UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15 (d) of the
Securities
Exchange Act of 1934
Date of
Report (Date of earliest event reported): October 13, 2009
AUDIOVOX
CORPORATION
(Exact
name of registrant as specified in its charter)
|
Delaware
|
0-28839
|
|
|
(State
or other jurisdiction of incorporation)
|
(Commission
File Number
|
|
13-1964841
|
|
(I.R.S.
Employer Identification No.)
|
|
180 Marcus Blvd., Hauppauge, New
York
|
11788
|
|
|
(Address
of principal executive officers)
|
(Zip
Code)
|
Registrant's
telephone number, including area code (631) 231-7750
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of file following
provisions:
[
] Written communications pursuant to Rule 425
under the Securities Act (17 CFR 230.425)
[
] Soliciting material pursuant to Rule
14a-12 under the Exchange Act (17 CFR 240.14a-12)
[
] Pre-commencement communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
[
] Pre-commencement communications
pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(e))
Page 1 of
2
Item
2.02 Results
of Operations and Financial Condition
On October 13, 2009, Audiovox
Corporation (the "Company") issued a press release announcing its earnings for
the six months ended August 31, 2009. A copy of the release is furnished
herewith as Exhibit 99.1.
Item
8.01 Other
Events.
On October 14, 2009, the Company held a
conference call to discuss its financial results for the six months ended August
31, 2009. The Company has prepared a transcript of that conference call, a copy
of which is annexed hereto as Exhibit 99.2.
The information furnished under Items
2.02 and 8.01, including Exhibits 99.1 and 99.2, shall not be deemed
to be filed for
the purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, and will not
be incorporated by reference into
any registration statement filed under
the Securities Act of 1933, as amended, unless
specifically identified therein as being incorporated therein by
reference.
EXHIBIT
INDEX
|
Exhibit
No.
|
Description
|
|
99.1
|
Press
Release, dated October 13, 2009, relating toAudiovox Corporation's
earnings release for the six months ended August 31, 2009 (filed
herewith).
|
|
99.2
|
Transcript
of conference call held on October 14, 2009 at 10:00 am (filed
herewith).
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
AUDIOVOX CORPORATION
(Registrant)
Date:
October 15,
2009 BY:___________________________________
Charles M. Stoehr
Senior Vice President and
Chief Financial Officer
Page 2 of
2
News
Release
Audiovox
Corporation Reports Fiscal 2010 Second Quarter and Six Month
Results
HAUPPAUGE,
N.Y., Oct 13, 2009 /PRNewswire-FirstCall via COMTEX/ -- Audiovox Corporation
(Nasdaq: VOXX), today announced results for its fiscal 2010 second quarter and
six months ended August 31, 2009.
Net sales
for the fiscal 2010 second quarter were $124.9 million compared to net sales of
$147.2 million reported in the prior year period, a decrease of
15.2%.
Accessories
sales for the fiscal 2010 second quarter were $45.9 million, an increase of
29.0% as compared to $35.5 million reported in the comparable fiscal year
period. This increase is due primarily to the addition of new customers and
higher sales of antennas as a result of the switch from analog to digital TV,
remote controls and other accessory lines under Terk, Acoustic Research and RCA.
As a percentage of net sales, Accessories represented 36.7% and 24.1% of net
sales for the periods ended August 31, 2009 and August 31, 2008,
respectively.
Electronics
sales, which include both mobile and consumer electronics were $79.0 million for
the fiscal 2010 second quarter compared to $111.7 million in the comparable
fiscal year period, a decrease of 29.2%. This decline is primarily due to lower
sales of consumer goods, mostly as a result of the Company's exit from lower
profit product categories such as flat-screen TV's, portable navigation and GMRS
radios, and mobile electronics products due to the weakening U.S. economy and
lower vehicle sales. The decline was partially offset by increased sales of
satellite radio products and digital clock radios. As a percentage of net sales,
Electronics represented 63.3% and 75.9% for the periods ended August 31, 2009
and August 31, 2008, respectively.
Gross
margins increased by 190 basis points from 17.0% in the fiscal 2009 second
quarter to 18.9% in the fiscal 2010 second quarter. Gross margins were favorably
impacted by higher accessory product sales, which carry a higher gross margin
than other product lines. Additionally, the increase in gross margin was related
to lower warehousing and assembly expenses, obsolescence charges and freight
charges.
The
Company reported operating expenses of $22.8 million for the fiscal 2010 second
quarter, a decrease of $6.3 million or 21.7% compared to $29.1 million reported
in the comparable fiscal year period. As a percentage of net sales, operating
expenses decreased to 18.2% for the three months ended August 31, 2009, from
19.8% in the prior year period. The decrease in operating expenses was primarily
due to the overhead reduction program and cost containment efforts instituted in
the second half of fiscal 2009. Additionally, fiscal 2009 operating expenses for
the three months ended August 31, 2008 included a one-time charge of
approximately $1 million related to these efforts.
Pre-tax
income in the fiscal 2010 second quarter was approximately $1.2 million compared
to a pre-tax loss of $4.0 million in the comparable year-ago period. Net income
for the period ended August 31, 2009 was $2.8 million or earnings per diluted
share of $0.12 compared to a net loss of $2.3 million or a loss per diluted
share of $0.10 in the three months ended August 31, 2008.
Patrick
Lavelle, Chief Executive Officer stated, "We've made significant progress over
the past year to improve our competitive position, while taking aggressive steps
to manage our business through this economic downturn. Cost containment efforts,
new products, new customers and ongoing margin improvement programs enabled us
to post a profit this quarter and through the first half of the year, despite
the decline in sales. While we remain cautious given the continued weakness in
consumer confidence globally, we believe we have taken the necessary steps to be
profitable this year and are well positioned for the future."
Six
Month Comparisons
Net sales
for the first six months of fiscal 2010 were $244.7 million compared to net
sales of $291.8 million in the comparable fiscal 2009 period, a decrease of
16.1%.
