UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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) November 1, 2004
AUDIOVOX CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
0-28839 13-1964841
(Commission File Number) (IRS Employer Identification No.)
180 Marcus Boulevard, Hauppauge, New York 11788
(Address of Principal Executive Offices) (Zip Code)
(631) 231-7750
(Registrant's Telephone Number, Including Area Code)
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 13
Item 1.01 Entry into a Material Definitive Agreement
On November 1, 2004, Audiovox Corporation ("the Company") and UTStarcom
("UTSI") entered into an agreement ("the Agreement") to clarify and amend
specified sections of the Asset Purchase Agreement dated June 11, 2004. The
Agreement, among other things, includes Quintex receivables and Vendor
receivables in the definition of net assets and waives the Sarbanes-Oxley 404
condition as set forth in Section 7.02 (j) of the Asset Purchase Agreement. You
should read a copy of the Agreement which is attached as Exhibit 99.1 to this
report for a more complete understanding of the terms.
Item 1.02 Termination of a Material Definitive Agreement
The Company's fifth amended and restated credit agreement expired on
November 1, 2004 as a result of the sale of substantially all the assets of
Audiovox Communications Corp. ("ACC") to UTSI and the purchase by the Company of
Toshiba Corporation's interest in ACC and the repayment by ACC of the Toshiba
convertible note.
Item 2.01 Completion of Disposition of Assets
On November 1, 2004, Audiovox Corporation ("the Company") completed the
sale of select assets and certain liabilities of its majority owned subsidiary
Audiovox Communications Corporation ("ACC or Wireless") to UTStarcom ("UTSI") .
As consideration for the sale, Audiovox Corporation received $165,100 ("Purchase
Price") subject to a net working capital adjustment. If the net working capital
adjustment is less than $40,000, then the Purchase Price will be adjusted
downward in an amount equal to the deficiency, and if the net working capital
balance exceeds $40,000, then the Purchase Price will be adjusted upwards in an
amount equal to the excess. In addition, 5% of the purchase price or $8,255 has
been placed in escrow for 120 days. Immediately prior to the closing of the
asset sale, ACC repaid to Toshiba, a former minority interest shareholder in
ACC, $8,107 as payment in full of the outstanding principal amount of the
convertible note due to Toshiba and the Company purchased from Toshiba its
remaining 20% interest in ACC for $5,483.
In connection with the closing, ACC's Chief Executive Officer's employment
agreement with ACC was terminated and pursuant to his employment agreement and
his long-term incentive compensation award he received $4,000. ACC also
purchased certain of Mr. Christopher's personally held intangibles for $16,000.
In addition, the Company's Chairman and Chief Executive Officer received $1,916
upon the closing of the asset sale pursuant to an amendment to a long-term
incentive compensation award.
A copy of the press release discussing the completion of this sale is
attached hereto as Exhibit 99.2.
The sale of select assets and certain liabilities of the Wireless business
is more fully described in the Company's definitive proxy statement on Schedule
14A, filed with the Securities and Exchange Commission on October 7, 2004.
Item 5.02 Departure of Principal Officer
Effective November 1, 2004, Philip Christopher resigned his position as
Executive Vice President of the Company.
Page 2 of 13
Item 8.01 Other Events
On November 1, 2004, the Company obtained a credit line to fund the
short-term working capital needs of the Company. This line expires on January
31, 2005 and allows aggregate borrowings of up to $25,000 at an interest rate of
Prime (or similar designations) plus 1%. A copy of this credit line arrangement
is annexed hereto as Exhibit 99.3.
On November 2, 2004 at 10:00 a.m., the Company held a conference call to
discuss its financial results for the quarter ended August 31, 2004. The Company
has prepared a transcript of that conference call, a copy of which is annexed
hereto as Exhibit 99.4.
