Audiovox 2010 Annual Report Download - page 88

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Audiovox Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
February 28, 2010
(Dollars in thousands, except share and per share data)
a) Domestic Bank Obligations
As of February 28, 2010, we had a domestic credit line to fund the temporary short-term working capital needs of the
Company. This line expired on March 31, 2010 and allowed aggregate borrowings of up to $10,000 at an interest rate of
Prime (or similar designations) plus 1% or LIBOR plus 5%. The line was not renewed and replaced by a $15,000
three-year facility at an interest rate of LIBOR plus 3.5%.
b) Euro Asset-Based Lending Obligation
The Company has Euro accounts receivable factoring arrangements totaling 23,000 and a 5,000 Euro Asset-Based
Lending ("ABL") (finished goods inventory and non factored accounts receivable) credit facility for the Company's
subsidiary, Audiovox Germany, which expires on October 1, 2010. Selected accounts receivable are purchased from the
Company on a non-recourse basis at 85% of face value and payment of the remaining 15% upon receipt from the
customer of the balance of the receivable purchased. The activity under this ABL is accounted for as a sale of accounts
receivable. In respect of the ABL credit facility, selected finished goods are advanced at a 60% rate and non factored
accounts receivables are advanced at a 50% rate. The rate of interest is the three month Euribor plus 2.5%, and the
Company pays 0.4% of its gross sales as a fee for the accounts receivable factoring arrangement. As of February 28,
2010, the amount of accounts receivable and finished goods available for factoring exceeded the amounts outstanding
under this obligation.
c) Euro Term Loan Agreement
On March 30, 2008, Audiovox Germany entered into a new 5 million Euro term loan agreement. This agreement is for a
five-year term with a financial institution and was used to repay the Audiovox Germany intercompany debt to Audiovox
Corporation. Payments under the term loan are to be made in two semi-annual installments of 500,000 Euros beginning
on September 30, 2008 and ending on March 30, 2013. Interest accrues at a fixed rate of 4.82%. Any amount repaid can
not be reborrowed. The term loan is secured by a pledge of the stock of Audiovox Germany and the Magnat brand name,
prohibits the distribution of dividends, and takes precedence to all other intercompany loans with Audiovox Corporation.
d) Suntrust
On February 1, 2010, the Company entered into a two-year monthly installment loan in the amount of $5,000 at an
interest rate of LIBOR + 4%. This loan was used to pay down liabilities assumed in the asset purchase of Invision
Systems, Inc. In April 2010 this loan was prepaid in full without penalty.
e) Oehlbach
In connection with the Oehlbach acquisition (see Note 3), the Company acquired short and long term debt payable to
various third parties. The interest rate on the debt ranges from 4.2% to 6.1% and is payable from May 2008 to March
2011.
f) Other Debt
On August 29, 2003, the Company entered into a call/put option agreement with certain employees of Audiovox
Germany, whereby these employees can acquire up to a maximum of 20% of the Company's stated share capital in
Audiovox Germany at a call price equal to the same proportion of the actual price paid by the Company for Audiovox
Germany. The put options cannot be exercised until the later of (i) November 30, 2008 or (ii) the full repayment
(including interest) of an inter-company loan granted to Audiovox Germany in the amount of 5.3 million Euros.
Notwithstanding the lapse of these time periods, the put options become immediately exercisable upon (i) the sale of
Audiovox Germany or (ii) the termination of employment or death of the employee. The put price to be paid to the
employee upon exercise will be the then net asset value per share of Audiovox Germany. Accordingly, the Company
recognizes compensation expense based on 20% of the increase in Audiovox Germany's net assets, subject to certain
adjustments as defined in the agreement, representing the incremental change of the put price over the call option price.
Compensation (benefit) expense for these options amounted to $1,679, $642 and $(790) for the years ended February 28,
2010, February 28, 2009 and February 29, 2008, respectively. The benefit recorded for the year ended February 29, 2008
was due to a reduction in the call/put liability calculation as a result of the Oehlbach and Incaar acquisitions.
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Source: AUDIOVOX CORP, 10-K, May 14, 2010 Powered by Morningstar® Document Research℠