Accessories
sales for the fiscal 2010 six month period were $86.7 million, an increase of
30.5% as compared to $66.4 million reported in the comparable fiscal year
period. This increase is due primarily to the addition of new customers and
higher sales driven by the changeover from analog to digital TV, which favorably
impacted digital antenna sales. This increase is also related to higher sales of
other accessory products under the Terk, Acoustic Research and RCA brands. As a
percentage of net sales, Accessories represented 35.4% and 22.8% of net sales
for the six month period ended August 31, 2009 and August 31, 2008,
respectively.
Electronics
sales, which include both mobile and consumer electronics were $158.0 million
for the fiscal 2010 six month period compared to $225.4 million for the six
months ended August 31, 2008. This decline was primarily due to lower sales of
consumer products related to the exiting of lower profit product categories and
mobile products as a direct result of the weakening U.S. economy and the steep
decline in vehicle sales. Partially offsetting this decline were higher sales of
satellite radio products and increased sales in select digital categories,
including clock radios and camcorders. As a percentage of net sales, Electronics
represented 64.6% and 77.2% for the six month periods ended August 31, 2009 and
August 31, 2008, respectively.
1
Gross
margins increased by 270 basis points from 16.3% in the fiscal 2009 six month
period to 19.0% in the comparable period in fiscal 2010. Gross margins were
favorably impacted by higher sales of Accessories products, higher margins due
to select mobile programs and higher margins internationally. Gross margins were
also favorably impacted by the absence of the $2.9 million charge related to
portable navigation products, which was taken in fiscal 2009.
Operating
expenses decreased $14.0 million or 23.6% to $45.5 million for the six months
ended August 31, 2009 from $59.5 million for the six months ended August 31,
2008. As a percentage of net sales, operating expenses decreased to 18.6% for
the six months ended August 31, 2009 from 20.4% in the comparable prior year
period. The decrease in total operating expenses is a direct result of the
overhead reduction program and cost containment efforts, which the Company
anticipates will result in annualized costs savings of $23 million.
Pre-tax
income in the first six months of fiscal 2010 was approximately $2.0 million
compared to a pre-tax loss of $11.1 million in the comparable year-ago period.
Net income for the six month period ended August 31, 2009 was $3.2 million or
earnings per diluted share of $0.14 compared to a net loss of $7.5 million or a
loss per diluted share of $0.33 in the six months ended August 31,
2008.
Lavelle
added, "New programs with FLO TV, Sony Playstation and SIRIUS XM and the
incremental revenues from the recent acquisition of SCHWAIGER should help offset
some of the market weakness. Despite lower sales, we believe our market
positions have improved, and our portfolio of brands and distribution has never
been stronger. We continue to look at acquisition opportunities and remain well
financed to take advantages of opportunities as they arise. Issues still remain,
but the long-term future for this Company is bright."
Conference
Call Information
The
Company will be hosting its conference call on Wednesday, October 14, 2009 at
10:00 a.m. ET. Interested parties can participate by visiting www.audiovox.com,
and clicking on the webcast in the Investor Relations section or via
teleconference (toll-free number: 866-318-8619; international number:
617-399-5138; pass code: 5798734). For those who will be unable to participate,
a replay will be available approximately one hour after the call has been
completed and will last for one week thereafter (replay number: 888-286-8010;
international replay number: 617-801-6888; pass code: 47169826).
About
Audiovox
Audiovox
(Nasdaq: VOXX) is a recognized leader in the marketing of automotive
entertainment, vehicle security and remote start systems, consumer electronics
products and consumer electronics accessories. The company is number one in
mobile video and places in the top ten of almost every category that it sells.
Among the lines marketed by Audiovox are its mobile electronics products
including mobile video systems, auto sound systems including satellite radio,
vehicle security and remote start systems; consumer electronics products such as
MP3 players, digital camcorders, DVRs, Internet radios, clock radios, portable
DVD players, multimedia products like digital picture frames and home and
portable stereos; consumer electronics accessories such as indoor/outdoor
antennas, connectivity products, headphones, speakers, wireless solutions,
remote controls, power & surge protectors and media cleaning & storage
devices; Energizer(R)-branded products for rechargeable batteries and battery
packs for camcorders, cordless phones, digital cameras and DVD players, as well
as for power supply systems, automatic voltage regulators and surge protectors.
The company markets its products through an extensive distribution network that
includes power retailers, 12-volt specialists, mass merchandisers and an OE
sales group. The company markets products under the Audiovox, RCA, Jensen,
Acoustic Research, Energizer, Advent, Code Alarm, TERK, Prestige and SURFACE
brands. For additional information, visit our Web site at
www.audiovox.com.
Safe
Harbor Statement
Except
for historical information contained herein, statements made in this release
that would constitute forward-looking statements may involve certain risks and
uncertainties. All forward-looking statements made in this release are based on
currently available information and the Company assumes no responsibility to
update any such forward-looking statement. The following factors, among others,
may cause actual results to differ materially from the results suggested in the
forward-looking statements. The factors include, but are not limited to, risks
that may result from changes in the Company's business operations; our ability
to keep pace with technological advances; significant competition in the mobile
and consumer electronics businesses as well as the wireless business; our
relationships with key suppliers and customers; quality and consumer acceptance
of newly introduced products; market volatility; non-availability of product;
excess inventory; price and product competition; new product introductions; the
possibility that the review of our prior filings by the SEC may result in
changes to our financial statements; and the possibility that stockholders or
regulatory authorities may initiate proceedings against Audiovox and/or our
officers and directors as a result of any restatements. Risk factors associated
with our business, including some of the facts set forth herein, are detailed in
the Company's Form 10-K for the fiscal year ended February 28,
2009.