Item 9.01 Financial Statements and Exhibits
Unaudited Pro Forma Financial Statements
The following unaudited pro forma financial statements give effect to the
sale of substantially all of the assets (excluding certain receivables) and the
assumption by UTStarcom ("UTSI") of certain liabilities (excluding intercompany
accounts payable, income taxes, subordinated debt and certain accrued expenses),
relating to our wireless business. The unaudited pro forma consolidated balance
sheet and statements of earnings filed with this report are presented for
illustrative purposes only. The pro forma balance sheet as of August 31, 2004
has been prepared to reflect the sale of substantially all of the assets and the
assumption by UTSI of certain liabilities, relating to our wireless business to
UTSI as if such sale had taken place on August 31, 2004, and is not necessarily
indicative of the financial position of the Company had such sale occurred on
that date. The pro forma statements of earnings for the nine months ended August
31, 2004 and the year ended November 30, 2003 have been prepared assuming that
the transaction occurred as of the beginning of each of these periods, and are
not necessarily indicative of the results of operations for future periods or
the results that actually would have been realized had we sold the select assets
and liabilities of our wireless business as of those dates. The pro forma
financial statements, including notes thereto, should be read in conjunction
with the historical financial statements of the Company included in our Form
10-K/A for the year ended November 30, 2003, and the unaudited financial
statements filed in our Form 10-Q for the quarter ended August 31, 2004.
Our wireless business consisted of ACC and Quintex Mobile Communications
Corp., or Quintex, which is a wholly-owned subsidiary of ACC. ACC markets
wireless handsets and accessories primarily on a wholesale basis to wireless
carriers in the United States and carriers overseas primarily in the CDMA (Code
Division Multiple Access) market. Quintex is a small operation for the direct
sale of handsets, accessories and wireless telephone service. Quintex also
receives residual fees and activation commissions from the carriers.
Costs and expenses attributed to the Wireless business include direct
costs primarily associated with that business as well as interest and certain
shared expenses, including treasury, legal and human resources, based upon
estimated usage. Certain items are maintained at the Company's corporate
headquarters (Corporate) and are not allocated to the Wireless business. They
primarily include costs associated with accounting and certain executive officer
salaries and bonuses and certain items including investment securities, equity
investments, deferred income taxes, certain portions of excess cost over fair
value of assets acquired, jointly-used fixed assets and debt. The jointly-used
fixed assets are Audiovox's management information systems, which is jointly
used by the wireless and electronics businesses and Corporate. A portion of the
management information systems costs, including depreciation and amortization
expense, are allocated to the segments based upon estimates made by management.
As such, these financial statements do not reflect other non-direct cost savings
that may occur as a result of focusing our efforts on just our consumer
electronics business going forward.
Page 3 of 13
The following unaudited pro forma consolidated balance sheet represents the
August 31, 2004 balance sheet adjusted to reflect the sale of the Wireless
business, pursuant to the asset purchase agreement, as if such transaction had
taken place on August 31, 2004:
Pro forma Consolidated Balance Sheet
As of August 31, 2004
(Unaudited, in thousands, except per share data)
(Net Assets
As Reported To Be Sold)/ Other Pro Forma
August 31, Consideration to Pro Forma August 31,
2004 be Received Adjustments 2004
----------- ---------------- ------------- -----------
Assets
Current assets:
Cash $ 8,592 $ 177,231 (a) $(109,062) (f) $ 33,155
(13,590) (b) (1,916) (g)
(28,100) (c) -
Amounts due from UTSI - 8,255 (c) - 8,255
Accounts receivable, net 222,120 (1,684) (d) - 220,436
Inventory 165,126 - - 165,126
Receivables from vendors 11,092 (4,341) (d) - 6,751
Prepaid expenses and other current
assets 10,477 (541) (d) - 9,936
Deferred income taxes 8,196 - - 8,196
Assets held for sale 170,646 (170,646) (d) - -
----------- ---------- ---------- ---------
Total current assets 596,249 (33,416) (110,978) 451,855
Investment securities 7,548 - - 7,548
Equity investments 13,138 - - 13,138
Property, plant and equipment, net 18,896 - - 18,896
Excess cost over fair value of assets
acquired 7,195 (717) (b) - 7,019
541 (d)
Intangible assets 8,043 - - 8,043
Other assets 458 - - 458
----------- ---------- ---------- ---------
$ 651,527 $ (33,592) $(110,978) $ 506,957
