UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended May 31, 1997
Commission file number 1-9532
AUDIOVOX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1964841
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Marcus Blvd., Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 231-7750
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Number of shares of each class of the registrant's Common Stock
outstanding as of the latest practicable date.
Class Outstanding at June 27, 1997
Class A Common Stock 17,253,533 Shares
Class B Common Stock 2,260,954 Shares
AUDIOVOX CORPORATION
I N D E X
Page
Number
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements:
Consolidated Balance Sheets at
May 31, 1997 (unaudited) and
November 30, 1996 3
Consolidated Statements of Income
for the Three and Six Months Ended
May 31, 1997 and May 31, 1996
(unaudited) 4
Consolidated Statements of Cash Flows
for the Six Months Ended May 31,1997
and May 31, 1996 (unaudited) 5
Notes to Consolidated Financial Statements 6-9
ITEM 2 Management's Discussion and Analysis of
Financial Operations and Results of
Operations 10-29
PART II OTHER INFORMATION
ITEM 4 Submission of Matters to a Vote of Security
Holders 30-31
ITEM 6 Reports on Form 8-K 31
SIGNATURES 32
AUDIOVOX CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
May 31, November 30,
1997 1996
(unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 24,946 $ 12,350
Accounts receivable, net 82,110 118,408
Inventory, net 82,593 72,785
Receivable from vendor 8,040 4,565
Prepaid expenses and other current assets 6,360 7,324
Deferred income taxes 5,241 5,241
Total current assets 209,290 220,673
Investment securities 23,319 27,758
Equity investments 13,741 8,463
Property, plant and equipment, net 8,086 6,756
Debt issuance costs, net - 269
Excess cost over fair value of assets
acquired and other intangible assets, net 6,289 804
Other assets 3,013 3,449
$ 263,738 $ 268,172
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 19,909 $ 28,192
Accrued expenses and other current liabilities 17,711 18,961
Income taxes payable 12,356 7,818
Bank obligations 8,086 4,024
Documentary acceptances 2,527 3,501
Total current liabilities 60,589 62,496
Bank obligations - 31,700
Deferred income taxes 8,861 10,548
Long-term debt 6,565 28,165
Total liabilities 76,015 132,909
Minority interest 1,915 1,137
Stockholders' equity:
Preferred stock 2,500 2,500
Common Stock:
Class A; 30,000,000 authorized; 17,253,533 and
14,040,414 issued on May 31, 1997 and
November 30, 1996, respectively 173 141
Class B; 10,000,000 authorized; 2,260,954
issued 22 22
Paid-in capital 145,214 107,833
Retained earnings 27,087 14,529
Cumulative foreign currency translation
and adjustment (1,420) (1,176)
Unrealized gain on marketable securities, net 12,560 10,277
Treasury stock, 50,000 Class A common shares,
at cost (328) -
Total stockholders' equity 185,808 134,126
Commitments and contingencies
$ 263,738 $ 268,172
See accompanying notes to consolidated financial statements.
AUDIOVOX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except share and per share data)
Three Months Ended Six Months Ended
May 31, May 31,
1997 1996 1997 1996
(unaudited) (unaudited)
Net sales $ 148,195 $ 141,194 $ 314,809 $ 263,687
Cost of sales 123,140 119,608 261,752 222,224
Gross profit 25,055 21,586 53,057 41,463
Operating expenses:
Selling 8,848 8,808 20,549 16,317
General and administrative 9,379 7,888 18,298 15,493
Warehousing, assembly and repair 3,016 2,651 5,882 5,056
21,243 19,347 44,729 36,866
Operating income 3,812 2,239 8,328 4,597
Other income (expenses):
Interest and bank charges (433) (2,010) (1,349) (4,214)
Equity in income of equity investments 167 305 313 415
Management fees and related income 28 100 75 150
Gain on sale of investment 10,187 - 33,966 985
Debt conversion expense - - (12,686) -
Other, net 271 (208) 713 (417)
10,220 (1,813) 21,032 (3,081)
Income before provision for income taxes 14,032 426 29,360 1,516
Provision for income taxes 5,678 276 16,803 888
Net income $ 8,354 $ 150 $ 12,557 $ 628
Net income per common share (primary)$ 0.43 $ 0.02 $ 0.67 $ 0.07
Net income per common share
(fully diluted) $ 0.42 $ 0.02 $ 0.66 $ 0.07
Weighted average number of common
shares outstanding, primary 19,511,207 9,285,188 18,640,466 9,285,188
Weighted average number of common
shares outstanding, fully diluted 19,709,128 9,339,475 19,150,938 9,332,531
See accompanying notes to consolidated financial statements.
