Audiovox 1999 Annual Report Download - page 29

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AUDIOVOX
(10) Equity Investments
As of November 30, 1999, the Company had a 30.8% ownership inter-
est in TALK, a major supplier of the Company. As of November 30, 1999,
the Company’s 72% owned subsidiary, Audiovox Communications Sdn.
Bhd., had a 29% ownership interest in Avx Posse (Malaysia) Sdn. Bhd.
(Posse) which monitors car security commands through a satellite based
system in Malaysia. As of November 30, 1999, the Company had a 20%
ownership interest in Bliss-tel which distributes cellular telephones and
accessories in Thailand. Additionally, the Company had 50% non-control-
ling ownership interests in five other entities: Protector Corporation
(Protector) which acts as a distributor of chemical protection treatments;
ASA which acts as a distributor to specialized markets for RV’s and van
conversions, of televisions and other automotive 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,
pager and communications business in the New York metropolitan area;
and Quintex West, which is in the cellular telephone and related commu-
nication products business, as well as the automotive aftermarket prod-
ucts 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 com-
mon 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. 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 approximately $11,131. The Company
contributed the net assets of its Heavy Duty Sound division, its 50% inter-
est in Audiovox Specialty Markets Co. (ASMC) and $4,656 in cash. In con-
nection 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 pur-
chase agreement with the Investor in ASA. The agreement provides for
the sale of 352,194 shares of Class A Common Stock at $6.61 per share
(aggregate proceeds of approximately $2,328) by the Company to the
Investor. The transaction resulted in a net increase to additional paid-in
capital of approximately $2,242. The selling price of the shares are sub-
ject 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 regis-
tration 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 adjustment to the selling price of
$410 as additional excess cost over fair value of assets acquired. No fur-
ther adjustments to the selling price can be made.
The Company’s net sales to the equity investments amounted to
$6,132, $4,528 and $4,605 for the years ended November 30, 1997, 1998
and 1999, respectively. The Company’s purchases from the equity invest-
ments amounted to $7,484, $91,095 and $146,803 for the years ended
November 30, 1997, 1998 and 1999, respectively. The Company recorded
$2,027, $1,752 and $1,735 of outside representative commission
expenses for activations and residuals generated by G.L.M. on the
Company’s behalf during fiscal year 1997, 1998 and 1999, respectively.
During the fourth quarter of 1999, the Company recorded $1,121 of equity
income from TALK.
Included in accounts receivable at November 30, 1998 and 1999 are
trade receivables due from its equity investments aggregating $1,035 and
$1,057, respectively. Receivable from vendor includes $833 and $3,741
due from TALK as of November 30, 1998 and 1999, respectively, which
represents prepayments on product shipments and interest. Interest is
payable in monthly installments at 6.5% on amounts due from TALK.
Amounts representing prepayments of $3,500 were repaid via receipt of
product shipments in December 1999. At November 30, 1998 and 1999,
other long-term assets include management fee receivables of $1,271
and $459, respectively. At November 30, 1998 and 1999, included in
accounts payable and other accrued expenses were obligations to equity
investments aggregating $1,049 and $1,015, respectively. Documentary
acceptance obligations were outstanding from TALK at November 30,
1999 (Note 11(b)).
For the years ended November 30, 1997, 1998 and 1999, interest
income earned on equity investment notes and other receivables approxi-
mated $653, $480 and $482, respectively. Interest expense on documen-
tary acceptances payable to TALK approximated $203, $256 and $228 in
1997, 1998 and 1999, respectively.
(11) Financing Arrangements
(a) Bank Obligations
The Company maintains a revolving credit agreement with various
financial institutions. During the year ended November 30, 1999, the
credit agreement was amended and restated in its entirety, extending the
expiration date to July 27, 2004. As a result, bank obligations under the
credit agreement have been classified as long- term at November 30,
1999. The amended and restated credit agreement provides for $200,000
of available credit, including $15,000 for foreign currency borrowings. In
December 1999, the credit agreement was further amended, resulting in
an increase in available credit to $250,000.
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, 1999, availability of credit
under the credit agreement is a maximum aggregate amount of $200,000,
subject to certain conditions, based upon a formula taking into account
the amount and quality of its accounts receivable and inventory. At
November 30, 1999, the amount of unused available credit is $46,930.
The credit agreement also allows for commitment up to $50,000 in for-
ward exchange contracts (Note 19(a)(1)).