Audiovox 2004 Annual Report Download - page 40

Fiscal Fiscal $ %
2003 2004 Change Change
−−−−−−−− −−−−−−−− −−−−−−−− −−−−−−
Administrative operating expenses 16,320 22,338 6,018 36.9
Administrative other income 1,399 3,436 2,037 145.6
−−−−−−−− −−−−−−−− −−−−−−−− −−−−−−
Consolidated pre−tax income $ 14,619 $ 1,135 $ 13,484 (92.2)%
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Consolidated operating expenses increased $19,572, or 26.9%, for the year
ended November 30, 2004, as compared to fiscal 2003. As a percentage of net
sales, operating expenses increased to 16.3% for the year ended November 30,
2004 from 14.0% in 2003.
Electronics operating expenses increased $13,554, or 24.1%, for the year
ended November 30, 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 expenses increased to 12.3% for the year ended November
30, 2004 compared to 10.8% in 2003.
Electronics selling expenses increased during fiscal 2004 due to a $2,865
and $2,914 increase in the domestic group and international group, respectively.
o The increase for the domestic group was primarily due to $1,757 in
Recoton U.S. expenses as a result of a full fiscal year of sales in
fiscal 2004 as compared to five months of sales activity in fiscal
2003. Specifically, there was an increase in salesmen salaries of $807
as a result of higher employee wages and the hiring of additional
employees to support the increase in sales. Trade show expenses and
advertising expense increased $567 and $844, respectively, as a result
of increased product line and promotions to support the increase in
sales.
o The increase for the international group was due to a $3,113 increase
in Audiovox Germany expenses offset by a $199 decrease in Malaysia and
Venezuela. Audiovox Germany expenses increased $1,222 in commissions,
$615 in travel and lodging and $836 in advertising. Advertising costs
consisted primarily of product brochures and informative advertising
materials regarding the Company's product line. The increase in
Audiovox Germany expenses is a result of a full fiscal year of sales
in fiscal 2004 as compared to five months of sales activity in fiscal
2003.
Electronics general and administrative expenses increased due to a $3,802
and $2,208 increase in the domestic and international groups, respectively.
o The increase for the domestic group was primarily due to an increase
of $2,382 in professional fees due to legal costs incurred to develop,
settle and protect patent rights. The Company expects, as technology
for electronic products become more complex, the Company will have to
expend more resources on defending patent rights and obtaining patents
on new products. Corporate allocations increased $1,079 as a result of
the additional resources necessary to support the increased product
lines. Increased sales and higher director and officer premiums during
fiscal 2004 resulted in a $421 increase in insurance expense and a
$294 increase in occupancy costs than the prior year. The above
increases were partially offset by a $767 decrease in bad debt expense
due to the recovery of a previously reserved bad debt. The Company
does not consider this to be a trend in the overall accounts
receivable.
o The increase for the international group was due to an increase of
$3,336 in Audiovox Germany expenses offset by a $1,128 decline in
Malaysia and Venezuela expenses. As a result of the Recoton
acquisition in July 2003, Audiovox Germany expenses increased $2,303
in salaries and $557 in related payroll taxes and $434 in bad debt
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