AUDIOVOX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended
May 31, May 31,
1997 1996
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $ 12,557 $ 628
Adjustments to reconcile net income to net cash
used in operating activities:
Debt conversion expense 12,386 -
Depreciation and amortization 924 1,628
Provision for bad debt expense 172 107
Equity in income of equity investments (388) (415)
Minority interest 779 243
Gain on sale of investment (33,966) (985)
Provision for (recovery of) deferred income
taxes, net (3,086) 509
Provision for unearned compensation 111 159
Gain on disposal of property, plant and equipment, net (7) (9)
Warrant expense 106 -
Changes in:
Accounts receivable 33,492 8,380
Inventory (11,587) 7,165
Accounts payable, accrued expenses and other current
liabilities (8,779) 3,403
Receivable from vendor (3,475) (5,760)
Income taxes payable 4,532 398
Prepaid expenses and other assets 223 (1,392)
Net cash provided by operating activities 3,994 14,059
Cash flows from investing activities:
Purchases of property, plant and equipment, net (2,087) (1,132)
Proceeds from sale of investment 42,088 1,000
Purchase of equity investments (4,706) -
Proceeds from distribution from equity investment - 198
Net cash provided by investing activities 35,295 66
Cash flows from financing activities:
Net repayments under line of credit agreements (27,654) (15,631)
Net (repayments) borrowings under documentary
acceptances (973) 1,470
Principal payments on long-term debt - (4,380)
Debt issuance costs (13) (141)
Proceeds from issuance of class A common stock 2,328 -
Repurchase of class A common stock (328) -
Principal payments on capital lease obligation - (145)
Proceeds from release of restricted cash - 5,959
Net cash used in financing activities (26,640) (12,868)
Effect of exchange rate changes on cash (53) (7)
Net increase in cash and cash equivalents 12,596 1,250
Cash and cash equivalents at beginning of period 12,350 7,076
Cash and cash equivalents at end of period $ 24,946 $ 8,326
See accompanying notes to consolidated financial statements.
AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Six Months Ended May 31, 1997 and May 31, 1996
(Dollars in thousands, except share and per share data)
(1) The accompanying consolidated financial statements were
prepared in accordance with generally accepted accounting
principles and include all adjustments (which include only
normal recurring adjustments) which, in the opinion of
management, are necessary to present fairly the consolidated
financial position of Audiovox Corporation and subsidiaries
(the "Company") as of May 31, 1997 and November 30, 1996 and
the results of operations and consolidated statements of cash
flows for the six-month periods ended May 31, 1997 and May 31,
1996. The interim figures are not necessarily indicative of
the results for the year.
Accounting policies adopted by the Company are identified in
Note 1 of the Notes to Consolidated Financial Statements
included in the Company's 1996 Annual Report filed on Form
10-K.
(2) The following is supplemental information relating to the
consolidated statements of cash flows:
Six Months Ended
May 31, May 31,
1997 1996
Cash paid during the period:
Interest (excluding bank
charges) $ 1,210 $3,652
Income taxes $15,161 $ 142
On February 9, 1996, the Company's 10.8% Series AA and 11.0%
Series BB Convertible Debentures matured. As of February 9,
1996, $1,100 of the Series BB Convertible Debentures converted
into 206,046 shares of Common Stock.
As of May 31, 1997, the Company recorded an unrealized holding
gain relating to available-for-sale marketable securities, net
of deferred taxes, of $12,560 as a separate component of
stockholders' equity.
The Company issued a credit of $1,250 on open accounts
receivable and issued 250,000 shares of its Class A Common
Stock, valued at five dollars per share, in anticipation of an
exchange for a 20% interest in Bliss-tel Company, Limited
(Bliss-tel).
During the second quarter of 1997, the Company contributed
$6,463 in net assets in exchange for a 50% ownership interest
in Audiovox Specialized Applications, LLC (ASA) which resulted
in $5,595 of excess cost over fair value of net assets.
(3) The Financial Accounting Standards Board has issued Statement
128, "Earnings per Share" (Statement 128). Statement 128
establishes standards for computing and presenting earnings
per share (EPS). The Statement simplifies the standards for
computing EPS and makes them comparable to international EPS
standards. The provisions of Statement 128 are effective for
financial statements issued for periods ending after December
1, 1997, including interim periods. The Statement does not
permit early application and requires restatement of all
prior-period EPS data presented. Adoption of Statement 128
will not effect the Company's consolidated financial position
or results of operations, however the impact on previously
report EPS data is currently unknown.
(4) The Company formed Audiovox Venezuela C.A. (Audiovox
Venezuela), an 80%-owned subsidiary, for the purpose of
expanding its international business. The Company made an
initial investment of $478 which was used by Audiovox
Venezuela to obtain certain licenses, permits and fixed
assets.
