Audiovox 2001 Annual Report Download - page 25

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 balance sheet as of November 30, 2001. 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 subordi-
nated 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 pur-
chase the shares of stock of AX Japan is at a price not less than the
aggregate par value of the shares and, subsequent to the purchase of
the shares, AX Japan must repay the outstanding 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 appropriate.
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
purchase all of the shares of stock of AX Japan under similar terms as
the Shintom options.
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 repurchase 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.
AX Japan had the option to delay the repayment of the loans for an
additional six months if Shintom extended 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 March 2001, upon the expiration of the additional six-month period,
the Company and Shintom agreed to extend the lease for an additional
one-year period. In addition, Shintom was again given the option to
purchase the Property or shares of stock of AX Japan after the expira-
tion of a six-month period or extend the option for one additional six-
month period. AX Japan was also given the option to delay the
repayment of the loans for an additional six months if Shintom
extended its option for an additional six months.
The Company engages in transactions with Shintom and TALK. TALK,
which holds world-wide distribution rights for product manufactured by
Shintom, has given the Company exclusive distribution rights on all
wireless personal communication products for all countries except
Japan, China, Thailand and several mid-eastern countries. Through
October 2000, the Company held a 30.8% interest in TALK. The
Company no longer holds an equity interest in TALK.
Transactions with Shintom and TALK include financing arrangements
and inventory purchases which approximated 11%, 7% and 1.5% for
the years ended November 30, 1999, 2000 and 2001, respectively, of
total inventory purchases. At November 30, 1999, 2000 and 2001, the
Company had recorded $20, $1 and $331, respectively, of liability due
to TALK for inventory purchases included in accounts payable. The
Company also had documentary acceptance obligations payable to
TALK as of November 30, 1999. There were no documentary accept-
ance obligations payable to TALK as of November 30, 2000 and 2001.
At November 30, 1999, 2000 and 2001, the Company had recorded a
receivable from TALK in the amount of $3,741, $3,823 and $265,
respectively, a portion of which is payable with interest, which is
reflected in receivable from vendors on the accompanying consoli-
dated financial statements.
Transactions with Toshiba
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 subsidiary. As a result of the issuance of ACC’s
shares, the Company recognized a gain of $3,800 in 1999 ($2,204
after provision for deferred taxes). The gain on the issuance of the
subsidiary’s shares have been recognized in the consolidated state-
ments of operations in accordance with the Company’s policy on the
recognition of such transactions.
In February 2000 and 2001, the Board of Directors of Audiovox
Communications Corp. (ACC), declared a dividend payable to its
shareholders, Audiovox Corporation, a 95% shareholder, and Toshiba
Corporation (Toshiba), a 5% shareholder. ACC paid Toshiba its share
of the dividend, which approximated $859 and $1,034 in 2000 and
2001, for the years ended November 30, 1999 and 2000, respectively.
23 Audiovox Corporation and Subsidiaries