Company
Contact:
GW
Communications, Glenn Wiener, Tel: 212-786-6011,
gwiener@GWCco.com
2
PART
I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
Audiovox
Corporation and Subsidiaries
Consolidated
Balance Sheets
(In
thousands, except share data)
|
August
31,
|
February
28,
|
|||||||
|
2009
|
2009
|
|||||||
|
Assets
|
unaudited
|
|||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 70,486 | $ | 69,504 | ||||
|
Accounts
receivable, net
|
101,819 | 104,896 | ||||||
|
Inventory
|
121,318 | 125,301 | ||||||
|
Receivables
from vendors
|
6,992 | 12,195 | ||||||
|
Prepaid
expenses and other current assets
|
17,152 | 17,973 | ||||||
|
Deferred
income taxes
|
401 | 354 | ||||||
|
Total
current assets
|
318,168 | 330,223 | ||||||
|
Investment
securities
|
16,068 | 7,744 | ||||||
|
Equity
investments
|
10,768 | 13,118 | ||||||
|
Property,
plant and equipment, net
|
19,785 | 19,903 | ||||||
|
Intangible
assets
|
87,419 | 88,524 | ||||||
|
Deferred
income taxes
|
252 | 221 | ||||||
|
Other
assets
|
1,885 | 1,563 | ||||||
|
Total
assets
|
$ | 454,345 | $ | 461,296 | ||||
|
Liabilities
and Stockholders' Equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 34,153 | $ | 41,796 | ||||
|
Accrued
expenses and other current liabilities
|
28,816 | 32,575 | ||||||
|
Income
taxes payable
|
2,786 | 2,665 | ||||||
|
Accrued
sales incentives
|
9,455 | 7,917 | ||||||
|
Deferred
income taxes
|
1,459 | 1,459 | ||||||
|
Bank
obligations
|
1,833 | 1,467 | ||||||
|
Current
portion of long-term debt
|
1,428 | 1,264 | ||||||
|
Total
current liabilities
|
79,930 | 89,143 | ||||||
|
Long-term
debt
|
6,118 | 5,896 | ||||||
|
Capital
lease obligation
|
5,491 | 5,531 | ||||||
|
Deferred
compensation
|
3,435 | 2,559 | ||||||
|
Other
tax liabilities
|
1,188 | 2,572 | ||||||
|
Deferred
tax liabilities
|
3,863 | 4,657 | ||||||
|
Other
long term liabilities
|
8,004 | 10,436 | ||||||
|
Total
liabilities
|
108,029 | 120,794 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders'
equity:
|
||||||||
|
Series
preferred stock, $.01 par value; 1,500,000 shares authorized, no shares
issued or outstanding
|
- | - | ||||||
|
Common
stock:
|
||||||||
|
Class
A, $.01 par value; 60,000,000 shares authorized, 22,439,212 and 22,424,212
shares issued and 20,619,460 and 20,604,460 shares outstanding at August
31, 2009 and February 28, 2009
|
224 | 224 | ||||||
|
Class
B convertible, $.01 par value; 10,000,000 shares authorized, 2,260,954
shares issued and outstanding
|
22 | 22 | ||||||
|
Paid-in
capital
|
274,537 | 274,464 | ||||||
|
Retained
earnings
|
94,759 | 91,513 | ||||||
|
Accumulated
other comprehensive loss
|
(4,830 | ) | (7,325 | ) | ||||
|
Treasury
stock, at cost, 1,819,752 shares of Class A common stock at August 31,
2009 and February 28, 2009
|
(18,396 | ) | (18,396 | ) | ||||
|
Total
stockholders' equity
|
346,316 | 340,502 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 454,345 | $ | 461,296 | ||||
See
accompanying notes to consolidated financial statements.
3
Audiovox
Corporation and Subsidiaries
Consolidated
Statements of Operations
(In thousands, except share and per
share data)
(unaudited)
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
August
31,
|
August
31,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Net
sales
|
$ | 124,890 | $ | 147,208 | $ | 244,697 | $ | 291,791 | ||||||||
|
Cost
of sales
|
101,292 | 122,148 | 198,174 | 244,216 | ||||||||||||
|
Gross
profit
|
23,598 | 25,060 | 46,523 | 47,575 | ||||||||||||
|
Operating
expenses:
|
||||||||||||||||
|
Selling
|
6,203 | 8,276 | 13,162 | 18,227 | ||||||||||||
|
General
and administrative
|
14,372 | 17,856 | 28,033 | 35,505 | ||||||||||||
|
Engineering
and technical support
|
2,205 | 2,979 | 4,277 | 5,783 | ||||||||||||
|
Total
operating expenses
|
22,780 | 29,111 | 45,472 | 59,515 | ||||||||||||
|
Operating
income (loss)
|
818 | (4,051 | ) | 1,051 | (11,940 | ) | ||||||||||
|
Other
income (expense):
|
||||||||||||||||
|
Interest
and bank charges
|
(384 | ) | (510 | ) | (703 | ) | (986 | ) | ||||||||
|
Equity
in income of equity investees
|
355 | 509 | 750 | 1,410 | ||||||||||||
|
Other,
net
|
408 | 89 | 855 | 385 | ||||||||||||
|
Total
other income, net
|
379 | 88 | 902 | 809 | ||||||||||||
|
Income
(loss) before income taxes
|
1,197 | (3,963 | ) | 1,953 | (11,131 | ) | ||||||||||
|
Income
tax benefit
|
(1,578 | ) | (1,652 | ) | (1,295 | ) | (3,597 | ) | ||||||||
|
Net
income (loss)
|
$ | 2,775 | $ | (2,311 | ) | $ | 3,248 | $ | (7,534 | ) | ||||||
|
Net
income (loss) per common share (basic)
|
$ | 0.12 | $ | (0.10 | ) | $ | 0.14 | $ | (0.33 | ) | ||||||
|
Net
income (loss) per common share (diluted)
|
$ | 0.12 | $ | (0.10 | ) | $ | 0.14 | $ | (0.33 | ) | ||||||
|
Weighted-average
common shares outstanding (basic)
|
22,872,191 | 22,857,114 | 22,868,792 | 22,855,864 | ||||||||||||
|
Weighted-average
common shares outstanding (diluted)
|
22,933,728 | 22,857,114 | 22,899,561 | 22,855,864 | ||||||||||||
See
accompanying notes to consolidated financial statements.
