Audiovox 1998 Annual Report Download - page 18

Management fees and equity in income from joint venture
investments decreased by approximately $361 for 1998 com-
pared to 1997 as detailed in the following table:
1998 1997
Manage- Equity Manage- Equity
ment Income ment Income
Fees (Loss) Total Fees (Loss) Total
Bliss-tel ..... — $ (13) $ (13) — — —
ASA........... — 1,860 1,860 — $1,857 $1,857
TALK ......... — (509) (509) — — —
G.L.M........ $ 7 — 7 $ 12 — 12
Pacific ....... — (337) (337) — (685) (685)
Posse ........ 29 70 99 97 187 284
$36 $1,071 $1,107 $109 $1,359 $1,468
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 Japanese Yen (approximately $2,732) of Shintom
Debentures. The Company exercised its option to convert
the Shintom Debentures into shares of Shintom Common
Stock. The Company sold the Shintom Common Stock
yielding net proceeds of $3,159 and a gain of $427.
In addition, the Company purchased 1,000,000 Japanese
Yen (approximately $6,854) of Shintom Debentures. The
Company exercised its option to convert 337,212 Japanese
Yen of Shintom Debentures into shares of Shintom Common
Stock. The Company sold the Shintom Common Stock
yielding net proceeds of $2,671 and a gain of $360.
During January 1997, the Company completed an
exchange of $21,479 of its subordinated debentures for
2,860,925 shares of Class A Common Stock (Exchange). As a
result of the Exchange, a charge of $12,686 was recorded.
The charge to earnings represents (i) the difference in the
fair market value of the shares issued in the Exchange and
the fair market value of the shares that would have been
issued under the terms of the original conversion feature
plus (ii) a write-off of the debt issuance costs associated with
the subordinated debentures plus (iii) expenses associated
with the Exchange offer. The Exchange resulted in taxable
income due to the difference in the face value of the bonds
converted and the fair market value of the shares issued
and, as such, a current tax expense of $158 was recorded.
An increase in paid in capital was reflected for the face value
of the bonds converted, plus the difference in the fair mar-
ket value of the shares issued in the Exchange and the fair
market value of the shares that would have been issued
under the terms of the original conversion feature for a total
of $33,592.
During 1997 the Company sold a total of 1,835,000 shares of
CellStar for net proceeds of $45,937 and a net gain of $23,232.
Provision for Income Taxes
Income taxes are provided for at a blended federal and
state rate of 40% for profits from normal business opera-
tions. During 1998, the Company recorded $350 of tax ben-
efit as a result of certain tax examinations. In addition, the
Company implemented various tax strategies which have
resulted in lowering the effective tax rate. During 1997, the
Company had several non-operating events which had tax
provisions calculated at specific rates, determined by the
nature of the transaction.
Fiscal 1997 Compared to Fiscal 1996
Consolidated Results
Net sales were $639,082 for 1997, an increase of $41,167,
or 6.9%, from 1996. The increase in net sales was accompa-
nied by a corresponding increase in gross profit margins to
16.7% from 16.1% in 1996. Operating expenses increased to
$87,067 from $83,313, a 4.5% increase. Operating income
for 1997 was $19,695, an increase of $6,620, or 50.6%, com-
pared to 1996. During 1997, the Company sold 1,835,000
shares of its holdings of CellStar for a net gain of $23,232.
Also during 1997, the Company exchanged $21,479 of its
subordinated debentures for 2,860,925 shares of Class A
Common Stock. Costs associated with this exchange were
$12,844, including income taxes.
16
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
AUDIOVOX CORPORATION AND SUBSIDIARIES