Audiovox 2005 Annual Report Download - page 37

Gross margins decreased to 15.9% for fiscal 2004 as compared to 16.7% for
fiscal 2003. Gross margins were negatively impacted by price erosion and price
competition of mobile video and DVD products during fiscal 2004. Furthermore,
inventory write−downs resulted in gross margins to be reduced by $5,506 (1.0%)
and $4,397 (0.9%) during fiscal 2004 and 2003, respectively. The increase in
write−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 Code−Alarm margins due to an increase in sales
to OEM's. In addition, gross margins were favorably impacted from a credit of
$1,517 from one vendor during fiscal 2004 as a result of renegotiating charges
for the repair of defective inventory. Without this credit, the Electronics
Group gross margin for fiscal 2004 would have been 15.6%. Furthermore, reversals
of sales incentives expense favorably impacted gross margins by 0.7% and 0.3%
during fiscal 2004 and 2003, respectively.
Operating Expenses and Operating Income
The following table presents the results separated by the Electronics and
Administrative Groups.
FISCAL FISCAL $ %
2003 2004 CHANGE CHANGE
−−−−−−−−− −−−−−−− −−−−−−− −−−−−−−−
ELECTRONICS:
Selling............................. $21,866 $27,628 $ 5,762 26.4%
General and administrative ............... 30,631 36,815 6,184 20.2
Engineering and technical support ........ 2,956 4,721 1,765 59.7
−−−−− −−−−−− −−−−− −−−−−− −−−−−−−−−−−
Electronics operating expenses .. 55,453 69,164 13,711 24.7
Electronics operating income ......... 29,672 20,573 (9,099) (30.7)
Electronics other expense ............ (85) (373 (288) (338.8)
ELECTRONICS PRE−TAX INCOME ...... 29,587 20,200 (9,387) (31.7)
CORPORATE:
Administrative operating expenses ....... 15,664 21,929 6,265 40.0
Administrative other income ............. 743 3,027 2,284 307.4
−−−−−−−−− −−−−−− −−−−−−−
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES $ 14,666 $ 1,298 $(13,368) (91.1)%
========= ======= =========
Consolidated operating expenses increased $19,976, or 28.1%, for fiscal
2004, as compared to fiscal 2003. As a percentage of net sales, operating
expenses increased to 16.2% for the year ended November 30, 2004 from 13.9% in
2003.
Electronics operating expenses increased $13,711, or 24.7%, for fiscal 2004
from 2003. The domestic group (AEC, Code and American Radio Corp.) accounted for
$8,125, or 59.3% of the 2004 increase. The international group (Audiovox
Germany, and Venezuela) accounted for $5,586, or 40.7%, of the 2004 increase.
Electronics selling expenses increased during fiscal 2004 due to a $2,865
and $2,897 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
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