Audiovox 1999 Annual Report Download - page 15

13
AUDIOVOX
Fiscal 1998 Compared to Fiscal 1999
Consolidated Results
Net sales for fiscal 1999 were $1,159,537, an 88% increase from net
sales of $616,595 in fiscal 1998. Wireless Group sales were $929,303 in
fiscal year 1999, a 110% increase from sales of $441,590 in fiscal 1998.
Unit sales of wireless handsets increased 83.2% to approximately
6,067,000 units in fiscal 1999 from 3,311,000 units in fiscal 1998. The
average selling price of the Company’s handsets increased to $140 per
unit in fiscal 1999 from $114 per unit in fiscal 1998.
Electronics Group sales were $230,234 in fiscal 1999, a 31% increase
from sales of $175,105 in fiscal 1998. This increase was largely due to
increased sales in the mobile video and consumer electronics product
lines. Sales by the Company’s international subsidiaries increased 14.2%
in fiscal 1999 to approximately $25,100 as a result of improvements in
both the Malaysian and Venezuelan subsidiaries.
Gross profit margin for fiscal 1999 was 11.6%, compared to 14.4% in
fiscal 1998. This decline in profit margin resulted primarily from margin
reductions in the Wireless Group attributable to increased sales of digital
handsets, which have lower margins than analog handsets, and was also
affected by decreases in Latin American sales and margins. Gross profit
increased 52.1% to $134,628 in fiscal 1999, versus $88,541 in fiscal 1998.
Operating expenses were $96,391 in fiscal 1999, compared to $83,670
in fiscal 1998. As a percentage of net sales, operating expenses decreased
to 8.3% in fiscal 1999 from 13.6% in fiscal 1998. Operating income for
fiscal 1999 was $38,237, an increase of $33,366 from fiscal 1998.
Net income for fiscal 1999 was $27,246, an increase of 817% from
net income of $2,972 in fiscal 1998. Earnings per share were $1.43, basic,
and $1.39, diluted, in fiscal 1999 compared to $0.16, basic and diluted, in
fiscal 1998.
Wireless Results
The following table sets forth for the fiscal years indicated certain
statements of income (loss) data for the Wireless Group expressed as a
percentage of net sales:
1998 1999
Net sales:
Wireless products.............. $402,606 91.1% $886,509 95.4%
Activation commissions..... 22,785 5.2 25,873 2.8
Residual fees...................... 4,452 1.0 3,674 0.4
Other................................... 11,747 2.7 13,247 1.4
Total net sales................ 441,590 100.0 929,303 100.0
Gross profit............................. 52,270 11.8 87,807 9.5
Total operating expenses....... 48,257 10.9 49,888 5.4
Operating income................... 4,013 0.9 37,919 4.1
Other expense........................ (5,799) (1.3) (6,664) (0.7)
Pre-tax income (loss).............. $ (1,786) (0.4)% $ 31,255 3.4%
The Wireless Group is composed of ACC and Quintex, both sub-
sidiaries of the Company. Since principally all of the net sales of Quintex
are wireless in nature, all operating results of Quintex are being included
in the discussion of the Wireless Group’s product line.
Net sales were $929,303 in fiscal 1999, an increase of $487,713, or
110%, from fiscal 1998. Unit sales of wireless handsets increased by
2,756,000 units in fiscal 1999, or 83.2%, to approximately 6,067,000 units
from 3,311,000 units in fiscal 1998. This increase was attributable to
sales of portable, digital products. The addition of four new suppliers also
provided a variety of new digital, wireless products that contributed to
the sales increase. The average selling price of handsets increased to
$140 per unit in fiscal 1999 from $114 per unit in fiscal 1998. The number
of new wireless subscriptions processed by Quintex increased 21.7% in
fiscal 1999, with a corresponding increase in activation commissions of
approximately $3,088 in fiscal 1999. The average commission received by
Quintex per activation decreased by approximately 6.7% in fiscal 1999
from fiscal 1998. Unit gross profit margins increased to 7.8% in fiscal
1999 from 7.3% in fiscal 1998, reflecting increased selling prices, which
were partially offset by a corresponding increase of 22.7% in average unit
cost. During fiscal 1998, the Company recorded a $6,600 charge to adjust
the carrying value of certain cellular inventories, partially offset by a
$1,000 credit from a supplier. This charge was 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 presence of digital handsets in the market. While the analog handset
market is still quite large, the Wireless Group may experience lower gross
profits in the future due to the price sensitivity of this market.
Operating expenses increased to $49,888 in fiscal 1999 from $48,257
in fiscal 1998. As a percentage of net sales, however, operating expenses
decreased to 5.4% during fiscal 1999 compared to 10.9% in fiscal 1998.
Selling expenses decreased to $22,784 in fiscal 1999 from $24,201 in fis-
cal 1998, primarily in divisional marketing and advertising, partially offset
by increases in travel expenses. General and administrative expenses
increased to $18,059 in fiscal 1999 from $15,904 in fiscal 1998, primarily
due to temporary personnel, insurance expense and provisions for doubt-
ful accounts. Warehousing, assembly and repair expenses increased to
$9,045 in fiscal 1999 from $8,150 in fiscal 1998, primarily due to direct
labor expenses. Pre-tax income for fiscal 1999 was $31,255, an increase
of $33,041 from fiscal 1998.
Management believes that the wireless industry is extremely compet-
itive and that this competition could affect gross margins and the carrying
value of inventories in the future.
Electronics Results
The following table sets forth for the fiscal years indicated certain
statements of income data for the Electronics Group expressed as a per-
centage of net sales:
1998 1999
Net sales:
Sound................................. $ 78,338 44.8% $ 78,713 34.2%
Mobile electronics............. 84,973 48.5 113,371 49.2
Consumer electronics........ 11,794 6.7 38,150 16.6
Total net sales............... 175,105 100.0 230,234 100.0
Gross profit............................ 36,433 20.8 46,819 20.3
Total operating expenses...... 27,126 15.5 32,977 14.3
Operating income .................. 9,307 5.3 13,842 6.0
Other expense ....................... (3,370) (1.9) (2,546) (1.1)
Pre-tax income....................... $ 5,937 3.4% $ 11,296 4.9%
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,