Audiovox 1999 Annual Report Download - page 17

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AUDIOVOX
The net sales and percentage of net sales of the Wireless Group are
reflected in the following table:
1997 1998
(Dollars in thousands)
Net sales:
Wireless product................ $396,510 89.2% $402,606 91.1%
Activation commissions..... 31,061 7.0 22,785 5.1
Residual fees...................... 4,688 1.1 4,452 1.0
Other................................... 12,141 2.7 11,747 2.7
Total net sales................ 444,400 100.0 441,590 100.0
Gross profit............................. 66,117 14.9 52,270 11.8
Total operating expenses....... 49,582 11.2 48,257 10.9
Operating income................... 16,535 3.7 4,013 0.9
Other expense........................ (4,953) (1.1) (5,799) (1.3)
Pre-tax income (loss).............. $ 11,582 2.6% $ (1,786) (0.4)%
Electronics Group Results
Net sales in 1998 were $175,105, a decrease of approximately
$18,805, or 9.7%, from 1997. This decrease was primarily from a $21.3
million decrease in net sales in our foreign subsidiaries, primarily
Malaysia, composed chiefly of security and accessory products. Domestic
operation sales of autosound, mobile and consumer electronics products
increased approximately $4.7 million, or 3.7%, from 1997. The main com-
ponents 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 division was transferred to one of our equity
investments during 1997.
Operating expenses decreased 3.1% from 1997 to $27,126, primarily
in our international operations. This was partially offset by an increase in
domestic operating expenses. Selling expenses decreased during 1998,
primarily in commissions and salaries in our foreign companies and mar-
ket development funds and co-operative advertising in our domestic oper-
ations. This was partially offset by increases in domestic commissions
and trade show expenses. General and administrative expenses
decreased from 1997, mostly in foreign office expenses, bad debt
expense and executive salaries, both domestic and foreign. These
decreases were partially offset by increases in office salaries, domesti-
cally, and professional fees, both domestic and foreign. Warehousing and
assembly expenses increased from 1997, primarily in field warehousing
and direct labor. Pre-tax income decreased $2,065 from 1997, primarily
due to a decrease of $2.6 million from foreign operations, partially offset
by an increase in pre-tax income from domestic operations.
The net sales and percentage of net sales of the Electronics Group are
reflected in the following table:
1997 1998
(Dollars in thousands)
Net sales:
Sound................................. $ 91,763 47.3% $ 78,338 44.8%
Mobile electronics............. 97,446 50.3 84,973 48.5
Consumer electronics........ 4,701 2.4 11,794 6.7
Total net sales............... 193,910 100.0 175,105 100.0
Gross profit............................ 40,326 20.8 36,433 20.8
Total operating expenses...... 27,989 14.4 27,126 15.5
Operating income .................. 12,337 6.4 9,307 5.3
Other expense ....................... (4,335) (2.2) (3,370) (1.9)
Pre-tax income....................... $ 8,002 4.1% $ 5,937 3.4%
Other Income and Expense
Interest expense and bank charges increased $2,227 during 1998 from
1997. This increase was primarily due to an increase in average outstand-
ing interest bearing debt. Another major factor was the increase in inter-
est rates experienced by our subsidiary in Venezuela. The increase in the
rates, coupled with the additional outstanding debt as a result of the
growth of that operation, resulted in an increase in Venezuelan interest
expense of $975.
Management fees and equity in income from joint venture invest-
ments decreased by approximately $361 for 1998 compared to 1997 as
detailed in the following table:
1997 1998
(Dollars in thousands)
Manage- Equity Manage- Equity
ment Income ment Income
Fees (Loss) Total Fees (Loss) Total
Bliss-tel ............. — — — — $ (13) $ (13)
ASA ................... — $1,857 $1,857 — 1,860 1,860
TALK .................. — — — — (509) (509)
G.L.M................. $ 12 — 12 $ 7 — 7
Pacific................ — (685) (685) — (337) (337)
Posse ................. 97 187 284 29 70 99
$109 $1,359 $1,468 $36 $1,071 $1,107
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.
During 1998, the Company purchased 400,000 Japanese yen (approxi-
mately $3,132) of Shintom Debentures. The Company exercised its option
to convert the Shintom Debentures into shares of Shintom common stock.
These shares are included in the Company’s available-for-sale marketable
securities at November 30, 1998. During the fourth quarter of 1999, the
Company recorded an other-than-temporary decline in market value of its
Shintom common stock in the amount of $1,953. The write-down has
been recorded as a component of other expense in the consolidated
statements of income. In connection with the write-down, the Company
also recorded a deferred tax recovery in the amount of $761 in the accom-
panying consolidated statements of income.
During 1998, the Company purchased an additional 1,400,000
Japanese yen (approximately $9,586) of Shintom Debentures. The
Company 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 January 1997, the Company completed an exchange of
$21,479 of its subordinated debentures for 2,860,925 shares of Class A
common stock. As a result of this exchange, the Company recorded a
charge of $12,686. The charge to earnings represents (1) 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 (2) a write-off of the debt issuance
costs associated with the subordinated debentures plus (3) 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