4
|
Final
Transcript
|
|
|
|
Conference
Call Transcript
VOXX
- Q2 2010 Audiovox Corporation Earnings Conference Call
Event
Date/Time: Oct 14, 2009 /
02:00PM GMT
|
CORPORATE
PARTICIPANTS
Glenn
Wiener
GW
Communications - IR
Patrick
Lavelle
Audiovox
Corporation - President & CEO
Michael
Stoehr
Audiovox
Corporation - SVP & CFO
John
Shalam
Audiovox
Corporation - Chairman of the Board
CONFERENCE
CALL PARTICIPANTS
Thomas
Kahn
Kahn
Brothers & Co. - Analyst
Jim
Barrett
CL
King & Associates - Analyst
Dan
Thompson
Harbor
Management - Analyst
PRESENTATION
Operator
Good
day, ladies and gentlemen, and welcome to the quarter two conference call. My
name is Jennifer and I will be your coordinator for today. At this time, all
participants are in listen-only mode. We will be conducting a
question-and-answer session towards the end of this conference. I would now like
to turn the presentation over to your host for today's call, Glenn Wiener,
Investor Relations. Please proceed, sir.
THOMSON
REUTERS STREETEVENTS | www.streetevents.com | Contact
Us
© 2009
Thomson Reuters. All rights reserved. Republication or redistribution of Thomson
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Reuters logo are registered trademarks of Thomson Reuters and its affiliated
companies.
1
Final
Transcript
|
Oct
14, 2009 / 02:00PM GMT, VOXX - Q2 2010 Audiovox Corporation
Earnings Conference Call
|
Glenn
Wiener - GW Communications -
IR
Thank
you, Jennifer, and good morning. Welcome to Audiovox's fiscal 2010
second-quarter and six-month results conference call. As you know, today's call
is being webcast on our site, www.Audiovox.com, and can be accessed in the
Investor Relations section. With us today are Patrick Lavelle, President and
CEO; Michael Stoehr, Senior Vice President and Chief Financial Officer; and John
Shalam, Chairman of the Board.
Before we
begin, I'd quickly like to read our safe Harbor statement. Except for historical
information contained herein, statements made on today's call and webcast that
would constitute forward-looking statements may involve certain risks and
uncertainties. All forward-looking statements made are based on currently
available information and the Company assumes no responsibility to update any
such forward-looking statements.
The
following factors, among others, may cause actual results to differ materially
from the results suggested in these forward-looking statements. These factors
include, but are not limited to, further deterioration in the global economy,
risks that may result from changes in the Company's business operations, our
ability to keep pace with technological advances, significant competition in the
mobile and consumer electronics and accessories businesses, our relationships
with key suppliers and customers, quality and consumer acceptance of newly
introduced products, market volatility, non-availability of products, excess
inventory, price and product competition, new product introductions and the
possibility that the review of our prior filings by the SEC may result in
changes to our initial proceedings in our financial statements and the
possibility that stockholders and regulatory authorities may initiate
proceedings against Audiovox and/or our officers and directors as a result of
any restatements.
Risk
factors associated with our business, including some of the facts set forth
herein, are detailed in the Company's Form 10-K for the fiscal year ended
February 28, 2009. At this time, I would like to turn the call over to Patrick
Lavelle. Pat?
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
Thank
you, Glenn, and good morning, everyone. As anticipated, we are profitable
through the first six months of fiscal 2010, posting income of $3.2 million
versus a loss of $7.5 million last year, over a $10 million swing. Our improved
performance is a direct result of higher margins, the shift in product mix and
lower overhead as a result of the expense reduction plans we put in place last
year.
Unfortunately,
the weakness in the economy continues to affect sales, which were off in the
second quarter by 16%. The consumer and mobile sectors were hit hardest, but we
did experience a significant uptick in accessory sales driven by the analog to
digital TV changeover that helped offset the decline in our electronics
segment.
Gross
profit margin was almost 19% compared to 17% and our expenses were down $6.5
million due to the across-the-board cuts we implemented since the second half of
last year.
I believe
we are positioned for profitability in future periods. The extent of which will
be determined by improvements in the economy and our new product introductions
scheduled for the second half.
In our
accessory business, both the RCA and TERK brands have benefited, mainly from the
analog to digital TV transition with RCA accessory sales up more than 35%. In
addition, many of our other accessory categories saw year-over-year increases
and had good margins. The higher margin accessory products and their increased
percentage in the mix help improve our overall performance. Now that the
transition has passed, we do not expect to anniversary the spikes in reception
products.
Our
arsenal of domestic and international accessory brands, Acoustic Research, RCA,
TERK, Energizer, Oehlbach and now Schwaiger give us great flexibility as it
provides our retail partners with more choices across different price points.
And our brands have strength and resonate with consumers with RCA currently
holding the number one marketshare in units for TV remote controls and the
number one marketshare in both units and dollars for reception products. TERK is
among the leaders in reception products and the Energizer license we hold gives
us access to the number one selling battery brand.
2
Final
Transcript
|
Oct
14, 2009 / 02:00PM GMT, VOXX - Q2 2010 Audiovox Corporation
Earnings Conference Call
|
Some
quick highlights from our accessory group. Our new AR Xsight remote controls
retailing from $249 to $349 were recently launched at Best Buy and other key
retailers nationwide. These are the first of the products designed to reposition
Acoustic Research as our high-end wireless brand targeted at the discriminating
audio and video file.
In
addition to the new remotes, we also just introduced new wired and wireless AR
headphones that delivers studio quality performance. There are new products
coming in RCA and the TERK lines and SURFACE continues to make
progress.
These are
just a few of the products that we expect will drive the accessory business.
There may be some weakness over the coming months primarily due to cautious
buying at retail, but this should turn in fiscal 2010.
This
leads me to the acquisition we just announced. Last week, we acquired Schwaiger,
a European accessories company for $4.3 million. With Schwaiger, we expanded our
geographic footprint while adding a powerful consumer electronics accessory
brand. Schwaiger has an array of productlines including antennas, amplifiers,
accessories, switches, cable, satellite receiving components and other sat and
receiver technologies. This complements our existing line and adds new
distribution channels and new customers. We expect this acquisition to add
approximately $32 million in annual sales to Audiovox Germany and be accretive
this year.
