Audiovox 2006 Annual Report Download - page 26

of unearned sales incentives as a result of large retail customers not reaching minimum sales targets
required to earn sales incentive funds. We believe the reversal of earned but unclaimed sales
incentives upon the expiration of the claim period is a disciplined, rational, consistent and systematic
method of reversing unclaimed sales incentives. These sales incentive programs are expected to
continue and will either increase or decrease based upon competition and customer demands.
Gross Profit
Fiscal
2007 Fiscal 2006
Gross profit ......................... $79,319 $60,418
Gross margin percentage .............. 17.4%11.5%
Gross margins increased to 17.4%for fiscal 2007 as compared to 11.5%for the prior year. Gross
margins increased as a result of improving margins in the mobile category and improved inventory
management which resulted in less inventory writedowns. Specifically, gross margins were favorably
impacted by an $11,700 decrease (or 2.6%favorable impact) in inventory write downs primarily as a
result of a $3,789 inventory adjustment related to satellite radio inventory and an $8,775 adjustment
related to the discontinuance of certain products within select product lines recorded in the prior year.
Operating Expenses and Operating Loss
Fiscal
2007 Fiscal 2006 $ Change
%
Change
Operating Expenses:
Selling ........................................ $28,220 $ 30,632 $(2,412) (7.9)%
General and administrative ..................... 48,920 48,643 277 0.6
Engineering and technical support................ 7,256 6,191 1,065 17.2
Total Operating Expenses ..................... 84,396 85,466 (1,070) (1.3)
Operating Loss .................................. $(5,077) $(25,048) $19,971 (79.7)%
Operating expenses decreased $1,070 or 1.3%for fiscal 2007, as compared to 2006. As a
percentage of net sales, operating expenses increased to 18.5%for fiscal 2007 from 16.2%in 2006 due
to the decline in sales during the period. Operating expenses for fiscal 2007 includes stock-based
compensation expense of $432, legal settlements of $1,588 and $1,180 of expenses from the newly
acquired Thomson accessory business.
Selling expenses decreased $2,412 or 7.9%primarily due to a $1,924 decrease in commission
expense as a result of the decline in commissionable sales. The remaining decline in selling expenses is
primarily due to a decline in consumer and print media advertisements.
General and administrative expenses increased $277 or 0.6%due to the following:
• $719 increase in occupancy costs as a result of transition services costs necessary to support
the newly acquired Thomson operations.
• $1,517 increase in employee benefits due to increased health care costs under the Company’s
medical and dental plan as well as increased employer contributions to the 401(k) plan.
The above increases in general and administrative expenses were partially offset by the following:
• $476 decrease in professional fees due to reduced audit, legal and consulting costs, partially
offset by $1,588 in legal settlements from claims by licensors during fiscal 2007,
• $817 decrease in bad debt expense due to a decline in the accounts receivable balance and
improved collectibility efforts. The Company does not consider this to be a trend in the
overall accounts receivable,
• increased MIS billings of $489 for services performed in connection with a transition service
agreement.
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