Audiovox 2004 Annual Report Download

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FORM 10−K
AUDIOVOX CORP − VOXX
Filed: March 31, 2005 (period: November 30, 2004)
Annual report which provides a comprehensive overview of the company for the past year

Table of contents

  • Page 1
    FORM 10âˆ'K AUDIOVOX CORP âˆ' VOXX Filed: March 31, 2005 (period: November 30, 2004) Annual report which provides a comprehensive overview of the company for the past year

  • Page 2
    ... About Market Risk...Item 8âˆ'Consolidated Financial Statements and Supplementary Data...Item 9âˆ'Changes in and Disagreements with Accountants on Accounting Item 9aâˆ'Controls and Procedures...Item 9bâˆ'Other Information... PART III ... PART I Item 1âˆ'Business ... Part IIâˆ'âˆ'"Management's

  • Page 3
    ... Data Item 9âˆ'Changes in and Disagreements with Accountants on Accounting and Financial Item 9aâˆ'Controls and Procedures Item 9b âˆ' Other Information PART III PART IV Item 15âˆ'Exhibits, Financial Statement Schedules SIGNATURES EXâˆ'21 (Subsidiaries of the registrant) EXâˆ'23 (Consents...

  • Page 4
    ... ended November 30, 2004 Commission file number 0âˆ'28839 AUDIOVOX CORPORATION (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 180 Marcus Blvd., Hauppauge, New York (Address of principal executive offices) 13âˆ'1964841...

  • Page 5
    ... by reference in Part III of this Form 10âˆ'K or any amendment to this Form 10âˆ'K. X The aggregate market value of the common stock held by nonâˆ'affiliates of the Registrant was $244,171,332 (based upon closing price on the Nasdaq Stock Market on May 28, 2004). The number of shares outstanding...

  • Page 6
    AUDIOVOX CORPORATION Form 10âˆ'K For the Fiscal Year Ended November 30, 2004 Table of Contents PART I ...4 Item 1âˆ'Business...4 Item 2âˆ'Properties...20 Item 3âˆ'Legal Proceedings...20 Item 4âˆ'Submission of Matters to a Vote of Security Holders...22 PART II ...24 Item 5âˆ'Market for the ...

  • Page 7
    ... 1960 by John J. Shalam, our President, Chief Executive Officer and controlling stockholder. The Company designs and markets a diverse line of products and provides related services throughout the world. These products and services include: o o o o mobile entertainment and security products, mobile...

  • Page 8
    ... Corp. for a purchase price of $13,100, subject to a working capital adjustment, plus contingent debentures based on achievement of future revenue targets. This acquisition is expected to increase the Company's market share for satellite radio products as well as accessories related to HDTV products...

  • Page 9
    ... and supply networks to capitalize on niche market opportunities in the electronics industry, such as satellite radio, navigation, mobile video, DVD's, flat panel TVs and vehicle tracking systems. Leverage its distribution network. The Company believes it has a significant distribution network that...

  • Page 10
    ... security and remote start systems, navigation systems, rear observation systems, and automotive power accessories, including cruise control systems. Mobile Consumer electronics include: o o o o LCD and flat panel televisions, portable DVD players, home and portable stereos, and GMRS radios digital...

  • Page 11
    ... TVs, digital multimedia portables, home theater and new speaker lines and expects these lines to be key drivers. New product introductions in fiscal 2005 for Mobile Electronics will include satellite radio including new direct connect models, DVD video shuttle systems for both car and home, larger...

  • Page 12
    ... of an order. The Company makes shipments from public warehouses in Virginia, Nevada, Florida, New Jersey, California and Venezuela and from leased facilities located in New York, Venezuela, Malaysia and Germany. Product Development, Warranty and Customer Service The Company's product development...

  • Page 13
    ... its automobileâˆ'installed products. To support its warranties, the Company has independent warranty centers throughout the United States, Canada, Europe, Venezuela and Malaysia. At the Hauppauge, New York facility, the Company has a customer service group that provides product information, answers...

  • Page 14
    ... Applications Blissâˆ'Tel Company, Ltd. Percentage Ownership Formation Date Function Distribution of products for marine, van, RV and other specialized vehicles. Distribution of Cellular products and accessories in Thailand. 50.0% 20.0% 1997 1997 Employees As of November 30, 2003 and 2004...

  • Page 15
    .... He was elected to the Board of Directors in 1993. Mr. Lavelle is Chief Executive Officer and President of the Company's subsidiary, Audiovox Electronics Corp. Mr. Lavelle is also a member of the Board of Directors and Executive Board of the Consumer Electronics Association and serves as Chairman...

  • Page 16
    ... of electronic home control and security systems. Mr. Lesser is a founder and shareholder of, and has also served as a director and stockholder of Xâˆ'10 Limited, the Hong Kong parent company of Xâˆ'10âˆ' (USA), Inc. since 1979. He is a Memberâˆ'atâˆ'Large of the Executive Board of the Consumer...