(5) The Company purchased a 20% equity investment in Bliss-tel in
exchange for 250,000 shares of the Company's Class A Common
Stock and a credit for open accounts receivable of $1,250.
The issuance of the common stock resulted in an increase to
additional paid-in capital of approximately $1,248. The
investment in Bliss-tel will be accounted for under the equity
method of accounting.
(6) The Company completed an exchange of $21,479 of its
subordinated debentures for 2,860,925 shares of Class A Common
Stock ("Exchange"). As a result of the Exchange, a charge of
$12,686 was recorded. The charge to earnings represents (i)
the difference in the fair market value of the shares issued
in the Exchange and the fair market value of the shares that
would have been issued under the terms of the original
conversion feature plus (ii) a write-off of the debt issuance
costs associated with the subordinated debentures plus (iii)
expenses associated with the Exchange offer. The Exchange
resulted in taxable income due to the difference in the face
value of the bonds converted and the fair market value of the
shares issued and, as such, a current tax expense of $158 was
recorded. An increase in paid-in capital was reflected for
the face value of the bonds converted, plus the difference in
the fair market value of the shares issued in the Exchange and
the fair market value of the shares that would have been
issued under the terms of the original conversion feature for
a total of $33,592.
(7) During the second quarter of 1997, the Company purchased a 50%
equity investment in a newly-formed company, ASA, for
approximately $11,119. The Company contributed the net assets
of its Heavy Duty Sound division, its 50% interest in Audiovox
Specialty Markets Co. (ASMC) and $4,656 in cash. In
connection with this investment, excess cost over fair value
of net assets acquired of $5,595 resulted, which is being
amortized on a straight-line basis over 20 years. The other
investor (Investor) contributed its 50% interest in ASMC and
the net assets of ASA Electronics Corporation. In connection
with this investment, the Company entered into a stock
purchase agreement with the Investor in ASA. The agreement
provides for the sale of 352,194 shares of Class A Common
Stock at $6.61 per share (aggregate proceeds of approximately
$2,328) by the Company to the Investor. The transaction
resulted in an increase to additional paid-in capital of
approximately $2,324. The selling price of the shares are
subject to adjustment in the event the Investor sells shares
at a loss during a 90-day period, beginning with the effective
date of the registration statement filed with the Securities
and Exchange Commission to register such shares. The
adjustment to the selling price will equal the loss incurred
by the Investor up to a maximum of 50% of the shares. In the
event the Company does make an adjustment to the shares,
additional goodwill will be recorded as the adjustment
represents contingent consideration.
(8) Receivable from vendor is a prepayment to TALK for merchandise
to be shipped during the third quarter of 1997.
(9) During the second quarter, the Company's Board of Directors
approved the repurchase of 1,000,000 shares of the Company's
Class A Common Stock in the open market under a share
repurchase program (the Program). As of May 31, 1997, 50,000
shares were repurchased under the Program at an average price
of $6.50 per share for an aggregate amount of $325.
Subsequent to May 31, 1997, 62,000 shares have been
repurchased under the Program at an average price of $7.39 per
share for an aggregate amount of $458.
(10) For the six months ended May 31, 1997, the Company sold
1,725,000 shares of CellStar common stock yielding net
proceeds of approximately $42,088 and a gain, net of taxes, of
approximately $21,059.
(11) The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of the
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company markets its products under its own brand as well
as private labels to a large and diverse distribution network both
domestically and internationally. The Company's products are
distributed by two separate marketing groups: Communications and
Automotive. The Communications group consists of Audiovox
Communications Corp. (ACC) and the Quintex retail operations
(Quintex), both of which are wholly-owned subsidiaries of the
Company. The Communications group markets cellular telephone
products and receives activation commissions and residual fees from
its retail sales. The Automotive group consists of Audiovox
Automotive Electronics (AAE) and, through February 28, 1997, Heavy
Duty Sound, which are divisions of the Company, and Audiovox
Communications Sdn. Bhd., Audiovox Holdings Sdn. Bhd. and Audiovox
Venezuela, which are majority-owned subsidiaries. Products in the
