Audiovox 2004 Annual Report Download - page 37

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Results of Operations
In this discussion and analysis, we explain the general financial condition
and the results of operations for Audiovox, including the following:
o our earnings and costs in the periods presented,
o changes in earnings and costs between periods,
o sources of earnings, and
o the impact of these factors on our overall financial condition.
As you read this discussion and analysis, refer to the accompanying
consolidated statements of operations, which present the results of our
operations for the years ended November 30, 2002, 2003 and 2004. We analyze and
explain the differences between periods in the specific line items of the
consolidated statements of operations.
Management reviews the financial results of the Company based on the
performance of the Electronics Group and Administrative Group. The Electronics
Group is comprised of sales operating subsidiaries that sell Mobile and Consumer
Electronics. The Administrative Group consists of treasury, legal, human
resources, 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 have been reclassified into Mobile Electronics and Consumer
Electronics, therefore eliminating the Sound category. As such, certain
reclassifications have been made to the fiscal 2002 and fiscal 2003 consolidated
financial statements in order to conform to the fiscal 2004 presentation.
Management Key Indicators
Management reviews the following financial indicators to assess the
performance of the Company's operating results:
o Net sales by product class − Management reviews this indicator in
order to determine sales trends for certain product classes as this
indicator is directly impacted by new product introductions.
o Gross profit margin − This indicator allows management to assess the
effectiveness of product introductions, inventory purchases and
significance of inventory write−downs.
o Operating expenses as a percentage of net sales − This indicator is
reviewed to determine the efficiency of operating expenses in relation
to the Company's operations and identify significant fluctuations or
possible future trends.
o Inventory and accounts receivable turnover − Inventory purchases and
accounts receivable collections are two significant liquidity factors
that determine the Company's ability to fund current operations and
determine if additional borrowings may be necessary for future capital
outlays.
34