Audiovox 2005 Annual Report Download - page 32

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c)market information obtained from industry competitors and customers
regarding pricing and product demand at a January 2006 Consumer
Electronics trade show. As a result, the Company decided to discontinue
certain product lines resulting in a $9,972 inventory charge in the
fourth quarter of fiscal 2005, which is primarily related to a
$8,775 charge due to the discontinuance of certain products within
select product lines.
o A $3,789 writedown recorded during the third quarter of fiscal 2005
primarily for satellite radio plug and play products as a result of
sudden reduced pricing by a competitor.
o Continual price erosion in the electronics industry due to increased
competition and increased technological advancements in the electronics
industry.
Gross margins were also impacted by the following:
o Increased consumer product sales, which traditionally have lower gross
margins than mobile products.
o Increased freight costs as a result of higher fuel prices, and increased
shipments as a result of a change in sales mix.
o A shift in business to mass merchants and large retail customers caused
margins to decline due to increased sales incentive expense. Reversals
of sales incentive expense favorably impacted gross margins by 0.7% and
0.5% during fiscal 2004 and 2005, respectively.
o Gross margins were favorably impacted by increased margins in Jensen
mobile, Audiovox LCD TV's and the recently acquired Terk brand.
Operating Expenses and Operating Income
The following table presents the results separated by the Electronics and
Corporate Administrative Groups.
FISCAL FISCAL $ %
2004 2005 CHANGE CHANGE
−−−−−−−−− −−−−−−−− −−−−−−− −−−−−−−−−
ELECTRONICS: .................... $ 27,628 $ 27,404 $ (224) $(0.8)%
Selling .........................
General and administrative ...... 36,815 37,100 285 0.8
Engineering and technical support 4,721 6,190 1,469 31.1
−−−−−−−−− −−−−−−− −−−−−− −−−−−−−
Electronics operating expenses 69,164 70,694 1,530 2.2
Electronics operating income (loss) 20,573 (9,855) (30,428) (147.9)
Electronics other (expense) ....... (373) (3,278) (2,905) (778.8)
−−−−−−−−− −−−−−−− −−−−−− −−−−−−−
ELECTRONICS PRE−TAX INCOME(LOSS) 20,200 (13,133) (33,333) (165.0)
CORPORATE:
Administrative operating expenses .. 21,929 17,835 (4,094) (18.7)
Administrative other income 3,027 12,872 9,845 325.2
−−−−−−−−− −−−−−−− −−−−−− −−−−−−−
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES $ 1,298 $(18,096) $(19,394) (1,494.1)%
========== ======== =========
Consolidated operating expenses decreased $2,564 or 2.8%, for fiscal 2005,
as compared to 2004. As a percentage of net sales, operating expenses increased
to 16.4% for fiscal 2005 as compared to 16.2% in 2004.
Electronics selling expenses decreased as compared to fiscal 2005, as a
result of an $822 decline in advertising due to a decline in print media
advertising for Audiovox Germany. This decline was partially offset by a $613
increase in commissions as a result of increased consumer electronics sales,
changes in compensation programs related to commissionable sales for Jensen
products and incremental selling expenses from the recently acquired Terk
product line.
27