Automotive group includes automotive sound and security equipment,
car accessories and home and portable sound products. The Company
allocates interest and certain shared expenses to the operating
groups based upon estimated usage. The following tables reflect the
way the Company manages its business. The column headed "Other"
includes general expenses and other income items which are not
readily allocable. The following tables are summaries of pre-tax
results by product group for the three and six months ended May 31,
1997 and May 31, 1996:
Consolidated Pre-Tax Operating Results
Three Months Ended May 31, 1997
(In thousands)
(Unaudited)
Total
Company Communications Automotive Other
Net sales:
Product sales:
Cellular wholesale $ 86,871 $ 86,871 - -
Cellular retail 1,793 1,793 - -
Sound 24,034 - $ 24,034 -
Security and
accessories 22,937 - 22,937 -
Activation commissions 8,288 8,288 - -
Residual fees 1,097 1,097 - -
Other 3,175 3,129 615 $ (569)
Total net sales 148,195 101,178 47,586 (569)
Gross profit 25,055 15,948 9,482 (375)
16.9% 15.8% 19.9% -
Selling 8,848 5,949 2,773 126
General and
administrative 9,379 3,654 3,050 2,675
Warehousing and
assembly 3,016 2,173 748 95
Total operating
expenses 21,243 11,776 6,571 2,896
Operating income (loss) 3,812 4,172 2,911 (3,271)
Other income (expense) 10,220 (1,143) (905) 12,268
Pre-tax income $ 14,032 $ 3,029 $ 2,006 $ 8,997
Consolidated Pre-Tax Operating Results
Three Months Ended May 31, 1996
(In thousands)
(Unaudited)
Total
Company Communications Automotive Other
Net sales:
Product sales:
Cellular wholesale $ 77,376 $ 77,376 - -
Cellular retail 1,878 1,878 - -
Sound 25,105 - $ 25,105 -
Security and
accessories 23,379 - 23,379 -
Activation commissions 7,619 7,619 - -
Residual fees 1,184 1,184 - -
Other 4,653 3,515 809 $ 329
Total net sales 141,194 91,572 49,293 329
Gross profit 21,586 12,278 8,921 387
15.3% 13.4% 18.1% -
Selling 8,808 6,063 2,654 91
General and
administrative 7,888 3,666 2,764 1,458
Warehousing and
assembly 2,651 1,790 874 (13)
Total operating
expenses 19,347 11,519 6,292 1,536
Operating income (loss) 2,239 759 2,629 (1,149)
Other income (expense) (1,813) (1,568) (1,023) 778
Pre-tax income (loss) $ 426 $ (809) $ 1,606 $ (371)
Consolidated Pre-Tax Operating Results
Six Months Ended May 31, 1997
(In thousands)
(Unaudited)
Total
Company Communications Automotive Other
Net sales:
Product sales:
Cellular wholesale $194,290 $194,290 - -
Cellular retail 4,311 4,311 - -
Sound 43,662 - $ 43,662 -
Security and
accessories 44,430 - 44,430 -
Activation commissions 18,665 18,665 - -
Residual fees 2,412 2,412 - -
Other 7,039 5,772 1,577 $ (310)
Total net sales 314,809 225,450 89,669 (310)
Gross profit 53,057 35,649 18,053 (645)
16.9% 15.8% 20.1% -
Selling 20,549 14,902 5,462 185
General and
administrative 18,298 7,607 5,867 4,824
Warehousing and
assembly 5,882 4,119 1,623 140
Total operating
expenses 44,729 26,628 12,952 5,149
Operating income (loss) 8,328 9,021 5,101 (5,794)
Other income (expense) 21,032 (2,232) (1,780) 25,044
Pre-tax income $ 29,360 $ 6,789 $ 3,321 $19,250
Consolidated Pre-Tax Operating Results
Six Months Ended May 31, 1996
(In thousands)
(Unaudited)
Total
Company Communications Automotive Other
Net sales:
Product sales:
Cellular wholesale $147,870 $147,870 - -
Cellular retail 3,872 3,872 - -
Sound 43,048 - $ 43,048 -
Security and
accessories 40,862 - 40,862 -
Activation commissions 17,171 17,171 - -
Residual fees 2,418 2,418 - -
Other 8,446 6,225 1,712 $ 509
Total net sales 263,687 177,556 85,622 509
Gross profit 41,463 24,777 15,849 837
15.7% 14.0% 18.5% -
Selling 16,317 11,297 4,860 160
General and
administrative 15,493 7,088 5,285 3,120
Warehousing and
assembly 5,056 3,290 1,820 (54)
Total operating
expenses 36,866 21,675 11,965 3,226
Operating income (loss) 4,597 3,102 3,884 (2,389)
Other income (expense) (3,081) (3,150) (2,056) 2,125
Pre-tax income (loss) $ 1,516 $ (48) $ 1,828 $ (264)
RESULTS OF OPERATIONS
Consolidated Results
Three months ended May 31, 1997 compared to three months ended
May 31, 1996
Net sales were $148,195 for 1997, an increase of $7,001, or
5.0%, over the same period last year. The increase in net sales
was accompanied by a corresponding increase in gross profit
margins to 16.9% from 15.3% last year. This increase in margin
percentage, coupled with the increase in net sales, resulted in
an increase of approximately $3,469 in gross profit dollars.
Operating expenses increased to $21,243 from $19,347, a 9.8%
increase. Operating income for 1997 was $3,812, an increase of
$1,573 compared to last year. During the second quarter of 1997,
the Company sold 365,000 shares of its holdings of CellStar for a
net gain of $6,316. This non-operating transaction is reported
under the "Other" caption in the preceding tables.