In
addition to the accessory product sales, this deal also provides us with the
opportunities to cross-sell some of our domestic brands to some of our new
European customers.
On the
consumer side, sales continue to be affected by the market-wide lack of consumer
confidence and rising unemployment figures. Reports for the upcoming holiday
season have been mixed. Best Buy and some of the discount retailers are
projecting stronger holiday sales while others continue to forecast weakness.
Overall though, retailers are taking a more cautious approach in their buying
and inventory programs compared to last year.
Added to
this economic reality is the fact that although we exited several consumer
categories last year, such as navigation, LCD TV and GMRS, we did continue to
have sales of those products as we wound down operations. Sales which we do not
have this year. These two situations have resulted in a sizable reduction in our
overall consumer business. However, we do have a number of bright spots,
including increases in our camcorder and digital clock radio
categories.
In
addition, some of you may have seen the recent news on Qualcomm's personal FLO
TV. I am pleased to say that we will be distributing their new FLO TV personal
television, an entirely new handheld portable device that will let TV lovers
watch their favorite news, live sports, children's program and entertainment on
a dedicated device for mobile TV viewing. We will be shipping the FLO personal
TV through limited distribution this holiday season.
And
finally, we have several new products in development that will be shown at the
Consumer Electronics Show in January that include FLO TV-enabled portable DVDs,
new camcorder designs and our first eBook. I believe all of these developments
will help strengthen our consumer group as we complete fiscal 2010 and put us on
a strong footing for next year.
On the
mobile side, the car market continues to post lower sales. In September, car
sales fell 23% to a seasonably adjusted rate of only 9.2 million vehicles for
this year. The Cash For Clunker program did help a little selling some 700,000
vehicles in July and August, but the upward momentum did not carry into
September.
Despite
the unprecedented difficulties facing the auto industry, we are beginning to see
reports from many of the leading automakers that are suggesting the bottom is
behind us and increases are being predicted. As we move to the end of the year,
we have several new programs that we believe will be contributors to an improved
mobile performance over the next several quarters.
3
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Let me
start with SIRIUS XM. You have no doubt heard about the XM SkyDock with its
built-in FM tuner so you can enjoy live satellite radio anywhere you drive using
your iPod or iTouch. It features the revolutionary SIRIUS XM PowerConnect
technology, which has the flexibility to move from vehicle to vehicle with a
simple plug and play. A free XM SkyDock application available for download from
the App Store lets you tag music from purchase from iTunes.
We also
have just begun shipment of the SIRIUS Stratus 6 and the XM onyX, both with
PowerConnect and will ship SIRIUS Internet radio and a SIRIUS home receiver in
November.
To
support these programs, SIRIUS XM has announced the Rock N Reward consumer
promotion that gives the consumer up to $100 cash back in a SIRIUS XM Visa card
with the purchase of subscription to satellite radio. This promotion, scheduled
for the fourth quarter, should increase satellite radio sales over last year's
second half.
Then
there is Qualcomm's in-vehicle FLO TV, which we will deliver in our fourth
quarter. FLO TV brings in-vehicle live TV not only to new car applications, but
also to the over 20 million screens in cars and on the road today. And we are
the exclusive supplier of FLO TV hardware.
FLO TV
represents the first time a consumer can get high-quality, interference-free,
live TV in a moving vehicle. It is completely unobtrusive, connects to any rear
seat entertainment system and has an antenna that is no bigger than a computer
mouse. We'll be launching at car dealers first and will follow shortly
thereafter at retail. We are very optimistic about this new relationship and the
new product it brings and we should start seeing an impact in the fiscal fourth
quarter and mort next year.
And
finally, there is our affiliation with Sony Playstation and the launch of that
system later this month. It is the first ever PlayStation 2 built into a rear
seat entertainment system, no separate game console needed and the controllers
are wireless so no more wires stretched across the back seat. The system also
includes two PS2 games. I believe these programs will offset some of the dismal
performance of the car market during the second half of fiscal 2010 and
beyond.
As we
look ahead into the third and fourth quarters and really into next year, I'll
reiterate that I believe we are positioned for profitability, but I remain
cautious. Economic conditions, which impacted us in fiscal 2009, remain in the
economy. While it is beginning to stabilize, it is still hampered by nearly 10%
unemployment. And people without jobs spend money cautiously.
In
addition, there has been a cultural shift in the consumer mindset regarding
savings and spending. While spending has dropped way off, the American consumer
to saving money at levels not seen in decades. By all accounts, this will
probably not be a strong holiday season at retail and we think any gains will be
modest.
To
summarize, certain categories are performing well and our new programs,
particularly in the mobile business, should offset some of the overall market
weakness. The acquisition of Schwaiger will also help boost our international
sales, but until we see domestic sellthrough at retail, true signs that the auto
industry is turning and rising consumer confidence, we have to be very prudent
in how we manage our business and we will continue to do that.
Margins
will fluctuate, particularly in the third quarter as some lower margin but lower
risk program like those that we have with satellite radio increase. However,
with the additional international accessory business we just added and new
mobile programs beginning in 4Q, we look for margins to improve slightly over 3Q
and would expect to see them in the 18% to 19% range on a go-forward
basis.
Overhead
was down $6.3 million this quarter and $14 million or close to 24% through the
first half of the year. The cost reduction plans both permanent and temporary
that I outlined in previous quarters resulting in approximately $23 million in
annualized savings are in full effect and have enabled us to drive profits to
the bottom line.
4
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We are
operating lean today, but have the capacity to take on business without adding
significant cost. And that's a big part of our near-term strategy. We don't
expect to see any additional large percentage drops in overhead as we are
approaching the anniversary of the implementation of these reductions. We have
significant cash on hand to fund buying programs for the holiday season and as
evidenced by the Schwaiger acquisition, we will continue to look at M&A
opportunities, businesses that will improve our financial position and add
long-term value.
