ...

  • Page 18
    ...During 1998, the Company purchased 400,000 Japanese Yen (approximately $3,132) of Shintom Convertible Debentures (Shintom Debentures). The Company exercised its option to convert the Shintom Debentures into shares of Shintom Common Stock. Also during 1998, the Company purchased an additional 400,000...

  • Page 19
    ... The following table sets forth for the periods indicated certain statements of income data for the Communications group expressed as a percentage of net sales: C O M M U N I C A T I O N S 1997 Net sales: Cellular product- wholesale ...Cellular product- retail ...Activation commissions ...Residual...

  • Page 20
    ... the transfer of the Heavy Duty Sound business, pretax income increased $2,796 compared to 1996. The Company believes that the Automotive 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...

  • Page 21
    ... from the sale of investment securities. Financing activities used approximately $8,113, primarily from net repayments under line of credit agreements and repurchase of Class A Common Stock and warrants. On February 9, 1996, the Company's 10.8% Series AA and 11.0% Series BB Convertible Debentures...

  • Page 22
    ... segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Operating segments...

  • Page 23
    ......Retained earnings ...Cumulative foreign currency translation and adjustment ...Unrealized gain on marketable securities, net...Unrealized gain on equity collar, net ...Gain on hedge of available-for-sale securities, net ...Treasury stock, at cost, 498,055 and 290,000 Class A common stock 1998 and...

  • Page 24
    ... (714) (33,710) (20,635) 5,834 $ (26,469) $ $ (2.82) (2.82) Net sales...Cost of sales (including an inventory writedown to market in 1998 of $6,600)...Gross profit...Operating expenses: Selling ...General and administrative ...Warehousing, assembly and repair...Total operating expenses ...Operating...

  • Page 25
    ...) ...Options and non-performance restricted stock forfeitures due to employee terminations ...Purchase of warrants ...Acquisition of 208,055 common shares ...Net unrealized loss on marketable securities, net of tax effect of $4,928 ...Sale of equity collar, net of tax effect of $1,043 ...Balances at...

  • Page 26
    ..., net...Net proceeds from sale of investment securities ...Proceeds from sale of equity collar ...Proceeds from distribution from equity investment...Net cash provided by (used in) investing activities ...Cash flows from financing activities: Net repayments under line of credit agreements ...Net...

  • Page 27
    ...Company's automotive sound, security and accessory products include stereo cassette radios, compact disc players and changers, amplifiers, speakers and mobile LCD TV and video cassette playback units; key based remote control security systems; cruise controls and door and trunk locks. These products...

  • Page 28
    ... or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until...

  • Page 29
    ...a liability for estimated cellular deactivations which is reflected in the accompanying consolidated financial statements as a reduction of accounts receivable. The Company recognizes sales revenue for the initial activation, length of service commissions and residual commissions based upon usage on...

  • Page 30
    ... Board Opinion No. 25, "Accounting for Stock Issued to Employees" (Opinion 25), and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On December 1, 1996, the Company...

  • Page 31
    ... 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 permitting the use of the Audiovox trademark to be used with TALK video cassette recorders sold in Japan from August...

  • Page 32
    ... protection treatments; 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 automotive sound 30

  • Page 33
    ... New Zealand; 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; and Quintex West, which is in the cellular telephone and related communication products business, as well as the automotive aftermarket...

  • Page 34
    ..., among other things, minimum levels of pre-tax income and minimum levels of net worth and working capital. Additionally, the agreement includes restrictions and limitations on payments of dividends, stock repurchases and capital expenditures. During 1998, the Company violated its covenant regarding...

  • Page 35
    ...loss that will be included in earnings. 33 During 1995, Audiovox Malaysia entered into a Secured Term Loan for 1,700 Malaysian Ringgits (approximately $675) to acquire a building. The loan was secured by the property acquired and bore interest at 1.5% above the Malaysian base lending rate which was...

  • Page 36
    ... 30, 1998. Further, management believes the existing net deductible temporary differences will reverse during periods in which the Company generates net taxable income. There can be no assurance, however, that the Company will generate any earnings or any specific level of continuing earnings in the...

  • Page 37
    ... net earnings and earnings per share as if such method had been used to account for stock-based compensation costs as described in Statement 123. The per share weighted average fair value of stock options granted during 1998 was $3.45 on the date of grant using the Black-Scholes option-pricing model...

  • Page 38
    ... 955,000 162,750 $ 6.30 $12.08 (b) Restricted Stock Plan The Company has restricted stock plans under which key employees and directors may be awarded restricted stock. Total restricted stock outstanding, granted under these plans, at November 30, 1998 and 1997 was 72,428 and 78,500, respectively...

  • Page 39
    ... average common shares (denominator for net income (loss) per common share, basic)...Effect of dilutive securities: Employee stock options and stock warrants ...Employee stock grants ...Convertible debentures...Weighted average common and potential common shares outstanding (denominator for net...

  • Page 40
    ... 30, 1996, two customers, a Bell Operating Company and a cellular carrier and service provider accounted for approximately 12% and 9%, respectively, of the Company's 1996 sales. The Company generally grants credit based upon analyses of its customers' financial position and previously established...

  • Page 41
    ...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 automotive sales. A relatively...

  • Page 42
    ... years in the three-year period ended November 30, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with...

  • Page 43
    ... November 30, 1998. Philip Christopher Executive Vice President President, CEO, Audiovox Communications Corp. Charles M. Stoehr Senior Vice President, Chief Financial Officer Patrick Lavelle Senior Vice President, Automotive Electronics Ann Boutcher Vice President, Marketing Richard Maddia Vice...

  • Page 44
    150 Marcus Boulevard Hauppauge, New York 11788 (516) 231-7750