  • Page 17
    ... the Company's asset base and revenues have changed significantly from those existing prior to the divestiture. Currently, we generate substantially all of our sales from the Consumer and Mobile Electronics businesses. We cannot assure you that we can grow the revenues of our Electronics business or...

  • Page 18
    ...markets, such as navigation, satellite radios, LCD TVs and mobile video systems, have fueled the recent growth of our Electronics business. If we are not able to continually introduce new products that achieve consumer acceptance, our sales and profit margins may decline. Since We Do Not Manufacture...

  • Page 19
    ... us to order products further in advance than we would if our products were manufactured domestically. This increases the risk that our products will become obsolete or face selling price reductions before we can sell our inventory. We Plan to Expand the International Marketing and Distribution...

  • Page 20
    ..., we could experience declining selling prices in our market without the benefit of cost decreases on purchases from suppliers or we could experience increasing costs without an ability to pass the costs to the customers. We cannot assure you that we will be able to effectively limit our exposure to...

  • Page 21
    ... on the continued efforts of John J. Shalam, C. Michael Stoehr and Patrick Lavelle, each of whom has worked with Audiovox for over two decades, as well as our other executive officers and key employees. We have no employment contracts, with any of our executive officers or key employees. The loss or...

  • Page 22
    ...the Company was notified that it must become timely in its filings and continue in the future to be timely to insure its continued listing on the Nasdaq National Market. John J. Shalam, Our President and Chief Executive Officer, Owns a Significant Portion of Our Common Stock and Can Exercise Control...

  • Page 23
    ... A portion of the Company's owned Corporate headquarters is located at 180 Marcus Blvd in Hauppauge, New York. In addition, as of November 30, 2004, the Company leased a total of seventeen operating facilities or offices located in nine states as well as Germany and Venezuela. The leases have been...

  • Page 24
    ... with the U.S. Supreme Court. The Company and ACC, along with other manufacturers of wireless phones and cellular service providers, were named as defendants in two class action lawsuits alleging nonâˆ'compliance with Federal Communications Commission ("FCC") ordered emergency 911 call processing...

  • Page 25
    ...,524 receivables) NOT VOTED 5,629,620 The sale of substantially all of the assets (excluding relating to our Cellular business to UTSI was approved. o To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending November 30, 2004...

  • Page 26
    ...the Company's Chief Executive Officer and majority shareholder abstained from voting his Class A and Class B shares, the selected matters would have been voted on as follows: o To approve the sale of substantially all of the assets (excluding certain receivables) relating to our Cellular business to...

  • Page 27
    PART II Item 5âˆ'Market for the Registrant's Common Equity and Related Stockholder Matters Market Information The Class A Common Stock of Audiovox are traded on the Nasdaq Stock Market under the symbol "VOXX". The following table sets forth the low and high sale price of our Class A Common Stock, ...

  • Page 28
    Equity Compensation Table The following table sets forth information regarding the Company's equity compensation plans in effect as of November 30, 2004: Weighted average exercise price of Number of securities to outstanding be issued upon exercise of options, outstanding options, warrants and Plan...

  • Page 29
    ... commitments in the sections entitled "Liquidity and Capital Resources, including Contractual and Commercial Commitments," We conclude this MD&A with a discussion of "Related Party Transactions" and "Recent Accounting Pronouncements". All financial information, except share and per share data, is 26

  • Page 30
    ..., automotive security and remote start systems, navigation systems, rear observation systems, and automotive power accessories, including cruise control systems. Consumer Electronics include: o o o o LCD and flat panel televisions, portable DVD players, home and portable stereos, and GMRS radios...

  • Page 31
    ... as a result of the sale of the Cellular business and related transactions: Purchase price Working capital adjustment Cellular receivables retained, net Gross proceeds Less: cash paid to Toshiba for minority interest and note Less: payment to former Cellular employees Less: payment of long term...

  • Page 32
    ... TVs, digital multimedia portables, home theater and new speaker lines and expects these lines to be key drivers. New product introductions in fiscal 2005 for Mobile Electronics will include satellite radio including new direct connect models, DVD video shuttle systems for both car and home, larger...

  • Page 33
    ...to be returned by its customers. Management continuously monitors and tracks such product returns and records the provision for the estimated amount of such future returns, based on historical experience and any notification the Company receives of pending returns. The Company's selling price to its...

  • Page 34
    ... to customers in connection with new product launches or entering into new markets. Those new markets can be either new geographic areas or new customers. The amount offered for new product launches is based upon a fixed amount or fixed percentage of the Company's sales revenue to the customer or...

  • Page 35
    ... provision for excess and obsolete inventory based primarily from selling prices subsequent to the balance sheet date, indications from customers based upon current negotiations and purchase orders. A significant sudden increase in the demand for the Company's products could result in a shortâˆ'term...