We do
business today with virtually every one of the big-box retailers and key
regional players. Our aftermarket automotive network is among the best in the
industry. And we have new mobile partnerships with market leaders. Margins and
overhead are under control. We are not sitting around waiting for the economy to
improve; we are bringing new products to market that we believe are strong
enough to succeed even in a down market. We have all the elements in place and
we are focused on success.
While we
look forward to the inevitable strengthening of the economy, we continue to
shape our own destiny, developing new products and fine-tuning procedures as we
look for ways to increase productivity and lower overhead to put us in a
position to deliver better shareholder returns. I would like to thank you for
your time this morning and your continued support and with that, I will turn the
call over to Michael and then we will open it up for questions.
Mike?
Michael
Stoehr - Audiovox Corporation
- - SVP & CFO
Thanks,
Pat. Good morning, everyone. I'm going to start with our second-quarter and
six-month results and then discuss our balance sheet. Sales for the second
quarter were $124.8 million, a decline of 15% from second quarter last year. Our
accessory sales increased by 29% to $45.9 million due to new products, new
customers and increased antenna sales as a result of the shift from analog to
digital TV. We also experienced increases in our TERK AR and RCA
productlines.
Offsetting
this increase were declines in our electronics segment, which reported sales of
$79 million or a decline of 29%. This decline was due to increased consumer good
sales as we exited several lower margin product categories, including LCD TVs,
portable navigation and GRMS radios last year, but we continued to sell these
lines as we closed out our inventory. Sales for the quarter of that product last
year was approximately $6 million.
On the
positive side, digital clock radio sales were up and we added new accounts,
which should help sales in the future. Our mobile business continues to be
impacted principally by lower vehicle sales, though mobile audio is up due to
higher sales of satellite radio products, a trend, which we believe will
continue in the future periods as a result of our agreement with SIRIUS
XM.
Our
international business continues to be adversely impacted by global economic
issues as our sales were down in Germany, Venezuela and Mexico. Venezuela
experienced a large sales decline, the result of dollar shortages in country and
the closure for a period of time of the automobile manufacturers' facilities. We
anticipate the recent acquisition of Schwaiger to lead to increased sales in our
European operations, an additional higher-margin accessory business for us. As
we reported, we estimate these sales to be approximately $32 million on an
annualized basis.
5
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Consolidated
gross margins increased 190 basis points from 17% last year second quarter to
18.9% this quarter. The increase in our margin was primarily the result of three
factors -- one, the shift in our product mix during the quarter resulting in
higher accessory sales as a percentage and again, these carry higher margins;
price increases last year to offset rising costs and our cost containment
efforts, which resulted in lower warehousing and assembly expenses, labor
charges and freight charges; and also lower obsolescence charges.
Our
operating expenses declined by almost 22% to $22.8 million or down $6.3 million
versus $29.1 million in the same period last year. Selling expenses were down
25% due to lower sales, salaries, commissions, advertising, T&E, and our
G&A costs were down 19.5% due to lower office and executive salaries and a
decline in professional fees, insurance, etc. In total, there were approximately
$3.9 million in savings generated by lower payroll expenses and benefits and our
headcount is down 18% year-over-year.
As a
percentage of net sales, our overhead was 18.2% for the three months ended
August compared to 19.8% in the prior-year period. We anticipate realizing the
$23 million in annualized cost savings we previously discussed, though I remind
you that the size of the reductions will decline on a dollar percentage basis in
future periods as the plans are fully implemented.
Despite
the decline in sales due to increased margins and lower overhead, we reported
pretax income of $1.2 million versus a loss of $4 million last year and net
income of $2.8 million or $0.12 a share versus a net loss of $2.3 million or a
loss of $0.10 a share second quarter last year.
In
addition to the improvement in our operating performance, our net income was
impacted by tax releases caused by a favorable state tax ruling, which impacted
taxes on our joint venture income.
For the
six months, our sales declined at 16.1% with electronics down partially offset
by increases in accessory sales. The increase in accessories was a result,
again, of higher sales in digital antenna, increases in TERK, Acoustic Research
and RCA brands. The decline in electronic sales were due to the reasons I
outlined earlier offset by higher sales of satellite radio products resulting
from our new agreement with SIRIUS XM and higher sales of digital clock radios
and digital camcorders.
Our gross
margins increased by 270 basis points from 16.3% to 19% and this was primarily
due to higher accessories sales as a percentage of the mix, 35.4% of sales in
fiscal 2010 compared to 29% for the first six months of fiscal 2009. The
increase is due to higher margin in select mobile programs and internationally,
as well as the absence of a $2.9 million charge taken last year's fiscal first
quarter related to our exiting the portable navigation market.
Operating
expenses declined $14 million or 23.6% to $45.5 million versus $59.5 million and
as a percentage of net sales decreased by 18.9% from 20.4%. In total, our
payroll and benefit expenses declined $8.2 million for the six-month fiscal 2010
versus the six-month fiscal 2090 period. Pretax income from continuing
operations of approximately $2 million compared to pretax loss of $11.1 million,
a $13 million swing. And net income, also inclusive of tax releases, was $3.2
million or $0.14 a share compared to a loss of $7.5 million or $0.33 a share
loss, a $10.7 million swing.
6
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Moving on
to our liquidity and capital resources. Our working capital decreased from
$241.1 million on February 28 to $238.2 million on August 31, 2009, principally
as a result of our purchasing $7.4 million denominated Venezuelan government
bonds with a maturity of 2015. Our cash balance is up approximately $1 million
for the same period and as of August 31 was $70.5 million. Last year at the end
of August, it was $49 million. The increase in cash is primarily due to a
decrease in accounts receivable and vendor receivables and a decrease in
inventory balances. This was offset by a decrease in accounts payable, accrued
expenses and the purchase of dollar denominated Venezuelan bonds for our
Venezuelan operation. These dollar bonds are redeemable in Venezuelan bolivars
at the current official exchange rate. This gives us protection from devaluation
as we wait dollar allocations by the Venezuelan government for our approved
intercompany payments.
