Audiovox 2000 Annual Report Download - page 30

During 1999 and 2000, $1,249 and $535 of its $65,000 61/4% subordinated
debentures were converted into 70,565 and 30,170 shares, respectively,
of Class A common stock (Note 14).
(5) Transactions With Major Suppliers
(A)INVENTORY PURCHASES
The Company engages in transactions with Shintom and TALK
Corporation (TALK). TALK, which holds world-wide distribution rights for
product manufactured by Shintom, has given the Company exclusive dis-
tribution rights on all wireless personal communication products for all
countries except Japan, China, Thailand and several mid-eastern coun-
tries. Shintom is a stockholder who owns all of the outstanding Preferred
Stock of the Company at November 30, 1998, 1999 and 2000. Through
October 2000, the Company held a 30.8% interest in TALK (Note 14).
Transactions with Shintom and TALK include financing arrangements and
inventory purchases which approximated 19%, 11% and 7% for the years
ended November 30, 1998, 1999 and 2000, respectively, of total inventory
purchases. At November 30, 1998, 1999 and 2000, the Company had
recorded $15, $20 and $1, respectively, of liability due to TALK for inven-
tory purchases included in accounts payable. The Company also had doc-
umentary acceptance obligations payable to TALK as of November 30,
1998 and 1999 (Note 12(b)). There were no documentary acceptance obli-
gations payable to TALK as of November 30, 2000. At November 30, 1998,
1999 and 2000, the Company had recorded a receivable from TALK in the
amount of $734, $3,741 and $3,823, respectively, a portion of which is
payable with interest (Note 7), which is reflected in receivable from ven-
dors on the accompanying consolidated financial statements.
Inventory purchases from two major suppliers approximated 47%, 56%
and 72% of total inventory purchases for the years ended November 30,
1998, 1999 and 2000, respectively. Although there are a limited number of
manufacturers of its products, management believes that other suppliers
could provide similar products on comparable terms. A change in suppliers,
however, could cause a delay in product availability and a possible loss of
sales, which would affect operating results adversely.
(B)SALE/LEASEBACK TRANSACTION
In March 2000, the Company incorporated AX Japan, Inc. (AX Japan), a
wholly-owned subsidiary, with 60,000,000 yen (approximately $564). In
April 2000, AX Japan purchased land and a building (the Property) from
Shintom Co., Ltd. (Shintom) for 770,000,000 yen (approximately $7,300)
and entered into a leaseback agreement whereby Shintom has leased the
Property from AX Japan for a one-year period. This lease is being
accounted for as an operating lease by AX Japan. Shintom is a stock-
holder who owns all of the outstanding preferred stock of the Company
and is a manufacturer of products purchased by the Company through its
previously-owned equity investment, TALK Corporation (TALK). The
Company currently holds stock in Shintom and has previously invested in
Shintom convertible debentures.
The purchase of the Property by AX Japan was financed with a
500,000,000 yen ($4,671) subordinated loan obtained from Vitec Co., Ltd.
(Vitec), a 150,000,000 yen loan ($1,397) from Pearl First (Pearl) and a
140,000,000 yen loan ($1,291) from the Company. The land and building
have been included in property, plant and equipment, and the loans have
been recorded as notes payable on the accompanying consolidated bal-
ance sheet as of November 30, 2000. Vitec is a major supplier to Shintom,
and Pearl is an affiliate of Vitec. The loans bear interest at 5% per annum,
and principle is payable in equal monthly installments over a six-month
period beginning six months subsequent to the date of the loans. The
loans from Vitec and Pearl are subordinated completely to the loan from
the Company, and, in liquidation, the Company receives payment first.
Upon the expiration of six months after the transfer of the title to the
Property to AX Japan, Shintom has the option to repurchase the Property
or purchase all of the shares of stock of AX Japan. These options can be
extended for one additional six month period. The option to repurchase
the building is at a price of 770,000,000 yen plus the equity capital of AX
Japan (which in no event can be less than 60,000,000 yen) and can only
be made if Shintom settles any rent due AX Japan pursuant to the lease
agreement. The option to purchase the shares of stock of AX Japan is at
a price not less than the aggregate par value of the shares and, subse-
quent to the purchase of the shares, AX Japan must repay the outstand-
ing loan due to the Company. If Shintom does not exercise its option to
repurchase the Property or the shares of AX Japan, or upon occurrence of
certain events, AX Japan can dispose of the Property as it deems appro-
priate. The events which result in the ability of AX Japan to be able to
dispose of the Property include Shintom petitioning for bankruptcy, failing
to honor a check, failing to pay rent, etc. If Shintom fails, or at any time
becomes financially or otherwise unable to exercise its option to repur-
chase the Property, Vitec has the option to repurchase the Property or pur-
chase all of the shares of stock of AX Japan under similar terms as the
Shintom options.
AX Japan has the option to delay the repayment of the loans for an addi-
tional six months if Shintom extends its options to repurchase the
Property or stock of AX Japan. In September 2000, Shintom extended its
option to repurchase the Property and AX Japan delayed its repayment of
the loans for an additional six months.
In connection with this transaction, the Company received 100,000,000
yen ($922) from Shintom for its 2,000 shares of TALK stock. The Company
had the option to repurchase the shares of TALK at a purchase price of
50,000 yen per share, with no expiration date. Given the option to repur-
chase the shares of TALK, the Company did not surrender control over the
shares of TALK and, accordingly, had not accounted for this transaction as
a sale. In August 2000, the Company surrendered its option to repurchase
the shares of TALK. As such, the Company recorded a gain on the sale of
shares in the amount of $427 in August 2000.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)