Audiovox 1998 Annual Report Download - page 35

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 associ-
ated with the Subordinated Debentures (Note 1(h)) 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
$2,888 was recorded. An increase to paid in capital was
reflected for the face value of the bonds converted, plus 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 for a total of $63,564.
During January 1997, the Company completed additional
exchanges totaling $21,479 of its $65,000 Subordinated
Debentures for 2,860,925 shares of Class A Common Stock
(Additional Exchanges). As a result of the Additional
Exchanges, similar to that of the Exchange described earlier,
a charge of $12,686, tax expense of $158 and an increase to
paid in capital of $33,592, was recorded. As a result of the
Exchange and Additional Exchanges, the remaining
Subordinated Debentures are $2,269.
On March 8, 1994, the Company entered into a
Debenture Exchange Agreement and exchanged certain
debentures for Series AA and Series BB Convertible
Debentures (Debentures). The Debentures were convertible
at any time at $5.34 per share, which is subject to adjust-
ment in certain circumstances, and were secured by a
standby letter of credit. Although the Debenture Exchange
Agreement provides for optional prepayments under certain
circumstances, such prepayments are restricted by the credit
agreement (Note 9(a)). On February 9, 1996, the holders of
$1,100 of the Series BB Convertible Debentures exercised
their right to convert into 206,046 shares of Class A
Common Stock. The remaining balance of the Debentures
were repaid during 1996; thereby extinguishing the remain-
ing conversion features of these Debentures.
On October 20, 1994, the Company issued a note payable
for 500,000 Japanese Yen (approximately $4,062 and $3,922
on November 30, 1998 and 1997, respectively) to finance its
investment in TALK (Note 8). The note is scheduled to be
repaid on October 20, 2004 and bears interest at 4.1%. The
note can be repaid by cash payment or by giving 10,000
shares of its TALK investment to the lender. The lender has
an option to acquire 2,000 shares of TALK held by the
Company in exchange for releasing the Company from 20%
of the face value of the note at any time after October 20,
1995. This note and the investment in TALK are both
denominated in Japanese Yen, and, as such, the foreign cur-
rency translation adjustments are accounted for as a hedge.
Any foreign currency translation adjustment resulting from
the note will be recorded in stockholders’ equity to the
extent that the adjustment is less than or equal to the
adjustment from the translation of the investment in TALK.
Any portion of the adjustment from the translation of the
note that exceeds the adjustment from the translation of the
investment in TALK is a transaction gain or loss that will be
included in earnings.
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 9.2% on November 30, 1996. The loan
was payable in 120 monthly equal installments commencing
October 1995, however, was fully repaid in November 1996.
Maturities on long-term debt for the next five fiscal years
are as follows:
1999.......................................................................................... —
2000.......................................................................................... —
2001.......................................................................................... $2,269
2002.......................................................................................... —
2003.......................................................................................... —
(11) Income Taxes
The components of income (loss) before the provision for
income taxes are as follows:
November 30,
1998 1997 1996
Domestic Operations............... $ 5,380 $42,613 $(21,899)
Foreign Operations.................. (1,579) 829 1,264
$ 3,801 $43,442 $(20,635)
Total income tax expense (recovery) was allocated as follows:
November 30,
1998 1997
Income from continuing operations........... $ 829 $22,420
Stockholders’ equity
Unrealized holding gain (loss) on
investment securities recognized
for financial reporting purposes ......... (4,928) 1,174
Unrealized holding gain on equity
collar recognized for financial
reporting purposes .............................. (1,043) 473
Total income tax
expense (recovery) ....................... $(5,142) $24,067
The provision for (recovery of) income taxes attributable
to income from continuing operations is comprised of:
Federal Foreign State Total
1996:
Current.......................... $ 3,711 $ 802 $ 853 $ 5,366
Deferred........................ 330 — 138 468
$ 4,041 $ 802 $ 991 $ 5,834
1997:
Current.......................... $ 23,316 $1,159 $1,068 $25,543
Deferred........................ (2,845) — (278) (3,123)
$ 20,471 $1,159 $ 790 $22,420
1998:
Current...................... $ 1,499 $ (119) $ 351 $ 1,731
Deferred ................... (819) — (83) (902)
$ 680 $ (119) $ 268 $ 829
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