  • Page 36
    ...Company's standard warranties require the Company to repair or replace defective product returned to the Company by both end users and its customers during such warranty period at no cost to the end users or customers. The Company records an estimate for warranty related costs in cost of sales based...

  • Page 37
    ... management information systems and accounting services that are provided to the Electronics Group. In prior years, the Electronics Group had three sales categories (Mobile, Consumer and Sound). Based on the current marketplace and management's overall assessment of the Company, the sales categories...

  • Page 38
    ... for flat panel TVs and increased sales of Jensen, Acoustic Research and Advent home products. Sales were also adversely impacted by a $40,751 decline in fourth quarter sales due to a decline in the video bag business as the category matures and experienced competition from low priced portable DVD...

  • Page 39
    ...increase in writeâˆ'downs was primarily due to increased price competition for mobile video products. The above declines in margins were offset by margins achieved in Audiovox Germany as well as an increase in Codeâˆ'Alarm margins due to an increase in sales to OEM's. In addition, gross margins were...

  • Page 40
    ..., 2004 from 2003. The domestic group (AEC , Code and American Radio Corp.) accounted for $8,125, or 59.9% of the 2004 increase. The international group (Audiovox Germany, Malaysia and Venezuela) accounted for $5,429, or 40.1%, of the 2004 increase. As a percentage of net sales, Electronics operating...

  • Page 41
    ... levels during fiscal 2004, increased sales and personnel required to support the assimilation of the Recoton technical staff. The continual increase in product complexity has resulted in the Company hiring additional engineers and providing added customer service. Electronics operating income...

  • Page 42
    ... November 1, 2004 and the Company has no outstanding amounts under its domestic bank obligations at November 30, 2004. Equity in income of equity investees increased primarily due to an increase in the equity income of Audiovox Specialized Applications, LLC ("ASA") as a result of increased sales in...

  • Page 43
    ... believes that the Electronics Group has an expanding market with a certain level of volatility related to both domestic and international new car sales, increased competition by manufacturers and general economic conditions. As a result, all of its products are subject to price fluctuations which...

  • Page 44
    ... as a result of the introduction of new video digital product, satellite radio and navigation products. This increase in Mobile Electronics was partially offset by a change in the marketplace as fullyâˆ'featured sound systems are being incorporated into vehicles at the factory rather than being sold...

  • Page 45
    ...group (AEC, Codeâˆ'Alarm and American Radio) accounted for $7,888 or 50.3% of the fiscal 2003 increase. The international group (Audiovox Germany, Malaysia and Venezuela) accounted for $7,784 or 49.7% of the fiscal 2003 increase which was primarily due to the Recoton acquisition. Electronics selling...

  • Page 46
    ... employees and includes $583 of Audiovox Germany expenses. In addition, the increase in warehouse and technical support is due to the hiring of additional engineers as the increase in sales volume has resulted in the Company providing added customer service. Furthermore, overseas buying office...

  • Page 47
    ...In addition, in fiscal 2002, the Company recorded an otherâˆ'thanâˆ'temporary impairment for investment in common stock of Shintom Co., Ltd. of ... unit sales was attributable to late introductions of new product and slower growth in the Cellular industry, however, the average selling price of handsets...

  • Page 48
    ... and 2002, respectively. 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, all of its products are subject to price fluctuations which could affect...

  • Page 49
    ... purchases and amount of inventory on hand. o o Investing activities used $3,739 during the year ended November 30, 2004, primarily from the purchase of shortâˆ'term investments offset by the sale of the Cellular business (see Note 2 to Notes to Consolidated Financial Statements). In addition...

  • Page 50
    ... Euros and a working capital facility, secured by accounts receivable and inventory, up to 6,000 Euros. The facilities are renewable on an annual basis. For more information, see Note 9 of Notes to Consolidated Financial Statements. Commercial letters of credit are issued by the Company during the...

  • Page 51
    ... when required. Treasury Stock The Company's Board of Directors approved the repurchase of 1,563,000 shares of the Company's Class A common stock in the open market under a share repurchase program (the Program). No shares were purchased under the Program during fiscal 2003 and 2004. As of November...

  • Page 52
    ...UTSI") on November 1, 2004. As such, Toshiba is no longer a minority interest shareholder in the Company's former Cellular business. On May 29, 2002, Toshiba Corporation (Toshiba) purchased an additional 20% of Audiovox Communications Corp. (ACC). Such purchase accounted for approximately 31 shares...

  • Page 53
    ... cellular products in the United States, Canada, Mexico and all countries in the Caribbean and Central and South America through May 29, 2007. Employment agreement with the President and Chief Executive Officer (the Executive) of ACC âˆ' ACC was required to pay the Executive an annual base salary...

  • Page 54
    ... public entity to measure the cost of employee services recognized in exchange for an award of equity instruments based on the grantâˆ'date fair value of the award (with limited exceptions). Statement 123R is effective the first interim or annual period that begins after June 15, 2005 or the Company...