Net sales by product group for the three months ended May
31, 1997 and May 31, 1996 and percentage of sales are reflected
in the following table:
Three Months Ended
May 31, May 31,
1997 1996
Communications
Cellular product - wholesale $ 86,871 58.6% $ 77,376 54.8%
Cellular product - retail 1,793 1.2 1,878 1.3
Activation commissions 8,288 5.6 7,619 5.4
Residual fees 1,097 0.7 1,184 0.8
Other 3,129 2.1 3,515 2.5
Total Communications 101,178 68.3 91,572 64.9
Automotive
Sound 24,034 16.2 25,105 17.8
Security and accessories 22,937 15.5 23,379 16.6
Other 615 0.4 809 0.6
Total Automotive 47,586 32.1 49,293 34.9
Other (569) (0.4) 329 0.2
Total Company $148,195 100.0% $141,194 100.0%
Six months ended May 31, 1997 compared to six months ended
May 31, 1996
Net sales for the six months were $314,809, an increase of
$51,122, or 19.4%, over the same period last year. The increase
in net sales was accompanied by a corresponding increase in gross
profit margins to 16.9% from 15.7% last year. This increase in
margin percentage, coupled with the increase in net sales,
resulted in an increase of approximately $11,594 in gross profit
dollars. Operating expenses increased to $44,729 from $36,866 in
all expense categories: selling expenses, general and
administrative expenses and warehousing and assembly expenses.
Operating income for 1997 was $8,328, an increase of $3,731
compared to last year. During the first six months of 1997, the
Company sold 1,725,000 shares of its holdings of CellStar for a
net gain of $21,059. The Company also exchanged $21,479 of its
6 1/4% subordinated debentures for 2,860,925 shares of Class A
Common Stock. The costs associated with this exchange were
approximately $12,844, including income taxes. Both of these
non-operating transactions are reported under the "Other" caption
in the preceding tables.
Net sales by product group for the six months ended May 31,
1997 and May 31, 1996 and percentage of sales are reflected in
the following table:
Six Months Ended
May 31, May 31,
1997 1996
Communications
Cellular product - wholesale $194,290 61.7% $147,870 56.1%
Cellular product - retail 4,311 1.4 3,872 1.5
Activation commissions 18,665 5.9 17,171 6.5
Residual fees 2,412 0.8 2,418 0.9
Other 5,772 1.8 6,225 2.4
Total Communications 225,450 71.6 177,556 67.3
Automotive
Sound 43,662 13.9 43,048 16.3
Security and accessories 44,430 14.1 40,862 15.5
Other 1,577 0.5 1,712 0.6
Total Automotive 89,669 28.5 85,622 32.5
Other (310) (0.1) 509 0.2
Total Company $314,809 100.0% $263,687 100.0%
The following table sets forth for the periods indicated
certain statement of income data for the Company expressed as a
percentage of net sales:
Consolidated
Percentage of Sales
Three Months Six Months
Ended May 31, Ended May 31,
1997 1996 1997 1996
Net sales:
Cellular product - wholesale 58.6% 54.8% 61.7% 56.1%
Cellular product - retail 1.2 1.3 1.4 1.5
Sound 16.2 17.8 13.9 16.3
Security and accessories 15.5 16.6 14.1 15.5
Activation commissions 5.6 5.4 5.9 6.5
Residual fees 0.7 0.8 0.8 0.9
Other 2.1 3.3 2.2 3.2
Total net sales 100.0 100.0 100.0 100.0
Gross profit 16.9 15.3 16.9 15.7
Total operating expenses 14.3 13.7 14.2 14.0
Operating income 2.6 1.6 2.6 1.7
Other income (expense) 6.9 (1.3) 6.7 (1.2)
Pre-tax income 9.5% 0.3% 9.3% 0.6%
Communication Results
The Communications group is composed of ACC and Quintex,
both wholly-owned subsidiaries of Audiovox Corporation. Since
principally all of the net sales of Quintex are cellular in
nature, all operating results of Quintex are being included in
the discussion of the Communications group's product line.
