Audiovox 2000 Annual Report Download - page 17

During 1999, the Company recorded an other-than-temporary decline in
market value of its Shintom common stock in the amount of $1,953 and a
related deferred tax benefit of $761. The write-down has been recorded as
a component of other expense in the consolidated statements of income.
During 1999, the Company purchased an additional 3,100,000 Japanese
yen (approximately $27,467) of Shintom Debentures and exercised its
option to convert 2,882,788 Japanese yen of Shintom debentures into
shares of Shintom common stock. The Company sold the Shintom com-
mon stock yielding net proceeds of $27,916 and a gain of $3,501.
On March 31, 1999, Toshiba Corporation, a major supplier, purchased 5%
of the Company’s subsidiary, Audiovox Communications Corp. (ACC), a
supplier of wireless products for $5,000 in cash. The Company currently
owns 95% of ACC; prior to the transaction, ACC was a wholly-owned sub-
sidiary. As a result of the issuance of ACC’s shares, the Company recog-
nized a gain of $3,800 ($2,470 net of deferred taxes) during 1999.
During 2000, the Company exercised its option to convert 800,000
Japanese yen of Shintom debentures into shares of Shintom common
stock. The Company sold the Shintom common stock, yielding net pro-
ceeds of $12,376 and a gain of $1,850.
During 2000, the Company sold 200,000 shares of its CellStar common stock
yielding net proceeds of $851 and a gain of $537. In connection with the sale
of the shares, the Company recognized $1,499 ($929 net of taxes) represent-
ing the net gain on the hedge of the available-for-sale securities (See Note
21(a)(2) to the consolidated financial statements for further discussion).
PROVISION FOR INCOME TAXES
The effective tax rate for 1999 and 2000 was 36.2% and $37.3%, respec-
tively. The increase in the effective tax rate was due to increased foreign
taxes offset by a decrease in the valuation allowance and a decrease in
state income taxes.
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 $917,085 in
fiscal year 1999, a 112% increase from sales of $431,740 in fiscal 1998.
Unit sales of wireless handsets increased 83.2% to approximately
6,067,000 units in fiscal 1999 from approximately 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 $242,452 in fiscal 1999, a 31% increase
from sales of $184,955 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 fis-
cal 1998. This decline in profit margin resulted primarily from margin
reductions in Wireless 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 state-
ments of income (loss) data for Wireless expressed as a percentage of
net sales:
1998 1999
Net sales:
Wireless products $401,184 92.9% $883,537 96.3%
Activation commissions 21,438 5.0 24,412 2.7
Residual fees 3,592 0.8 2,939 0.3
Other 5,526 1.3 6,197 0.7
Total net sales 431,740 100.0 917,085 100.0
Gross profit 46,654 10.8 81,679 8.9
Total operating expenses 42,917 9.9 44,248 4.8
Operating income 3,737 0.9 37,431 4.1
Other expense (5,588) (1.3) (6,176) (0.7)
Pre-tax income (loss) $ (1,851) (0.4)% $ 31,255 3.3%
Wireless is composed of ACC and Quintex, both subsidiaries of the
Company.
AUDIOVOX CORPORATION AND SUBSIDIARIES
AUDIOVOX 15