  • Page 55
    ...to Consolidated Financial Statements and Financial Statements Schedule Audiovox Corporation Form 10âˆ'K (Page) Report of Independent Registered Public Accounting Firm ...53 Consolidated Financial Statements: Balance Sheets as of November 30, 2003 and 2004...54 Statements of Operations for the years...

  • Page 56
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Audiovox Corporation We have audited the accompanying consolidated balance sheets of Audiovox Corporation and subsidiaries (the "Company") as of November 30, 2004 and 2003, and the related consolidated ...

  • Page 57
    AUDIOVOX CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets November 30, 2003 and 2004 (In thousands, except share data) 2003 Assets Current assets: Cash and cash equivalents Restricted cash Shortâˆ'term investments Accounts receivable, net Inventory Receivables from vendors Prepaid expenses ...

  • Page 58
    AUDIOVOX CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets, Continued November 30, 2003 and 2004 (In thousands, except share data) 2003 Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued expenses and other current liabilities Accrued sales incentives Income ...

  • Page 59
    ... discontinued operations, net of tax (including gain of $67,000 on sale of Cellular business in fiscal 2004) Net income (loss) before cumulative effect of a change in accounting for negative goodwill Cumulative effect of a change in accounting for negative goodwill Net income (loss) (15,176 14,280...

  • Page 60
    ...currency translation adjustment Unrealized gain on marketable securities, net of tax effect of $1,063 Other comprehensive income Comprehensive income Exercise of stock options into 96,200 shares of common stock Tax benefit of stock options exercised Issuance of stock warrants Balances at November 30...

  • Page 61
    ... and equipment, net Tax benefit on stock options exercised Nonâˆ'cash stock compensation Changes in operating assets and liabilities, net of assets and liabilities acquired: Accounts receivable Inventory Receivables from vendors Prepaid expenses and other Investment securitiesâˆ'trading Accounts...

  • Page 62
    Audiovox Corporation Consolidated Statements of Cash Flows (continued) Years Ended November 30, 2002, 2003 and 2004 (In thousands) 2002 2003 2004 Proceeds from issuance of longâˆ'term debt Principal payments on debt Payment of guarantee Net cash provided by (used in) financing activities 44,...

  • Page 63
    ... Policies (a) Description of Business and Accounting Principles Audiovox Corporation and its subsidiaries (the Company) design and market a diverse line of electronic products throughout the world. The Company completed the divestiture of the Cellular Group on November 1, 2004 (see Note 2 of...

  • Page 64
    .... As of November 30, 2003 and 2004, the Company's longâˆ'term investment securities consist of $4,232 and $1,117, respectively, of availableâˆ'forâˆ'sale investment securities, which relates to 306,000 shares of CellStar Common Stock and trading securities of $5,280 and $4,871, respectively, which...

  • Page 65
    ...to be returned by its customers. Management continuously monitors and tracks such product returns and records the provision for the estimated amount of such future returns, based on historical experience and any notification the Company receives of pending returns. The Company's selling price to its...

  • Page 66
    ... to customers in connection with new product launches or entering into new markets. Those new markets can be either new geographic areas or new customers. The amount offered for new product launches is based upon a fixed amount, fixed percentage of the Company's sales revenue to the customer or...

  • Page 67
    ... related revenue is recognized. Such additional sales incentives are based upon a fixed percentage of the selling price to the customer, a fixed amount per unit, or a lumpâˆ'sum amount. The accrual for sales incentives at November 30, 2003 and 2004 was $14,605 and $7,584, respectively. The Company...

  • Page 68
    ... 30 2003 2004 Trade accounts receivable and other Less: Allowance for doubtful accounts Allowance for cash discounts $148,096 5,558 677 141,861 ======== $126,738 6,271 503 119,964 ======== The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon...

  • Page 69
    ... provision for excess and obsolete inventory based primarily from selling prices subsequent to the balance sheet date, indications from customers based upon current negotiations and purchase orders. A significant sudden increase in the demand for the Company's products could result in a shortâˆ'term...

  • Page 70
    ... to property under capital lease at November 30, 2003 and 2004, respectively. Computer software includes approximately $794 and $573 of unamortized costs as of November 30, 2003 and 2004, respectively, related to the acquisition and installation of management information systems for internal use. 67

  • Page 71
    ... be used for all future business combinations and specifies criteria intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. As a result of adopting the provisions of SFAS No. 141 the Company accounted for the acquisitions of Codeâˆ'Alarm and...

  • Page 72
    ...of SFAS No. 142, the Company performed its annual impairment test which indicated no reduction is required. Goodwill The change in carrying amount of goodwill is as follows: November 30 2003 2004 Net beginning balance Escrow monies collected in connection with Codeâˆ'Alarm (See Note 5 of Notes to...

