Audiovox 1999 Annual Report Download

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1999 ANNUAL REPORT
OF TECHNOLOGY
On the CCuuttttiinngg EEddggee
AUDIOVOX

Table of contents

  • Page 1
    A U D I O V O X 1999 ANNUAL REPORT O n t h e Cutting Edge O F T E C H N O L O G Y

  • Page 2
    ...80% of our revenue. Audiovox Communications Corp. sells wireless handsets and accessories through Bell Operating Companies, domestic and international wireless carriers and their agents, independent distributors and retailers. Mobile and Consumer Electronics Our Electronics group, which accounts for...

  • Page 3
    ... convertible debentures into 2,860,925 shares of common stock and a related tax expense of $158,000; • A pre-tax gain of $37.5 million on sale of shares of CellStar Corporation held by the Company and a related tax expense of $14.2 million; • A $12.2 million increase in stockholders' equity, net...

  • Page 4
    ..., we will continue to introduce new products, such as smart phones for data/web applications, as new technologies that support them develop. Our electronics division also had a very good year, posting a strong 31% growth over fiscal 1998. Our FRS two-way radios first introduced in 1998 gained...

  • Page 5
    ... name. Centered on the theme "Audiovox...I Want One" the campaign showcases our new high tech products. Our goal is to leverage the Audiovox brand to enhance brand identity of our product lines as we continue to introduce products in new and existing markets. John J. Shalam Chairman, President & CEO...

  • Page 6
    ... to the needs of our customer base is well documented and we remain on track to those stated goals. In a few weeks Audiovox Communications Corp. has entered the 21st century on the heels of the best year in our history. A sales increase of 110% has propelled our Company to the forefront of an...

  • Page 7
    The CDM-9000 T H E s u p p o r t s marketing efforts of N AT I O N W I D E the carriers and we believe it will become the cornerstone of our product lineup. P h i l i p C h r i s t o p h e r, P r e s i d e n t & C E O , A u d i o v o x C o m m u n i c a t i o n s C o r p . 5 A U D I O V O X

  • Page 8
    T h e m o s t i n t r i g u i n g S H A R E M A R K E T development... is the emergence of Audiovox as a legitimate challenger to the elite group of U.S. market handset suppliers. Dataquest 6 A U D I O V O X

  • Page 9
    ... centers and/or sales offices in the United States, Canada, Japan, Korea, Malaysia, Taiwan, Thailand, Peru, Venezuela and the Netherlands. We sell wireless products to the wireless carriers and their respective agents, distributors and retailers. Some of our key customers in 1999 included Bell...

  • Page 10
    ... stereo; two-way (FRS) radios and Internet related products. The Electronics division also supports a considerable OE and private label effort for vehicle manufacturers. The QS/ISO 9001 Registration awarded in 1999 greatly enhances the OE sales effort. The Division's mobile video sales were driven...

  • Page 11
    We b e l i e v e T H AT F O C U S I N G O N high-demand, high growth niche products results in better profit margins and growth potential for our electronics business. Patrick Lavelle, Senior Vice President 9 A U D I O V O X

  • Page 12
    ... improved web site for the Company. Equity Investments Audiovox Corporation maintains equity investments in unconsolidated entities that it utilizes to augment operations and distribution. Talk Corporation, a 31% investment, provides us with wireless products. Automotive Specialty Applications (ASA...

  • Page 13
    ... Holdings (M) Sdn. Bhd. and Audiovox Venezuela, C.A., which are wholly-owned subsidiaries. The Electronics Group markets automotive sound and security systems, electronic car accessories, home and portable sound products, FRS radios and in-vehicle video systems. Sales are made through an extensive...

  • Page 14
    ... of mobile video entertainment systems and other new technologies • the Asian financial crisis in 1998 Gross margins in the Company's electronics business increased from 18.9% in 1996 to 20.3% for fiscal 1999 due, in part, to higher margins in mobile video products and other new technologies...

  • Page 15
    ... attributable to Net sales were $230,234 in fiscal 1999, a 31.5% increase from net sales of $175,105 in fiscal 1998. All product categories experienced an increase in sales, particularly in the mobile and consumer electronics product lines. Sales of mobile video, in the mobile electronics category...

  • Page 16
    ...and direct labor. Pre-tax income for fiscal 1999 was $11,296, an increase of $5,359 from fiscal 1998. The Company believes that the Electronics 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 17
    ...sales of autosound, mobile and consumer electronics products increased approximately $4.7 million, or 3.7%, from 1997. The main components of this increase were our mobile video and consumer products categories. The domestic operations sales grew by $7.3 million, or 5.9%, before the Heavy Duty Sound...

  • Page 18
    ... dividends, repurchase stock and make capital expenditures or acquisitions. Borrowings under the credit facility bear interest, payable monthly, based on the annual interest rate publicly announced by The Chase Manhattan Bank as its prime rate in effect at its principal office in New York plus the...

  • Page 19
    ... a hypothetical 10% adverse change in prices quoted by stock exchanges and amounts to $3,040 as of November 30, 1999. Actual results may differ. Interest Rate Risk The Company's bank loans expose earnings to changes in short-term interest rates since interest rates on the underlying obligations are...