=========== ========== ========== =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 28,199 $ - $ - $ 28,199
Accrued expenses and other current
liabilities 24,810 1,013 (d) - 25,823
Accrued sales incentives 7,419 - - 7,419
Income taxes payable 12,456 - - 12,456
Bank obligations 117,597 - (109,062)(f) 8,535
Current portion of long-term debt 10,320 (8,107) (b) - 2,213
Liabilities related to assets held for
sale 87,189 (87,189) (d) - -
----------- ---------- ---------- ---------
Total current liabilities 287,990 (94,283) (109,062) 84,645
Long-term debt 7,388 - - 7,388
Capital lease obligations 6,022 - - 6,022
Deferred income taxes 1,523 - - 1,523
Deferred compensation 6,089 - - 6,089
----------- ---------- ---------- ---------
Total liabilities 309,012 (94,283) (109,062) 105,667
----------- ---------- ---------- ---------
Minority interest 6,689 (6,200) (b) - 489
----------- ---------- ---------- ---------
Page 4 of 13
(Net Assets
As Reported To Be Sold)/ Other Pro Forma
August 31, Consideration to Pro Forma August 31,
2004 be Received Adjustments 2004
----------- ---------------- ------------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock 2,500 - - 2,500
Common stock:
Class A 208 - - 208
Class B 22 - - 22
Paid in capital 252,752 572 (c) - 253,324
Retained earnings 91,526 421 (e) - 156,350
66,319 (c) (1,916) (g)
Accumulated other comprehensive loss (2,685) (421) (e) - (3,106)
Treasury stock, at cost (8,497) - - (8,497)
----------- ---------- ---------- ---------
Total stockholders' equity 335,826 66,891 (1,916) 400,801
----------- ---------- ---------- ---------
Total liabilities and stockholders'
equity $ 651,527 $ (33,592) $(110,978) $ 506,957
============ ========== ========== ==========
In connection with the asset purchase agreement, the following adjustments
were recorded:
(a) Proceeds to be received at the closing of sale of our wireless
business. The purchase price of $165,100 was affected by the
following:
(i) $25,000 payment to former wireless employees, which includes
$20,000 to the ACC CEO, for the purchase of intangibles and
termination of his employment agreement. This payment is being
recorded as a reduction to the gain at the time of closing.
(ii) $4,000 of accruals for estimated legal, accounting and other
acquisition costs.
(iii)$49,386 positive working capital adjustment. Pursuant to the
asset purchase agreement, if the net working capital balance at
the time of closing is less than $40,000, then the purchase price
will be adjusted downward in an amount equal to the deficiency,
and if the net working capital balance exceeds $40,000, then the
purchase price will be adjusted upwards in the amount equal to
the excess. Subsequent to the signing of the asset purchase
agreement, the Company and UTSI entered into an agreement whereby
UTSI would acquire certain receivables and additional accrued
expenses. These items are recorded as an adjustment to the
working capital adjustment.
(iv) In accordance with the Asset Purchase Agreement, $8,255 (5% of
the purchase price) will be placed in escrow by UTSI for a
limited amount of time after closing.
(b) (i) Cash paid to Toshiba, minority stockholder in ACC for the
following:
(a) debt of $8,107 and;
(b) $5,483 for Toshiba's 20% minority interest in ACC. Toshiba's
20% minority interest had a book value of $6,200 at August
31, 2004, resulting in a gain of $717.
(ii) On June 9, 2004, Audiovox purchased 5% of Toshiba's minority
interest in ACC for $1,410. Toshiba's 5% minority interest in ACC
had a book value of $1,234 at May 31, 2004, resulting in goodwill
of $176.
Page 5 of 13
(c) Reflects estimated taxes of $28,100 and the after-tax pro forma gain
of $66,319 which would be recognized on the sale of our wireless
business had the transaction occurred on August 31, 2004. The
after-tax pro forma gain of $66,319 is calculated by subtracting the
net proceeds of pro forma adjustment (a) of $177,231 less:
(i) the net book value of ACC net assets sold of $90,495;
(ii) estimated taxes of $28,100; and
(iii)a non-cash compensation charge of $572. In connection with the
sale of wireless to UTSI, certain ACC employee stock options
under the 1997 Stock Option Plan and 1999 Stock Compensation Plan
will be extended for one year from the closing. If the sale to
UTSI occurred on August 31, 2004, this extension would result in
a remeasurement of stock options and would result in a non-cash
stock compensation charge of $572 in accordance with FIN 44.
In accordance with the Asset Purchase Agreement, $8,255 (5% of the purchase
price) will be placed in escrow by UTSI for a limited amount of time after
closing. These escrow amounts are expected to be collected from UTSI and have
been included in the above gain calculation.
(d) Assets sold to and liabilities assumed by UTSI under the asset
purchase agreement and additional agreement. These unaudited amounts
represent ACC assets and liabilities which would be sold to UTSI if
the transaction had occurred on August 31, 2004.
