Audiovox 2000 Annual Report Download - page 18

Net sales were $917,085 in fiscal 1999, an increase of $485,345, or
112%, 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 approximately 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 hand-
sets 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 23.3% in fiscal 1999, with a corresponding increase in activa-
tion commissions of approximately $2,974 in fiscal 1999. The average
commission received by Quintex per activation decreased by approxi-
mately 7.5% 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 of approximately 23.3%, which were partially off-
set by a corresponding increase of 22.7% in average unit cost. During fis-
cal 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 cer-
tain analog cellular phones, as well as a continuing decrease in the sell-
ing prices of analog telephones due to pressure from the presence of
digital handsets in the market.
Operating expenses increased to $44,248 in fiscal 1999 from $42,917 in
fiscal 1998. As a percentage of net sales, however, operating expenses
decreased to 4.8% during fiscal 1999 compared to 9.9% in fiscal 1998.
Selling expenses decreased in fiscal 1999 from fiscal 1998, primarily in
divisional marketing and advertising, partially offset by increases in travel
expenses. General and administrative expenses increased in fiscal 1999
from fiscal 1998, primarily due to temporary personnel, insurance expense
and provisions for doubtful accounts. Warehousing, assembly and repair
expenses increased in fiscal 1999 from fiscal 1998, primarily due to direct
labor expenses. Pre-tax income for fiscal 1999 was $31,255, an increase
of $33,106 from fiscal 1998.
Management believes that the wireless industry is extremely competitive
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 state-
ments of income data for the Electronics Group expressed as a percent-
age of net sales:
1998 1999
Net sales:
Mobile electronics $ 86,736 46.9% $117,500 48.5%
Sound 82,763 44.7 82,843 34.2
Consumer electronics 11,827 6.4 38,150 15.7
Other 3,629 2.0 3,959 1.6
Total net sales 184,955 100.0 242,452 100.0
Gross profit 42,049 22.7 53,025 21.9
Total operating expenses 32,466 17.6 38,645 15.9
Operating income 9,583 5.1 14,380 5.9
Other expense (3,581) (1.9) (3,021) (1.2)
Pre-tax income $ 6,002 3.2% $ 11,359 4.7%
Net sales were $242,452 in fiscal 1999, a 31.1% increase from net sales
of $184,955 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, increased over
400% in fiscal 1999 to approximately $52 million from $10 million in fis-
cal 1998. Consumer electronics increased 223% to $38,150 in fiscal 1999
from $11,827 in fiscal 1998. These increases were due to the introduction
of new product lines in both categories and were partially offset by
decreases in Prestige audio and SPS sound lines.
Operating expenses were $38,645 in fiscal 1999, a 19.0% increase from
operating expenses of $32,466 in fiscal 1998. Selling expenses increased
during fiscal 1999, primarily in salaries, commissions and divisional mar-
keting. These increases were partially offset by decreases in advertising.
General and administrative expenses increased from fiscal 1998, mostly
in salaries, provision for doubtful accounts and temporary personnel.
Warehousing and assembly expenses increased in fiscal 1999 from fiscal
1998, primarily due to tooling expenses, warehousing and direct labor.
Pre-tax income for fiscal 1999 was $11,359, an increase of $5,357 from
fiscal 1998.
The Company believes that the Electronics Group has an expanding mar-
ket with a certain level of volatility related to both domestic and interna-
tional new car sales. Also, certain of its products are subject to price
fluctuations which could affect the carrying value of inventories and gross
margins in the future.
MANAGEMENT’SDISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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