  • Page 73
    ... if applicable, of the product. Warranty expenses are accrued at the time of sale based on the Company's estimated cost to repair expected returns of products for warranty matters. This liability is based primarily on historical experiences of actual warranty claims as well as current information on...

  • Page 74
    ... occur if securities or other contracts to issue common stock were exercised or converted into common stock. A reconciliation between the denominators of the basic and diluted income (loss) per common share is as follows: Years Ended November 30 2002 2003 2004 Weighted average number of common...

  • Page 75
    ... and related interpretations in accounting for stock options and share units granted under these programs. Under the intrinsic value method, no compensation expense is recognized if the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date...

  • Page 76
    ...) per common share as if the Company had measured the compensation cost for the Company's stock option programs under the fair value method in each period presented: Years Ended November 30 2002 2003 2004 Net income (loss): As reported Stock based compensation expense Proâˆ'forma Net income (loss...

  • Page 77
    ... public entity to measure the cost of employee services recognized in exchange for an award of equity instruments based on the grantâˆ'date fair value of the award (with limited exceptions). Statement 123R is effective the first interim or annual period that begins after June 15, 2005 or the Company...

  • Page 78
    ... based on the required working capital needs of the Cellular business (See Note 2 of Notes to Consolidated Financial Statements). (2) Discontinued Operations and Sale of Cellular Business (a) Background and Proceeds On November 1, 2004, the Company completed its sale (the "Sale") of the Cellular...

  • Page 79
    ...,000 in order for ACC to have the ability to convey all of the assets used in connection with the conduct of the Cellular business to UTSI. Upon the closing, ACC paid $5,019 to certain employees of ACC and its subsidiaries as a severance payment and in exchange for which Audiovox received a release...

  • Page 80
    ... and other of $4,603 were incurred to effectuate the sale. The Company also retained certain accounts receivable related to the Cellular business which approximated $148,494 as of November 1, 2004. After collections subsequent to the closing, Cellular receivables of $16,958 remain at November 30...

  • Page 81
    ... Gain on Sale of Cellular Business As a result of the sale of the Cellular business, the Company recorded a gain of $67,000 for the year ended November 30, 2004 which was calculated as follows: Purchase Price Working capital adjustment Less: payment to former Cellular employees Less: professional...

  • Page 82
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2002, 2003 and 2004 (Dollars in thousands, except share and per share data) November 30 2003 2004 Liabilities Accounts payable Accrued expenses and other current liabilities Accrued sales ...

  • Page 83
    ... cellular products in the United States, Canada, Mexico and all countries in the Caribbean and Central and South America through May 29, 2007. Employment agreement with the President and Chief Executive Officer (the Executive) of ACC âˆ' ACC was required to pay the Executive an annual base salary...

  • Page 84
    ... years ended November 30, 2003 and 2004, the Company recorded a nonâˆ'cash stock compensation charge of $388 and $371, respectively, related to the rights under the call/put options previously granted to certain employees of Audiovox German Holdings GmbH ("Audiovox Germany") (see Note 5 of Notes to...

  • Page 85
    ... 30, 2003 or 2004. Recoton Audio Group On July 8, 2003, the Company, through a newlyâˆ'formed, whollyâˆ'owned subsidiary, Audiovox Germany, acquired in cash (i) certain accounts receivable, inventory and trademarks from the U.S. audio operations of Recoton Corporation (the "U.S. audio business") or...

  • Page 86
    ... acquisition based upon their estimated fair values which resulted in no gain or loss to the Company. The sale of the marine division assets was required since the Company is precluded from selling marine products as a result of its joint venture agreement with Audiovox Specialized Applications, Inc...

  • Page 87
    ... interâˆ'company loan granted to Audiovox Germany in the amount of 5.3 million Euros. Notwithstanding the lapse of these time periods, the put options become immediately exercisable upon (i) the sale of Audiovox Germany or (ii) the termination of employment or death of the employee. The put price to...

  • Page 88
    ... Distribution of products for marine, van, Applications RV and other specialized vehicles. Distribution of wireless products and accessories in Thailand. Monitors car security commands through satellite based system in Malaysia Distributor of chemical protection treatments The Company has recorded...

  • Page 89
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2002, 2003 and 2004 (Dollars in thousands, except share and per share data) Years Ended November 30 2002 2003 2004 Net sales Gross profit Operating income Net income $47,308 8,660 3,356 3,486 ...

  • Page 90
    ...and restated credit agreement ("the Credit Agreement") expired on November 1, 2004 as a result of the sale of substantially all the assets of Audiovox Communications Corp. ("ACC") to UTSI and the purchase by the Company of Toshiba Corporation's interest in ACC and the repayment by ACC of the Toshiba...

  • Page 91
    ..., Audiovox German Holdings GmbH, (Audiovox Germany) which expires on October 25, 2005 and is renewable on an annual basis. Selected accounts receivable are purchased from the Company on a nonâˆ'recourse basis at 80% of face value and payment of the remaining 20% upon receipt from the customer of...