For the
six months ended August 31, 2009, operating activities provided cash of
approximately $7.2 million. Our inventory balances have been reduced and our
inventory turns increased to 2.9 versus 2.6 for the same period last year. Our
accounts receivable turns decreased from 5.6 to 4.8. Last year, during the
quarter, receivable turns were favorably impacted by the recent RCA
acquisitions, which did not occur this year. We really have no major issues in
the receivables.
During
our fiscal third quarter, we will use additional cash to fund accounts
receivable and inventory as historically it is our strongest selling quarter. We
can expect our usual seasoned patterns and we will catch up again in the fourth
quarter as our transaction cycles are completed. We will probably, during the
third quarter, end with mid eight figures in cash.
Our
balance sheet remains strong and we have sufficient capital to not only manage
our business, but to pursue growth opportunities as they may arise. We continue
to be prudent in our buying programs and are watching the market closely. I'll
turn the meeting back to Pat. Pat?
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
Okay,
Michael, thank you. And now if there are any questions.
QUESTION AND
ANSWER
Operator
(Operator
Instructions). Thomas Kahn.
Thomas
Kahn - Kahn Brothers & Co.
- - Analyst
On
the Circuit City receivable --?
7
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Patrick
Lavelle - Audiovox Corporation
- - President & CEO
Tom,
can you repeat that? We --.
Thomas
Kahn - Kahn Brothers & Co.
- - Analyst
Did
you collect your insurance money on the Circuit City receivable?
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
The
bankruptcy proceedings are ongoing. We expect that we will receive payment
either in the end of the third quarter or the beginning of the fourth
quarter.
Thomas
Kahn - Kahn Brothers & Co.
- - Analyst
Third
or fourth quarter. What was the amount of the receivable? What is the
claim?
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
The
balance is, I believe, $6.6 million, something like that.
Thomas
Kahn - Kahn Brothers & Co.
- - Analyst
$6.6
million and --.
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
Somewhere
around there.
8
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Thomas
Kahn - Kahn Brothers & Co.
- - Analyst
Who
is insuring that for you?
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
Credit
Suisse.
Thomas
Kahn - Kahn Brothers & Co.
- - Analyst
Credit
Suisse. So you anticipate receiving all of that from the insurance
company?
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
Yes,
we do.
Thomas
Kahn - Kahn Brothers & Co.
- - Analyst
I
see. So when we look back at it, will there have been any loss or will you have
essentially been well covered?
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
We
were well covered. I guess you can say the only loss we had was the initial cost
of the put that we put in place.
Thomas
Kahn - Kahn Brothers & Co.
- - Analyst
Okay,
the initial cost of the put. Another question, is there anymore -- I mean you
guys did a great job in reducing expenses. Can we look forward to anymore or are
we pretty well cut to the bone in terms of expenses?
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Patrick
Lavelle - Audiovox Corporation
- - President & CEO
We
have cut as deeply as I would like to see at this particular point in time based
on the programs that we are starting. I don't think it would be wise for us to
go any deeper at this point because, with the new programs that we have in
place, the new Sony Playstation, the new FLO programs that we have on the
consumer and the mobile side, I don't think it would be wise at this particular
point. We are anticipating that we are going to see some improvement in the
mobile business based on these deals and as well in the economy as time goes on.
So other than fine tuning and --.
Thomas
Kahn - Kahn Brothers & Co.
- - Analyst
Just
fine-tuning.
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
--
waste, I don't see anything.
Thomas
Kahn - Kahn Brothers & Co.
- - Analyst
Great,
thank you very much.
John
Shalam - Audiovox Corporation
- - Chairman of the Board
Tom,
if I may just add to Pat's remarks.
Thomas
Kahn - Kahn Brothers & Co.
- - Analyst
Hi,
John.
John
Shalam - Audiovox Corporation
- - Chairman of the Board
How
are you?
10
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Thomas
Kahn - Kahn Brothers & Co.
- - Analyst
Good.
I look forward to seeing you maybe up in Vermont.
John
Shalam - Audiovox Corporation
- - Chairman of the Board
Yes,
I am looking forward to that. But I did want to say that, in addition to what
Pat said, we do have ongoing programs, which we are reviewing in terms of
warehousing, efficiencies, transportations and other cost studies, which are not
related to just cutting payroll and cutting salaries. But that is an ongoing
process --.
Thomas
Kahn - Kahn Brothers & Co.
- - Analyst
Ongoing,
I understand.
John
Shalam - Audiovox Corporation
- - Chairman of the Board
You
could see some additional small savings.
Thomas
Kahn - Kahn Brothers & Co.
- - Analyst
Good.
Thank you very much.
John
Shalam - Audiovox Corporation
- - Chairman of the Board
Thank
you, Tom.
Operator
(Operator
Instructions). Jim Barrett, CL King & Associates.
11
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Jim
Barrett - CL King &
Associates - Analyst
Good
morning, everyone. Could we talk a little bit about the Schwaiger acquisition?
Could you tell me, for example, for starters, were there any other bidders for
the asset?
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
There
were some other people. Schwaiger was owned by the Reitz Group. The Reitz Group
was in receivership and there were some people or some companies looking at the
entire organization.
Jim
Barrett - CL King &
Associates - Analyst
I
see. Is $32 million in US, was that an all-time high in sales, Pat, or if we go
prior to the recession, was it a higher number? Any sense of that?
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
Prior
sales were higher than where they are right now.
Jim
Barrett - CL King &
Associates - Analyst
And
does it have margins currently that are similar to Audiovox's? How should we
look at the margin structure of that company?
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
Margins
here would be generally in relationship to what we would normally see with
accessories, which would normally be higher than our core margins.
Jim
Barrett - CL King &
Associates - Analyst
Okay.
And the book value of the acquisition? Do you happen to have that?
Michael
Stoehr - Audiovox Corporation
- - SVP & CFO
We
purchased $3 million worth of inventory for $3 million.
12
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Patrick
Lavelle - Audiovox Corporation
- - President & CEO
EUR3
million.