Three months ended May 31, 1997 compared to three months ended
May 31, 1996
Net sales were $101,178, an increase of $9,606, or 10.5%,
over the same period last year. Unit sales of cellular
telephones increased 166,000 units, or 36.8%, over 1996. Average
unit selling prices decreased approximately 19.9% but was offset
by a corresponding decrease of 24.0% in average unit cost. The
number of new cellular subscriptions processed by Quintex
increased 1.7%, with an accompanying increase in activation
commissions of approximately $669, or 8.8%. The average
commission received by Quintex per activation increased
approximately 7.0% from last year. Unit gross profit margins
increased to 11.7% from 6.9% last year, primarily due to
increased unit sales and reduced unit costs. Operating expenses
increased to $11,776 from $11,519. As a percentage of net sales,
however, operating expenses decreased to 11.6% during 1997
compared to 12.6% in 1996. Selling expenses decreased compared
to last year, primarily in divisional marketing and advertising,
partially offset by increases in salesmen salaries and
commissions. General and administrative expenses decreased during
1997 by $12 over 1996. Warehousing and assembly expenses
increased by $383 during 1997 over last year, primarily in
tooling and direct labor. Pre-tax income for 1997 was $3,029, an
increase of $3,838 compared to last year.
Six months ended May 31, 1997 compared to six months ended
May 31, 1996
Net sales were $225,450, an increase of $47,894, or 27.0%,
over the same period last year. Unit sales of cellular
telephones increased 511,000 units, or 62.4%, over 1996. Average
unit selling prices decreased approximately 18.2% but were
partially offset by a corresponding decrease of 24.6% in average
unit cost. The number of new cellular subscriptions processed by
Quintex increased 3.3%, with an accompanying increase in
activation commissions of approximately $1,494, or 8.7%. The
average commission received by Quintex per activation increased
approximately 5.3% from last year. Unit gross profit margins
increased to 13.0% from 5.7% last year, primarily due to
increased unit sales and reduced unit costs. Operating expenses
increased to $26,628 from $21,675. As a percentage of net sales,
however, operating expenses decreased to 11.8% during 1997
compared to 12.2% in 1996. Selling expenses increased over last
year, primarily in divisional marketing, advertising and
commissions. General and administrative expenses increased over
1996 by $519, primarily in office salaries and temporary
personnel. Warehousing and assembly expenses increased over 1996
by $829, primarily in tooling, field warehouse expenses and
direct labor. Pre-tax income for 1997 was $6,789, an increase of
$6,837 compared to last year.
Though gross margins have improved over last year,
management believes that the cellular industry is extremely
competitive and that this competition could affect gross margins
and the carrying value of inventories in the future.
The following table sets forth for the periods indicated
certain statement of income data for the Communications group
expressed as a percentage of net sales:
Communications
Percentage of Sales
Three Months Six Months
Ended May 31, Ended May 31,
1997 1996 1997 1996
Net sales:
Cellular product - wholesale 85.9% 84.5% 86.2% 83.3%
Cellular product - retail 1.8 2.1 1.9 2.2
Activation commissions 8.2 8.3 8.3 9.7
Residual fees 1.1 1.3 1.1 1.4
Other 3.1 3.8 2.6 3.5
Total net sales 100.0 100.0 100.0 100.0
Gross profit 15.8 13.4 15.8 14.0
Total operating expenses 11.6 12.6 11.8 12.2
Operating income 4.1 0.8 4.0 1.7
Other income (expense) (1.1) (1.7) (1.0) (1.8)
Pre-tax income (loss) 3.0% (0.9)% 3.0% 0.0%
Automotive Results
Three months ended May 31, 1997 compared to three months ended
May 31, 1996
Net sales decreased approximately $1,707 compared to last
year, a decrease of 3.5%. Decreases were experienced in both the
automotive sound and security and accessories product lines.
Automotive sound decreased 4.3% compared to last year, primarily
due to decreased sales in Heavy Duty Sound and Prestige Audio
product lines. As explained in footnote number 7 the Company has
contributed the net assets of the Heavy Duty Sound division to a
new 50%-owned venture. The loss of revenues from the Heavy Duty
Sound line was $2,151 for the three months ended May 31, 1996. As
explained in footnote number 7, this revenue will be realized in
the joint venture. Automotive security and accessories decreased
1.9% compared to last year, primarily due to decreased sales in
Prestige and AA Security lines, partially offset by increases in
net sales of the international operations. Gross margins
increased to 19.9% from 18.1% last year. This increase was
experienced in SPS and AV sound products and Prestige Security.
Operating expenses increased to $6,571 from $6,292. Selling
expenses increased over last year by $119, primarily in our
international operations, in salesmen salaries and commissions.
General and administrative expenses increased over 1996 by $286,
primarily in salaries, office expenses and professional fees.
Warehousing and assembly expenses decreased from 1996 by $126.
Pre-tax income for 1997 was $2,006, an increase of $400 compared
to last year.
Six months ended May 31, 1997 compared to six months ended
May 31, 1996
Net sales increased approximately $4,047 compared to last
year, an increase of 4.7%. Increases were experienced in all
product lines. A majority of the increase was from the group's
international operations. Automotive sound increased 1.4%
compared to last year. Automotive security and accessories
increased 8.7% compared to last year, primarily due to increased
sales in Prestige Security, Protector Hardgoods and Video,
partially offset by a decrease in net sales of AA Security.