  • Page 92
    ... of a call put option owed to certain employees of Audiovox Germany in the amount of $388 and $829 at November 30, 2003 and 2004, respectively. For more information, see Note 5 of Notes to Consolidated Financial Statements. The Company guaranteed the debt of G.L.M. (a former equity investment...

  • Page 93
    ... as follows: November 30 2002 2003 2004 Statement of operations Stockholders' equity: Unrealized holding gain (loss) on investment securities recognized for financial reporting purposes Tax benefit of stock options exercised Income tax expense (benefit) $ 2,872 $ 7,303 $ 478 260 (17 3,115...

  • Page 94
    AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued November 30, 2002, 2003 and 2004 (Dollars in thousands, except share and per share data) Other is a combination of various factors, including changes in the taxable income or loss between various tax entities...

  • Page 95
    ... classes of common stock in the event of liquidation or dissolution. These shares have no dividend rights. The Company's Board of Directors approved the repurchase of 1,563,000 shares of the Company's Class A common stock in the open market under a share repurchase program (the Program). As of 92

  • Page 96
    ... date of grant. The exercise price of the NQSO's may not be less than 50% of the market value of the Company's Class A common stock on the date of grant. The options must be exercised no later than ten years after the date of grant. The vesting requirements are determined by the Board of Directors...

  • Page 97
    ... year ended November 30, 2003. No stock 2004. options or warrants the were granted in fiscal 2002 or fiscal stock options and warrants is Information regarding summarized below: Company's Number of Shares Outstanding at November 30, 2001 Granted Exercised Canceled/Lapsed Outstanding at November...

  • Page 98
    ... Average Exercise Life Number Price Remaining of Shares of Shares In Years 1,007,700 120,000 1,420,000 $ $ $ 7.23 11.02 15.00 2.16 1.60 3.84 (c) Restricted Stock Plan The Company has restricted stock plans under which key employees and directors may be awarded restricted stock. Awards under the...

  • Page 99
    ... provisions of the Internal Revenue Code. All compensation deferred under the Plan is held by the Company in an investment trust which is considered an asset of the Company. The investments, which amounted to $4,871 at November 30, 2004, have been classified as trading securities (longâˆ'term) and...

  • Page 100
    ... for the years ended November 30, 2002, 2003 and 2004, respectively. The Company leases certain facilities and equipment from its principal stockholder and several officers. At November 30, 2004, minimum annual rental payments on these related party leases, in addition to the capital lease payments...

  • Page 101
    ...A portion of the Company's customer base may be susceptible to downturns in the retail economy, particularly in the consumer electronics industry. Additionally, customers specializing in certain automotive sound, security and accessory products may be impacted by fluctuations in automotive sales. 98

  • Page 102
    ... that value: Investment Securities/Shortâˆ'Term Investments The carrying amount represents fair value, which is based upon quoted market prices at the reporting date (Note 1 of Notes to Consolidated Financial Statements). Longâˆ'Term Obligations The carrying amount of the Company's foreign debt...

  • Page 103
    ... The Company operates in the Electronics market and has one reportable segment ("Electronics") which is broken down into two major product categories: Mobile and Consumer Electronics . Net sales for the product categories for each of the three years in the period ended November 30, 2004 were...

  • Page 104
    ...determined as of April 16, 1987 (the date of the merger of Audiovox Corp., a New York corporation, with Audiovox Corporation, a Delaware corporation) which preferred stock was purchased by Shintom from Audiovox in April 1981. In lieu of answering, the Company has moved to dismiss the complaint. That...

  • Page 105
    ... certiorari with the U.S. Supreme Court. The Company and ACC, along with other manufacturers of wireless phones and cellular service providers, were named as defendants in two class action lawsuits alleging nonâˆ'compliance with FCC ordered emergency 911 call processing capabilities. These lawsuits...

  • Page 106
    ... in accordance with SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities". On January 4, 2005, the Company's whollyâˆ'owned Electronics Corporation, signed an asset purchase certain assets of Terk Technologies Corp. for a 103 subsidiary, Audiovox agreement to purchase

  • Page 107
    ... data) purchase price of $13,100, subject to a working capital adjustment, contingent debentures based on achievement of future revenue targets. plus On February 25, 2005, the Company entered into a plan to discontinue ownership of the Company's majority owned subsidiary, Audiovox Malaysia ("AVM...

  • Page 108
    ... Based upon this evaluation as of November 30, 2004, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective for the reasons discussed below related to the weaknesses in our internal control over financial reporting. To address...

  • Page 109
    ... fully described below. The Company divested its Wireless business and substantially all of the assets and liabilities of Audiovox Communication Corporation ("ACC") on November 1, 2004. Accordingly, the Company excluded ACC from its assessment of internal control over financial reporting, as it no...

