Audiovox 2006 Annual Report Download - page 28

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Year ended November 30, 2005 compared to year ended November 30, 2004
Continuing Operations
The following tables sets forth, for the periods indicated, certain statement of operations data for
the years ended November 30, 2005 (‘‘fiscal 2005’’) and 2004 (‘‘fiscal 2004’’).
Net Sales
Fiscal
2005 Fiscal
2004 $
Change
%
Change
Mobile Electronics ............................... $339,355 $403,196 $(63,841) (15.8)%
Consumer Electronics............................. 200,361 160,457 39,904 24.9
Total net sales ................................. $539,716 $563,653 $(23,937) (4.3)%
Mobile Electronics sales, which represented 62.9%of net sales, was impacted by a shift in the
mobile video category brought on by video-in-a-bag systems being replaced by lower priced portable
DVD’s, increased presence by original equipment car manufacturers and lower SUV sales. In addition,
sales were adversely impacted when reduced pricing by one of our competitors resulted in a significant
reduction in pricing for satellite radio plug and play units. Sales were favorably impacted by the recent
acquisition of Terk in January of 2005 and an increase in sales of Jensen mobile multimedia products.
Consumer Electronics sales, which represented 37.1%of net sales, showed growth as a result of
increased demand for LCD flat-panel TV product lines and portable DVD Players.
Sales incentive expense increased $3,395 to $16,518 as a result of the shift in business to mass
merchant and large retail customers. Also, the increase in sales incentive expense is attributable to a
$1,053 decrease in reversals due to increased achievement of Volume Incentive Rebate programs as
compared to the prior year. We believe that 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
2005 Fiscal
2004
Gross profit ....................... $60,839 $89,737
Gross margin percentage ........... 11.3%15.9%
Gross margins decreased to 11.3%for fiscal 2005 as compared to 15.9%for fiscal 2004. Gross
margins were impacted by the following:
• Increased inventory writedowns of $11,418 from $5,506 (1.0%impact) in fiscal 2004 to $16,924
(3.1%impact) in fiscal 2005. The increase in writedowns was the result of:
• The Company’s: a) post holiday season review of inventory and sales projections, b) review of
products which were at the end of their product life cycle at the completion of the fourth
quarter, and c) market information obtained from industry competitors and customers
regarding pricing and product demand at the January 2006 Consumer Electronics trade show,
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.
• 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.
• Continual price erosion in the electronics industry due to increased competition and increased
technological advancements in the electronics industry.
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