Audiovox 1998 Annual Report Download - page 33

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 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.
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 additional paid-in capital of
approximately $1,248. The Company accounts for its invest-
ment in Bliss-tel under the equity method of accounting. In
connection with the purchase, excess of the fair value of net
assets acquired over cost amounting to $320 was recorded
and is being amortized on a straight-line basis over 10 years.
During 1997, the Company purchased a 50% equity
investment in a newly-formed company, ASA, for approxi-
mately $11,131. The Company contributed the net assets of
its Heavy Duty Sound division, its 50% interest in Audiovox
Specialty Markets Co. (ASMC) and $4,656 in cash. In connec-
tion 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 pro-
vides for the sale of 352,194 shares of Class A Common
Stock at $6.61 per share (aggregate proceeds of approxi-
mately $2,328) by the Company to the Investor. The transac-
tion 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 later of
the effective date of the registration statement filed with the
Securities and Exchange Commission to register such shares
or May 13, 1998. The adjustment to the selling price will
equal the loss incurred by the Investor up to a maximum of
50% of the shares. During 1998, the Investor sold its shares
at a loss which resulted in the Company recording an adjust-
ment to the selling price of $410 as additional goodwill. No
further adjustments to the selling price can be made.
The Company’s net sales to the equity investments
amounted to $4,528, $6,132 and $6,483 for the years ended
November 30, 1998, 1997 and 1996, respectively. The
Company’s purchases from the equity investments
amounted to $15,383, $7,484 and $115,109 for the years
ended November 30, 1998, 1997 and 1996, respectively. The
Company recorded $1,752, $2,027 and $2,130 of outside
representative commission expenses for activations and
residuals generated by G.L.M. on the Company’s behalf dur-
ing fiscal year 1998, 1997 and 1996, respectively, (Note 1(l)).
Included in accounts receivable at November 30, 1998
and 1997 are trade receivables due from its equity invest-
ments aggregating $1,035 and $1,921, respectively.
Receivable from vendor is interest bearing and represents
claims on late deliveries, product modifications and price
protection from TALK as well as prepayments on product
shipments. Interest is payable in monthly installments at
6.5%. Amounts representing prepayments of $734 were
repaid via receipt of product shipments in December 1998.
At November 30, 1998 and 1997, other long-term assets
include management fee receivables of $1,271 and $1,496,
respectively. At November 30, 1998 and 1997, included in
accounts payable and other accrued expenses were obliga-
tions to equity investments aggregating $1,049 and $9,783,
respectively. Documentary acceptance obligations were out-
standing from TALK at November 30, 1998 (Note 9(b)).
During 1997, the Company recorded interest income from
TALK relating to the receivable from vendor, reimbursement
of interest expense incurred under the subordinated loan to
finance the TALK investment (Note 10) and other short-term
loans made to TALK during 1997 at market interest rates.
For the years ended November 30, 1998, 1997 and 1996,
interest income earned on equity investment notes and
other receivables approximated $480, $653 and $725,
respectively. Interest expense on equity investment docu-
mentary acceptances approximated $256, $203 and $198 in
1998, 1997 and 1996, respectively.
(9) Financing Arrangements
(a) Bank Obligations
The Company maintains a revolving credit agreement
with various financial institutions. Subsequent to year end,
the credit agreement has been amended and restated in its
entirety, extending the expiration date to December 31,
2001. As a result, bank obligations under the credit agree-
ment have been classified as long-term at November 30,
1998. The amended and restated credit agreement provides
for $112,500 of available credit.
Under the credit agreement, the Company may obtain
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 is
secured by accounts receivable, inventory and the
Company’s shares of ACC. As of November 30, 1998, avail-
ability of credit under the credit agreement is a maximum
aggregate amount of $95,000, subject to certain conditions,
and is based upon a formula taking into account the amount
and quality of its accounts receivable and inventory. At
November 30, 1998, the amount of unused available credit
is $43,085.
Outstanding obligations under the credit agreement at
November 30, 1998 and 1997 were as follows:
November 30,
1998 1997
Revolving Credit Notes ............................... $ 2,500 $18,300
Eurodollar Notes.......................................... 15,000 6,000
$17,500 $24,300
Through February 8, 1996, interest on revolving credit
notes were .25% above the prime rate, which was 8.75% at
November 30, 1995. For the same period, interest on
Eurodollar Notes were 2% above the Libor rate which was
approximately 5.1% at November 30, 1995 and interest on
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