  • Page 110
    ... control deficiency identified relates to the lack of evidence supporting the approval of these nonâˆ' routine sales orders. Accordingly, management concluded that this matter represents a material weakness as it may have a potential material impact on net sales, accounts receivable and the Company...

  • Page 111
    ... manage the information technology change management system and a security software solution to manage the Company's user access security and restrict access to data and applications; The Company divested the Wireless business before yearâˆ'end and ACC is no longer a significant part of the Company...

  • Page 112
    ... weakness by management and the independent registered public accounting firm. The Company will continue to monitor the effectiveness of its internal controls and procedures on an ongoing basis and will take further actions, as appropriate. Changes in Internal Control Over Financial Reporting Except...

  • Page 113
    ... REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Audiovox Corporation We have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that Audiovox Corporation and subsidiaries (the "Company") did...

  • Page 114
    ... control deficiency identified relates to the lack of evidence supporting the approval of these nonâˆ'routine sales orders. Accordingly, management concluded that this matter represents a material weakness as it may have a potential material impact on net sales, accounts receivable and the Company...

  • Page 115
    ... criteria, Audiovox Corporation and subsidiaries has not maintained effective internal control over financial reporting as of November 30, 2004, based on criteria established in Internal Controlâˆ'Integrated Framework issued by COSO. /s/Grant Thornton LLP GRANT THORNTON LLP Melville, New York March...

  • Page 116
    ... âˆ' Other Information Not Applicable PART III The information required by Item 10 (Directors and Executive Officers of the Registrant, Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management), Item 13 (Certain Relationships and Related Transactions...

  • Page 117
    ... Recoton Recoton Audio Corporation, Recoton Home Audio, Inc., Recoton Mobile Electronics, Inc., Recoton International Holdings, Inc. ("RIH"), Recoton Corporation and Recoton Canada Ltd. (collectively, the "Sellers"), JAX Assets Corp. ("Buyer") and Audiovox Corporation ("Registrant"), as guarantor...

  • Page 118
    ...between UTStarcom, Inc. and John J. Shalam (incorporated by reference to the Company's Form 8âˆ'K filed via EDGAR June 14, 2004). Personally Held Intangibles Purchase Agreement made and entered into as of June 10, 2004 by and between Audiovox Communications Corp. and Philip Christopher (incorporated...

  • Page 119
    ...14(a) Section 1350, Chapter 63 of Title 18 of the United State Code, As Adopted Pursuant to Section 906 of Sarbanesâˆ'Oxley Act of 2002 (filed herewith). Consolidated Financial Report of Audiovox Specialized Applications LLC (ASA) as of November 30, 2004 and 2003 and for the Years Ended November 30...

  • Page 120
    ... of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AUDIOVOX CORPORATION March 31, 2005 BY: /s/John J. Shalam John J. Shalam, President and Chief Executive Officer 117

  • Page 121
    ... Title Date /s/ John J. Shalam John J. Shalam /s/ Charles M. Stoehr Charles M. Stoehr President; Chief Executive Officer (Principal Executive Officer) and Director Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) and Director Director March...

  • Page 122
    ... and payments made or credits issued to customers. For the reserve for warranties and product repair costs, deductions represent currency effects and payments for labor and parts made to service centers and vendors for the repair of units returned under warranty. (b) 119

  • Page 123
    ... Corp. Audiovox Electronics Corporation Quintex Mobile Communications Corp. American Radio Corp. Audiovox Holding Corp. Audiovox Communications Canada Co. Audiovox Communications (Malaysia) Sdn. Bhd. Audiovox Holdings (M) Sdn. Bhd. Audiovox Venezuela C.A. Audiovox German Holdings GmbH Code Systems...

  • Page 124
    ... REGISTERED PUBLIC ACCOUNTING FIRM We have issued our reports dated March 25, 2005 accompanying the consolidated financial statements and schedule, and management's assessment of the effectiveness of internal control over financial reporting included in the Annual Report of Audiovox Corporation and...

  • Page 125
    ... RULE 13aâˆ'14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 I, John J. Shalam, President and Chief Executive Officer, certify that: 1. I have reviewed this annual report on Form 10âˆ'K of Audiovox (the "Company"); Corporation 2. Based on my knowledge, this report does not contain any untrue statement...

  • Page 126
    ... OF THE SECURITIES EXCHANGE ACT OF 1934 I, Charles M. Stoehr, Senior Vice President and Chief Financial Officer of Audiovox Corporation, certify that: 1. I have reviewed this annual report on Form 10âˆ'K of Audiovox (the "Company"); Corporation 2. Based on my knowledge, this report does not contain...

  • Page 127
    ... with the Annual Report of Audiovox Corporation (the "Company") on Form 10âˆ'K for the period ended November 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John J. Shalam, the President and Chief Executive Officer of the Company, certify, pursuant...

