Audiovox 2008 Annual Report Download - page 35

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Net income was favorably impacted by sales incentive reversals of $4,108 ($2,506 after taxes) and $2,460 ($1,501 after taxes) in
Fiscal 2008 and 2007, respectively, and pre-tax income of $3,248 ($1,719 after taxes) recorded in discontinued operations in Fiscal
2008.
Year Ended February 28, 2007 Compared to Year Ended February 28, 2006
Continuing Operations
The following tables sets forth, for the periods indicated, certain statement of operations data for the years ended February 28, 2007
(“Fiscal 2007”) and 2006 (“Fiscal 2006”).
Net Sales
Fiscal Fiscal $ %
2007 2006 Change Change
Electronics $ 432,943 $ 512,022 $ (79,079) (15.4) %
Accessories 23,747 14,764 8,983 60.8
Total net sales $ 456,690 $ 526,786 $ (70,096) (13.3) %
Electronics sales, which include both mobile and consumer electronics, represented 94.8% of our net sales in Fiscal 2007, decreased
due to the absence of Rampage, Prestige and Video-in-a-Bag sales, which were the result of our decision to exit those product lines at
the end of Fiscal 2006. In addition, we suspended sales of Plug & Play XM satellite radio receivers for five months pending the
outcome of a Federal Communication Commission (‘‘FCC’’) issue. Electronic sales were also adversely impacted by lower average
selling prices in our mobile multi-media line due to the maturing of the category and increased competition in the market. Electronics
sales also decreased due to a decrease in average selling prices on LCD TVs and Plasma TVs during Fiscal 2007. In anticipation of the
decline in selling prices we limited inventory for the holiday season, which adversely affected consumer electronics sales but reduced
exposure from post holiday inventory write downs. In addition, during Fiscal 2007, the Company continued its policy of eliminating
low margin retail programs which adversely impacted consumer sales. These decreases were partially offset by increased sales in
Phase Linear, Audiovox Germany and Code Systems.
Accessories sales, which represented 5.2% of our net sales in Fiscal 2007, increased due to the incremental sales generated
from the Thomson Accessories acquisition in January of 2007.
Sales incentive expense decreased $4,524 to $12,501 for fiscal 2007 as a result of a decline in sales and increased reversals of
$465. The increase in reversals is primarily due to an increase in reversals 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 Fiscal
2007 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.
31
Source: AUDIOVOX CORP, 10-K, May 14, 2008