Audiovox 2001 Annual Report Download - page 20

Operating expenses decreased to $49,219 in fiscal 2001 from
$54,524 in fiscal 2000. As a percentage of net sales, however, oper-
ating expenses increased to 5.1% during fiscal 2001 compared to
3.8% in fiscal 2000. Selling expenses decreased in fiscal 2001 from
fiscal 2000, primarily in divisional marketing expenses. During 2000
and 2001, $8,265 and $12,820, respectively, was recorded in income
as a result of changes in the estimated amount due under accrued
market development and co-operative advertising programs. This
decrease was partially offset by an increase in commissions. General
and administrative expenses decreased in fiscal 2001 from fiscal
2000, primarily in bad debt expense, partially offset by increases in
office salaries and travel. Warehousing, assembly and repair
expenses increased in fiscal 2001 from fiscal 2000, primarily in direct
labor. Pre-tax loss for fiscal 2001 was $(17,732), a decrease of
$48,729 from fiscal 2000.
Management believes that the wireless industry is extremely competi-
tive and that this competition could affect gross margins and the carry-
ing value of inventories in the future as new competitors enter the
marketplace. Also, timely delivery and carrier acceptance of new prod-
uct could affect our quarterly performance. Suppliers have to continu-
ally add new products in order for the Company to improve margins.
The change to 1XXT and GPS phones requires extensive testing and
software development which could delay entry into the market and
affect our digital sales in the future. In addition, given the anticipated
emergence of new technologies in the wireless industry, the Company
will need to sell existing inventory quantities of current technologies to
avoid further write-downs to market.
Electronics Results
The following table sets forth for the fiscal years indicated certain
statements of income data for the Electronics Group expressed as a
percentage of net sales: 2000 2001
Net sales:
Mobile electronics $135,557 48.7% $159,619 53.0%
Sound 77,790 27.9 58,104 19.3
Consumer electronics 60,968 21.9 81,161 27.0
Other 3,949 1.5 2,161 0.7
Total net sales 278,264 100.0 301,045 100.0
Gross profit 60,066 21.6 61,225 20.3
Total operating expenses 43,360 15.6 48,491 16.1
Operating income 16,706 6.0 12,734 4.2
Other expense (1,937) (0.7) (178) —
Pre-tax income $ 14,769 5.3% $ 12,556 4.2%
Net sales were $301,045 in fiscal 2001, an 8.2% increase from net
sales of $278,264 in fiscal 2000. Mobile and consumer electronics’
sales increased over last year, partially offset by a decrease in sound.
Mobile electronics increased $24,062 (17.8%) during 2001 from 2000.
Sales of mobile video within the mobile electronics category increased
over 27% in fiscal 2001 from fiscal 2000. Consumer electronics
increased 33.1% to $81,161 in fiscal 2001 from $60,968 in fiscal 2000.
These increases were due to the introduction of new product lines in
both categories.These increases were partially offset by a decrease in
the sound category, particularly SPS, AV, private label and Prestige
audio lines.
Gross profit margins decreased to 20.3% in fiscal 2001 from 21.6%
in fiscal 2000, primarily in AV, private label and Prestige Security,
partially offset by an increase in Prestige Audio and international
operations.
Operating expenses were $48,491 in fiscal 2001, an 11.8% increase
from operating expenses of $43,360 in fiscal 2000. As a percentage of
net sales, operating expenses increased to 16.1% during fiscal 2001
compared to 15.6% in fiscal 2000. Selling expenses increased during
fiscal 2001, primarily in commissions, advertising and divisional mar-
keting. General and administrative expenses increased from fiscal
2000, mostly in office salaries, insurance, bad debt, depreciation and
amortization. Warehousing and assembly expenses increased in fiscal
2001 from fiscal 2000, primarily due to field warehousing expense and
direct labor. Pre-tax income for fiscal 2001 was $12,556, a decrease of
$2,213 from fiscal 2000.
The Company believes that the Electronics Group has an expanding
market with a certain level of volatility related to both domestic
and international new car sales and general economic conditions.
Also, certain of its products are subject to price fluctuations which
could affect the carrying value of inventories and gross margins in
the future.
Other Income and Expense
Interest expense and bank charges decreased $388 during fiscal 2001
from fiscal 2000, primarily due to decreased interest rates on similar
borrowing levels.
Equity in income of equity investees increased by approximately
$1,014 for fiscal 2001 compared to fiscal 2000. The majority of the
increase was due to increases in the equity income of ASA.
In addition, there were several non-recurring transactions which
resulted in other income of $3,886 in fiscal 2000.
Provision for Income Taxes
The effective tax expense rate for 2000 was 37.3%. The effective tax
benefit rate in 2001 was 32.4%. The decrease in the effective tax rate
is due to the Company having a loss in 2001 for federal purposes com-
bined with state tax expense on certain profitable subsidiaries.
Fiscal 1999 Compared to Fiscal 2000
Consolidated Results
Net sales for fiscal 2000 were $1,704,459, a 46.7% increase from net
sales of $1,161,533 in fiscal 1999. Wireless Group sales were
$1,426,195 in fiscal year 2000, a 55.2% increase from sales of
$918,678 in fiscal 1999. Unit sales of wireless handsets increased
46.9% to approximately 8,909,000 units in fiscal 2000 from approxi-
mately 6,067,000 units in fiscal 1999. The average selling price of the
Company’s handsets increased to $150 per unit in fiscal 2000 from
$140 per unit in fiscal 1999.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
18 Audiovox Corporation and Subsidiaries