Gross margins increased to 20.1% from 18.5% last year. This
increase was experienced in AV, Private Label, SPS and Protector
Hardgoods product lines, partially offset by a decrease in
Prestige Audio. Operating expenses increased to $12,952 from
$11,965. Selling expenses increased over last year by $602,
primarily in our international operations, in divisional
marketing, advertising, salesmen salaries and travel. General
and administrative expenses increased over 1996 by $582,
primarily in our international operations, salaries, office
expenses and professional fees. Warehousing and assembly
expenses decreased from 1996 by $197, primarily in field
warehousing. Pre-tax income for 1997 was $3,321, an increase of
$1,493 compared to last year.
The Company believes that the Automotive group has an
expanding market with a certain level of volatility related to
both domestic and international new car sales. Also, certain of
its products are subject to price fluctuations which could affect
the carrying value of inventories and gross margins in the
future.
The following table sets forth for the periods indicated
certain statement of income data for the Automotive group
expressed as a percentage of net sales:
Automotive
Percentage of Sales
Three Months Six Months
Ended May 31, Ended May 31,
1997 1996 1997 1996
Net sales:
Sound 50.5% 50.9% 48.7% 50.3%
Security and accessories 48.2 47.4 49.5 47.7
Other 1.3 1.6 1.8 2.0
Total net sales 100.0 100.0 100.0 100.0
Gross profit 19.9 18.1 20.1 18.5
Total operating expenses 13.8 12.8 14.4 14.0
Operating income 6.1 5.3 5.7 4.5
Other income (expense) (1.9) (2.1) (2.0) (2.4)
Pre-tax income 4.2% 3.3% 3.7% 2.1%
Other Income and Expense
Interest expense and bank charges decreased by $1,577 and
$2,865 for the three and six months ended May 31, 1997 compared
to 1996, respectively. This is due to reduced interest bearing
debt and the decrease in interest bearing subordinated debentures
which were exchanged for shares of common stock. Equity in income
of equity investments and management fees and related income
decreased $210 and $177 for the three and six months ended May
31, 1997 compared to the same period last year. The equity
investment primarily responsible for the decline was Audiovox
Pacific, accounting for $310 and $385 of the decrease compared to
last year for the three and six months ended, respectively.
During January 1997, the Company completed an exchange of
$21,479 of its subordinated debentures for 2,860,925 shares of
Class A Common Stock ("Exchange"). As a result of the Exchange,
a charge of $12,686 was recorded. The charge to earnings
represents (i) the difference in the fair market value of the
shares issued in the Exchange and the fair market value of the
shares that would have been issued under the terms of the
original conversion feature plus (ii) a write-off of the debt
issuance costs associated with the subordinated debentures plus
(iii) expenses associated with the Exchange offer. The Exchange
resulted in taxable income due to the difference in the face
value of the bonds converted and the fair market value of the
shares issued and, as such, a current tax expense of $158 was
recorded. An increase in paid in capital was reflected for the
face value of the bonds converted, plus the difference in the
fair market value of the shares issued in the Exchange and the
fair market value of the shares that would have been issued under
the terms of the original conversion feature for a total of
$33,592.
During the first quarter, the Company sold 1,360,000 shares
of CellStar Common Stock yielding net proceeds of approximately
$30,182 and a gain, net of taxes, of approximately $14,743.
During the second quarter, the Company sold an additional 365,000
shares of CellStar Common Stock for net proceeds of $11,906 and a
net gain of $6,316. For 1997, the Company has sold a total of
1,725,000 shares of CellStar for net proceeds of $42,088 and a
net gain of $21,059.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at May 31, 1997 increased
approximately $12,596 from the November 30, 1996 level.
Operating activities provided approximately $3,994, primarily
from profitable operations, a decrease in accounts receivable and
an increase in income taxes payable, partially offset by
increases in inventory and an advance to a supplier for product
to be delivered during the third quarter of 1997. Investing
activities provided approximately $35,295, primarily from the
sale of an equity investment. Financing activities used
approximately $26,640, primarily from the repayment of bank
obligations.
On May 5, 1995, the Company entered into the Second Amended
and Restated Credit Agreement (the "Credit Agreement") which
superseded the first amendment in its entirety. During 1996 and
1997, the Credit Agreement was amended eight times providing for
various changes to the terms. The terms as of May 31, 1997 are
summarized below.
Under the Credit Agreement, the Company may obtain credit
through direct borrowings and letters of credit. The obligations
of the Company under the Credit Agreement continue to be
guaranteed by certain of the Company's subsidiaries and is
secured by accounts receivable and inventory of the Company and
those subsidiaries. The obligations were secured at November 30,
1996 by a pledge agreement entered into by the Company for
2,125,000 shares of CellStar Common Stock and ten shares of ACC.