(e) Realization of wireless Canadian cumulative translation gains.
As a result of the other transactions which would occur pursuant to the
asset purchase agreement, the following additional pro forma adjustments were
recorded:
(f) The Company's credit agreement for domestic ban obligations will
expire and become due upon the consummation of sale of ACC's assets to
UTSI. As a result of the cash proceeds received, Audiovox would repay
domestic bank obligations.
(g) Payment of $1,916 due to Mr. Shalam, Audiovox CEO, for Long Term
Incentive Compensation Award related to ACC stock appreciation rights
granted on May 29, 2002. These stock appreciations rights were granted
in order to reward Mr. Shalam if a controlling interest in ACC was
acquired by a third party. The sale of ACC assets to UTSI and
Audiovox's exit from the wireless business was deemed to be a change
in the controlling interest of ACC as UTSI will be controlling and
operating the wireless business. Accordingly, this payment from
Audiovox will be an operating charge to Audiovox Corporation at the
time of closing.
Page 6 of 13
The following pro forma and unaudited statement of earnings for the nine
months ended August 31, 2004, represents the results of operations as if the
sale of the wireless business pursuant to the asset purchase agreement occurred
on November 30, 2003:
Pro Forma Consolidated Statement Of Earnings
For The Nine Months Ended August 31, 2004
(Unaudited, in thousands, except share and per share data)
Pro Forma Pro Forma
As Reported Adjustments Reported
------------ ------------ ------------
Net sales $ 417,533 $ -- $ 417,533
Cost of sales 351,406 -- 351,406
------------ ------------ ------------
Gross profit 66,127 -- 66,127
------------ ------------ ------------
Operating expenses:
Selling 23,144 -- 23,144
General and administrative 36,200 (371) (a) 35,829
Warehousing and technical support 3,404 -- 3,404
------------ ------------ ------------
Total operating expenses 62,748 (371) 62,377
------------ ------------ ------------
3,750
Operating income 3,379 371
------------ ------------ ------------
Other income (expense):
Interest and bank charges (2,682) 420 (b) (2,262)
Equity in income of equity investees 3,706 -- 3,706
Other, net 1,663 414 (c) 2,077
------------ ------------ ------------
Total other income (expense), net 2,687 834 3,521
------------ ------------ ------------
Income from continuing operations before provision for income
taxes, minority interest and discontinued operations 6,066 1,205 7,271
Provision for income taxes 3,042 500 (d) 3,542
Minority interest expense (710) -- (710)
------------ ------------ ------------
Income from continuing operations 2,314 705 3,019
Income from discontinued operations, net of tax 8,577 (8,577) (e) --
------------ ------------ ------------
Net income $ 10,891 $ (7,872) $ 3,019
============ ============ ============
Earnings per common share (basic)
From continuing operations $ 0.11 $ 0.14
From discontinued operations 0.39 --
------------ ------------
Net income per common share (basic) $ 0.50 $ 0.14
============ ============
Earnings per common share (diluted)
From continuing operations $ 0.10 $ 0.14
From discontinued operations 0.39 --
------------ ------------
Net income per common share (diluted) $ 0.49 $ 0.14
============ ============
Weighted average number of common shares outstanding
(basic) 21,945,364 21,945,364
============ ============
Weighted average number of common shares outstanding
(diluted) 22,363,733 22,363,733
============ ============
Page 7 of 13
Pro forma adjustments to reflect the sale of the wireless business to UTSI
pursuant to the asset purchase agreement include:
(a) Reversal of bonus expense for Audiovox Corporation officers based on
ACC pre-tax income.
(b) Represents reduction of interest expense that would be recognized due
to the payment of domestic bank obligations.
(c) Rental income which would be recorded by Audiovox Corporation in
connection with an operating lease between Audiovox Corporation and
ACC, which currently requires monthly lease payments of $46. Audiovox
Corporation and UTSI anticipate extending such lease subsequent to
closing. As such, rental income of $414 ($46 times 9 months) for the
nine months has been recorded.
(d) Tax effect of pro forma adjustments.
(e) Elimination of operating results of the wireless business.
In addition, costs and expenses attributed to the wireless business include
direct costs primarily associated with that business as well as interest and
certain shared expenses, including treasury, legal and human resources. As such,
these financial statements do not reflect other non-direct cost savings that may
occur as a result of focusing our efforts on just the continuous monitoring
business going forward.