  • Page 128
    ...with the Annual Report of Audiovox Corporation (the "Company") on Form 10âˆ'K for the period ended November 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles M. Stoehr, Senior Vice President and Chief Financial Officer of the Company, certify...

  • Page 129
    Audiovox Specialized Applications, LLC And Subsidiary Consolidated Financial Report 11.30.04 Exhibit 99.1 Contents Report of Independent Registered Public Accounting Firm On The Financial Statements 1 Consolidated Financial Statements Consolidated balance sheets Consolidated statements of income...

  • Page 130
    Report of Independent Registered Public Accounting Firm To the Members Audiovox Specialized Applications, LLC and Subsidiary Elkhart, Indiana We have audited the accompanying consolidated balance sheets of Audiovox Specialized Applications, LLC and Subsidiary as of November 30, 2004 and 2003, and ...

  • Page 131
    Audiovox Specialized Applications, LLC and Subsidiary Consolidated Balance Sheets November 30, 2004 and 2004 2004 2003 ASSETS Current Assets Cash and cash equivalents Availableâˆ'forâˆ'sale securities Trade receivables Note receivable Inventories Prepaid expenses Total current assets Leasehold ...

  • Page 132
    Audiovox Specialized Applications, LLC and Subsidiary Consolidated Statements of Income Years Ended November 30, 2004, 2003 and 2002 2004 2003 2002 Net sales Cost of goods sold Gross profit Selling, general and administrative expenses Operating income Non operating income (expense): Investment ...

  • Page 133
    Audiovox Specialized Applications, LLC and Subsidiary Consolidated Statements of Members' Equity Years Ended November 30, 2004, 2003 and 2002 2004 2003 2002 Balance, beginning Net income Member distributions Balance, ending $ 22,681,594 7,303,965 (8,262,148 21,723,411 19,418,012 5,895,378 (2,...

  • Page 134
    ... leasehold improvements and equipment Proceeds (disbursements) on note receivable Proceeds from sale of availableâˆ'forâˆ'sale securities Purchase of availableâˆ'forâˆ'sale securities Purchase of Datron Corporation assets Purchase of assets from related party Net cash (used in) investing activities...

  • Page 135
    ..., and Significant Accounting Policies Nature of business: Audiovox Specialized Applications ("ASA") "The Mobile Electronics Company" is an international supplier of mobile electronics for the Automotive Industry including: Recreational Vehicle, Van/SUV Conversion, Commercial Vehicle, Heavy Duty...

  • Page 136
    ... the date individual investment securities are acquired and the appropriateness of such classification is reassessed at each balance sheet date. Since the Company neither buys investment securities in anticipation of shortâˆ'term fluctuation in market prices nor commits to holding debt securities to...

  • Page 137
    ...equipment manufacturer or its dealers to repair or replace defective products during such warranty periods at no cost to the consumer. The Company estimates the costs that may be incurred under its basic limited warranty and records a liability in the amount of such costs at the time product revenue...

  • Page 138
    Audiovox Specialized Applications, LLC And Subsidiary Notes To Financial Statements Income taxes: The members have elected to be taxed for federal and state income tax purposes as a limited liability company under the provisions of the respective income tax codes. Under these provisions, the members...

  • Page 139
    Audiovox Specialized Applications, LLC And Subsidiary Notes To Financial Statements Note 2. Availableâˆ'Forâˆ'Sale Securities The following is a summary of the Company's investment securities as of November 30, 2004 and 2003: 2004 Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses...

  • Page 140
    ...2004 2003 2002 Net product sales Royalty revenue Purchases $ 213,000 2,103,000 1,302,000 $ 519,000 3,253,000 2,886,000 $ 1,898,000 3,140,000 1,916,000 The Company has a royalty agreement with Audiovox whereby the Company earns a 3% royalty on the member's purchases of certain mobile video product...

  • Page 141
    ...as follows: and 2004 2003 Trade receivables Accounts payable $ 134,721 239,874 $ 679,205 238,180 On August 13, 2003, the Company acquired certain assets from Audiovox. The aggregate purchase price was $3,600,000, of which approximately $596,000 and $3,004,000 were allocated to working capital and...

  • Page 142
    Audiovox Specialized Applications, LLC And Subsidiary Notes To Financial Statements Note 7. Employee Benefit Plans The Company has profitâˆ'sharing and 401(k) plans for the benefit of all eligible employees. The Company's contributions are discretionary with the Board of Directors and are limited ...

  • Page 143
    Audiovox Specialized Applications, LLC And Subsidiary Notes To Financial Statements Note 9. Litigation The Company has pending legal proceedings that generally involve product liability and employment issues. These proceedings are, in the opinion of management, ordinary routine matters incidental to...

  • Page 144
    Consent of Independent Registered Public Accounting Firm We have issued our report, dated December 23, 2004, on the consolidated financial statements of Audiovox Specialized Applications, LLC which is included in the Annual Report of Audiovox Corporation and subsidiaries on Form 10âˆ'K for the year ...