Michael
Stoehr - Audiovox Corporation
- - SVP & CFO
EUR3
million, excuse me.
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
We
were able, because of the parent was in receivership, we were able to pick up
Schwaiger at a significant discount.
Jim
Barrett - CL King &
Associates - Analyst
Could
you repeat that, Pat?
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
Because
the parent was in receivership, we were able to pick up the Schwaiger assets at
a significant discount.
Jim
Barrett - CL King &
Associates - Analyst
Well,
it sounds that way.
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
Yes.
Jim
Barrett - CL King &
Associates - Analyst
And
is this a business with holiday seasonality? When you say it's going to be
accretive this fiscal year, is that a function of holiday sales or is it a
fairly steady business year-round?
13
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Patrick
Lavelle - Audiovox Corporation
- - President & CEO
It
is a typical accessory business. There will be attachment sales to some other CE
product that are purchased during Christmas, which would give you a little bump
at the Christmas time. But it is traditionally the cycles that you would see in
accessories.
Jim
Barrett - CL King &
Associates - Analyst
Okay.
And we can move on to ASA for a moment. I notice they paid you a $3 million
dividend.
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
Yes.
Michael
Stoehr - Audiovox Corporation
- - SVP & CFO
Yes.
Jim
Barrett - CL King &
Associates - Analyst
Is
that business going to remain profitable throughout this downturn if the sales
trends of recreational vehicles do not get any worse?
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
They
have made all the adjustments that they need to make. We anticipate that they
will maintain profitability.
Jim
Barrett - CL King &
Associates - Analyst
Okay.
And then finally, and you may have mentioned this, but in the electronic area,
if I strip out the discontinued products, how should I think about the about
current organic sales trends in electronics?
14
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Patrick
Lavelle - Audiovox Corporation
- - President & CEO
We
had a drop in our portable DVD sales, but we think that with some of the new
products that we are seeing, the increases that we are seeing in camcorders, we
also had some drop into digital audio category, but we think with the FLO TV
personal TV and some of the new products that we have that we are introducing
that will offset any declines. Not this particular year, but as we move into
next year.
Jim
Barrett - CL King &
Associates - Analyst
Fiscal
2011?
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
Yes.
Jim
Barrett - CL King &
Associates - Analyst
And
then last but not least, Mike, what tax rate should we use when we are
attempting to model the Company's earnings this year and next?
Michael
Stoehr - Audiovox Corporation
- - SVP & CFO
It's
hard because we have to deal with the valuation reserves that are
there.
Jim
Barrett - CL King &
Associates - Analyst
Right.
Michael
Stoehr - Audiovox Corporation
- - SVP & CFO
We
have, based upon the way, because the valuation reserves that were established
and due to the nature of amortizing the intangibles that we have, the basic
taxes of the Company are roughly around $1.6 million to $1.7 million for the
year. And then you probably have 2% for ATN, alternative minimum
tax.
15
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Jim
Barrett - CL King &
Associates - Analyst
I
see.
Michael
Stoehr - Audiovox Corporation
- - SVP & CFO
Okay?
That's basically the underlying structure.
Jim
Barrett - CL King &
Associates - Analyst
Okay.
Michael
Stoehr - Audiovox Corporation
- - SVP & CFO
But
again, my problem is, Jim, it depends upon how much we are doing in Europe
because the tax less carry-forwards are all in the States. So depending on where
we are getting our income would affect that rate.
Jim
Barrett - CL King &
Associates - Analyst
Right.
Michael
Stoehr - Audiovox Corporation
- - SVP & CFO
Overall,
use that.
Jim
Barrett - CL King &
Associates - Analyst
Okay,
thank you both very much.
16
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Patrick
Lavelle - Audiovox Corporation
- - President & CEO
Thank
you, Jim.
Operator
[Dan
Thompson], [Harbor Management].
Dan
Thompson - Harbor Management -
Analyst
Good
morning. I just wanted to get a little more detail on the purchase of the
Venezuelan bond and the rationale behind that.
Michael
Stoehr - Audiovox Corporation
- - SVP & CFO
What
we did is we purchased -- they are called [tics] and they are issued by the
Venezuelan government. The reason that we did it is that we have in Venezuela to
get money out of the country, you have to apply to the CADIVI, which is the
government foreign-exchange agency. They have given us approval to repay that
company, but they have been late funding these Venezuelans. So we have built up
some cash in Venezuela. So not to leave it exposed to the valuation, we
purchased these bonds. You buy them in Bs, they are denominated in dollars. When
you go to redeem them, and there is a market for them in Venezuela, whatever the
exchange rate is, you get that, and that offsets the loss on the dollar
payables. It doesn't get you any dollars any faster; it protects the dollars
that you have.
Dan
Thompson - Harbor Management -
Analyst
And
you are exposed, I guess, to risk on the principle of the bonds since it's not
due to 2015?
Michael
Stoehr - Audiovox Corporation
- - SVP & CFO
Right,
we bought the bonds at a discount. Your ultimate risk is a sovereign risk of the
Venezuelan government.
Dan
Thompson - Harbor Management -
Analyst
Which
is a job credit right now?
17
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Michael
Stoehr - Audiovox Corporation
- - SVP & CFO
Well,
the issue that you have is that the monies that we had there were in CDs in the
Venezuelan banks. We felt that it was better to deal with the government than to
deal with the banks.
Dan
Thompson - Harbor Management -
Analyst
Okay,
thank you very much.
Michael
Stoehr - Audiovox Corporation
- - SVP & CFO
You
are welcome.
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
You're
welcome.
Operator
You
have no further questions at this time.
Patrick
Lavelle - Audiovox Corporation
- - President & CEO
Okay.
I want to thank you all for your interest in Audiovox and taking the time to be
with us this morning. And I wish you all a good day. Thank you.
Operator
Thank
you for your participation in today's conference. This concludes the
presentation. Please (technical difficulty). Thank you for your
time.
18
Final
Transcript
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Oct
14, 2009 / 02:00PM GMT, VOXX - Q2 2010 Audiovox Corporation
Earnings Conference Call
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