  • Page 20
    ...,909 outstanding 1998 and 1999, respectively ...Class B convertible; 10,000,000 authorized; 2,260,954 issued and outstanding ...Paid-in capital ...Retained earnings ...Accumulated other comprehensive income (loss)...Gain on hedge of available-for-sale securities, net ...Treasury stock, at cost, 498...

  • Page 21
    ...: Selling ...General and administrative ...Warehousing, assembly and repair ...Total operating expenses ...Operating income ...Other income (expense): Debt conversion expense ...Interest and bank charges...Equity in income of equity investments, management fees and related income, net...Gain on sale...

  • Page 22
    ... and 1999 (In thousands, except share data) Preferred Stock Common Stock Paid-In Capital Unearned Compensation Accumulated Other Comprehensive Retained Income Earnings (Loss) Unrealized Gain on Equity Collar Gain on Hedge of Availablefor-Sale Securities Treasury Stock Total Stockholders...

  • Page 23
    ... from issuance of Class A common stock ...Proceeds from exercise of stock options and warrants ...Repurchase of Class A common stock...Purchase of warrants...Net cash provided by (used in) financing activities...Effect of exchange rate changes on cash...Net decrease in cash...Cash at beginning...

  • Page 24
    ...share data) (1) Summary of Significant Accounting Policies (a) Description of Business Audiovox Corporation and its subsidiaries (the Company) design and market a diverse line of products and provide related services throughout the world. These products and services include handsets and accessories...

  • Page 25
    ...Equity Investments The Company has common stock investments which are accounted for by the equity method (Note 10). (l) Cellular Telephone Commissions Under various agency agreements, the Company receives an initial activation commission for obtaining subscribers for cellular telephone services. The...

  • Page 26
    ...Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations, in accounting for its stock-based compensation plans. (v) Reporting Comprehensive Income Effective December 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130...

  • Page 27
    ... A common stock, valued at five dollars per share, in exchange for a 20% interest in Bliss-tel Company, Limited (Bliss-tel) (Note 10). During 1997, the Company contributed $6,475 in net assets in exchange for a 50% ownership interest in Audiovox Specialized Applications, LLC (ASA) which resulted...

  • Page 28
    ...400,000 Japanese yen (approximately $9,586) of Shintom debentures and exercised its option to convert 737,212 Japanese yen of Shintom debentures into shares of Shintom common stock. The Company sold the Shintom common stock yielding net proceeds of $5,830 and a gain of $787. During 1999, the Company...

  • Page 29
    ... sound, security and accessory products; Audiovox Pacific Pty., Limited (Audiovox Pacific) which was a former distributor of cellular telephones and automotive sound and security products in Australia and New Zealand; G.L.M. Wireless Communications, Inc. (G.L.M.) which is in the cellular telephone...

  • Page 30
    ...of November 30, 1999. The credit agreement contains several covenants requiring, 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...

  • Page 31
    ...loss) on investment securities recognized for financial reporting purposes ...Unrealized holding gain on equity collar recognized for financial reporting purposes ...Income tax benefit of employee stock option exercises ...Total income tax expense (benefit)...$22,420 November 30, 1998 1999 $ 829 $15...

  • Page 32
    ... 30, 1999. 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 33
    ...219 at November 30, 1998 and 1999, respectively. (15) Stock-Based Compensation and Stock Warrants (a) Stock Options The Company has stock option plans under which employees and nonemployee directors may be granted incentive stock options (ISO's) and non-qualified stock options (NQSO's) to purchase...

  • Page 34
    ... Company granted warrants to purchase 50,000 shares of Class A Common Stock at a purchase price of $14.375 per share as part of the acquisition of H & H Eastern Distributors, Inc. During fiscal 1999, the warrants were surrendered for cancellation, and the holder agreed to waive registration rights...

  • Page 35
    ... and equipment from its principal stockholder and several officers. Rentals for such leases are considered by management of the Company to approximate prevailing market rates. At November 30, 1999, minimum annual rental payments on these related party leases, in addition to the capital lease...

  • Page 36
    ... 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 small number of the Company's significant customers are deemed to be highly leveraged. (d) Fair...

  • Page 37
    ... letters of credit to guarantee the bank obligations of Audiovox Communications Sdn. Bhd. and Audiovox Venezuela (Note 19(b)). (22) Subsequent Event The Company is anticipating selling 2,000,000 shares of its Class A Common Stock to the public during the first quarter of fiscal 2000. In connection...

  • Page 38
    .... Melville, New York January 13, 2000 M a r k e t f o r t h e Audiovox Corporation and Subsidiaries R E G I S T R A N T ' S C O M M O N E Q U I T Y A N D R E L AT E D S T O C K H O L D E R M AT T E R S Summary of Stock Prices and Dividend Data The Class A Common Stock of Audiovox is traded on...

  • Page 39
    ... information contact Edelman Public Relations Worldwide. FORM 10-K Copies of the corporation's annual report on Form 10K are available from: Audiovox Corporation Stockholders' Relations at Edelman Public Relations Worldwide 1500 Broadway New York, New York 10036-4015 Audiovox Corporation is an Equal...

  • Page 40
    150 Marcus Boulevard Hauppauge, New York 11788 (631) 231-7750