Subsequent to year end, the shares of CellStar Common Stock were
released from the Pledge Agreement. Availability of credit under
the Credit Agreement is a maximum aggregate amount of $85,000,
subject to certain conditions, and is based upon a formula taking
into account the amount and quality of its accounts receivable
and inventory. The Credit Agreement expires on February 28,
1998.
The Credit Agreement contains several covenants requiring,
among other things, minimum levels of pre-tax income and minimum
levels of net worth and working capital as follows: pre-tax
income of $4,000 per annum; pre-tax income of $2,500 for any two
consecutive fiscal quarters; the Company cannot have pre-tax
losses of more than $500 in any quarter; and the Company cannot
have pre-tax losses in any two consecutive quarters. In addition,
the Company must maintain a minimum level of total net worth of
$88,500, adjusted for 50% of the aggregate gains realized on
sales of capital stock. The Company must maintain a minimum
working capital of $125,000. Additionally, the agreement
includes restrictions and limitations on payments of dividends,
stock repurchases and capital expenditures.
The Company believes that it has sufficient liquidity to
satisfy its anticipated working capital and capital expenditure
needs through November 30, 1997 and for the reasonable
foreseeable future.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued
Statement 128, "Earnings per Share" (Statement 128). Statement
128 establishes standards for computing and presenting earnings
per share (EPS). The Statement simplifies the standards for
computing EPS and makes them comparable to international EPS
standards. The provisions of Statement 128 are effective for
financial statements issued for periods ending after December 1,
1997, including interim periods. The Statement does not permit
early application and requires restatement of all prior-period
EPS data presented. Adoption of Statement 128 will not effect
the Company's consolidated financial position or results of
operations, however the impact on previously reported EPS data is
currently unknown.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Audiovox Corporation
(the "Company") was held on May 16, 1997 at the Company's
offices, 150 Marcus Boulevard, Hauppauge, New York.
Proxies for the meeting were solicited pursuant to
Regulation 14 of the Act on behalf of the Board of Directors for
the following matters:
1. To elect a Board of nine Directors;
2. To adopt the 1997 Stock Option Plan; and
3. To adopt the 1997 Restricted Stock Plan.
There was no solicitation in opposition to the Board of
Directors' nominees for election as directors as listed in the
Proxy Statements and all of such nominees were elected. Class A
nominee Gordon Tucker received 14,337,909 votes and 639,620 votes
were withheld. Class A nominee Irving Halevy received 14,338,109
votes and 639,420 votes were withheld. Class A nominee Paul C.
Kreuch, Jr. received 14,351,608 votes and 625,921 votes were
withheld.
Each Class B nominee received 22,609,540 votes. No votes
were withheld from Class B nominees.
With respect to the proposal to adopt the 1997 Stock Option
Plan, 29,835,198 (79.4%) shares were voted FOR and 1,126,362 (3%)
shares AGAINST. 81,476 shares abstained from voting.
With respect to the proposal to adopt the 1997 Restricted
Stock Plan, 29,811,023 (79.3%) shares were voted FOR and
1,150,985 (3.1%) AGAINST. 81,028 shares abstained from voting.
Item 6. Reports on Form 8-K
During the second quarter, the Registrant filed two reports
on Form 8-K:
On April 8, 1997 the Company filed a report on Form 8-K
dated March 24, 1997 which reported that the Company had sold
250,000 shares of its Class A Common Stock (the "Shares") to
Bliss-tel Co. Ltd. ("Bliss-tel"), a Thai corporation, in an
offshore transaction pursuant to Regulation S. The Shares were
delivered in partial compensation for 1,250,000 shares of Bliss-
tel (representing a 20% stock ownership interest in Bliss-tel).
In addition to the Shares, the Company also gave Bliss-tel a
merchandise credit of U.S. $1,250,000.
On June 4, 1997, the Company filed a report on Form 8-K
dated May 16, 1997 which reported that the Company's Board of
Directors had authorized the repurchase of up to one million
(1,000,000) shares of the Company's Class A Common Stock. The
repurchases will be from time to time on the open market, subject
to market conditions.
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
By:s/John J. Shalam
John J. Shalam
President and Chief
Executive Officer
Dated: July 15, 1997
By:s/Charles M. Stoehr
Charles M. Stoehr
Senior Vice President and
Chief Financial Officer
5
1,000
6-MOS
NOV-30-1997
MAY-31-1997
24,946
0
84,782
2,672
82,593
209,290
27,674
19,588
263,738
60,589
6,565
0
2,500
195
183,113
263,738
293,732
314,809
249,108
261,752
0
172
1,349
29,360
16,803
12,557
0
0
0
12,557
0.67
.66