Page 8 of 13
The following pro forma and unaudited statement of operations for the year
ended November 30, 2003 represents the results of operations as if the sale of
the wireless business pursuant to the asset purchase agreement occurred on
November 30, 2002 and includes adjustments relating to the Recoton acquisition
(see footnote 1).
Pro Forma Consolidated Statement Of Operations
For The Fiscal Year Ended November 30, 2003
(Unaudited, in thousands, except share and per share data)
Revised Pro Forma Other Pro Forma
As Reported(1) Adjustments(a) Adjustments Reported
-------------- ------------- ----------- ------------
Net sales $ 1,366,763 $ (806,210) $ - $ 560,553
Cost of sales 1,253,092 (768,233) - 484,859
------------ ----------- ---------- ------------
Gross profit 113,671 (37,977) - 75,694
------------ ----------- ---------- ------------
Operating expenses:
Selling 33,413 (10,959) - 22,454
General and administrative 94,050 (16,773) 800 (b) 77,852
(225)(c)
Warehousing and technical support 5,029 (2,827) - 2,202
------------ ----------- ---------- ------------
Total operating expenses 132,492 (30,559) 575 102,508
------------ ----------- ---------- ------------
Operating income (loss) (18,821) (7,418) (575) (26,814)
------------ ----------- ---------- ------------
Other income (expense):
Interest and bank charges (6,189) 1,752 1,417(d) (4,186)
(1,166)(e)
Equity in income of equity investees 3,279 54 3,333
Other, net 739 (5) 552 (f) 1,286
------------ ----------- ---------- ------------
Total other income (expense), net (2,171) 1,801 803 433
------------ ----------- ---------- ------------
Income (loss) before provision for income taxes
and minority interest (20,992) (5,617) 228 (26,381)
Provision for (recovery of) income taxes (6,447) (1,776) 95 (g) (8,128)
Minority interest (expense) (390) 1,066 - 676
------------ ----------- ---------- ------------
Net income (loss) $ (14,935) $ (2,775) $ 133 $ (17,577)
============ =========== ========== ============
Net income (loss) per common share (basic) $ (0.68) $ (0.80)
============ ===========
Net income (loss) per common share (diluted) $ (0.68) $ (0.80)
============ ===========
Weighted average number of common shares
outstanding (basic) 21,854,610 21,854,610
=========== ===========
Weighted average number of common shares
outstanding (diluted) 22,054,320 22,054,320
=========== ===========
Pro forma and other adjustments to reflect the sale of the wireless
business to UTSI pursuant to the asset purchase agreement include:
(a) Elimination of operating results of the wireless business.
(b) Reflects Corporate allocations which were originally charged to ACC,
that would be recorded as an expense of Audiovox Corporation.
Page 9 of 13
(c) Reversal of bonus expense for Audiovox Corporation officers based on
ACC pre-tax income.
(d) Represents reduction of interest expense that would be recognized due
to the payment of domestic bank obligations.
(e) Reversal of Audiovox Corporation intercompany interest income
received from ACC.
(f) Rental income which would be recorded by Audiovox Corporation in
connection with an operating lease between Audiovox Corporation and
ACC, which currently requires monthly lease payments of $46. Audiovox
Corporation and UTSI anticipate extending such lease subsequent to
closing. As such, rental income of $552 ($46 times 12 months) for
twelve months has been recorded.
(g) Tax effect of pro forma adjustments.
In addition, costs and expenses attributed to the wireless business include
direct costs primarily associated with that business as well as interest and
certain shared expenses, including treasury, legal and human resources. As such,
these financial statements do not reflect other non-direct cost savings that may
occur as a result of focusing our efforts on just the continuous monitoring
business going forward.
Page 10 of 13
(1) On July 8, 2003, the Company acquired certain operations of Recoton
Corporation. The Revised As Reported amounts include pro forma adjustments
of the Recoton acquisition, and the following table displays a
reconciliation between the "As Reported" amounts in the Company's November
30, 2003 Form 10-K:
Pro Forma Other Revised As
As Reported Adjustments (2) Adjustments (3) Reported
Net sales $ 1,323,902 $ 69,238 $ (26,377) $ 1,366,763
Cost of sales 1,199,696 68,786 (15,390) 1,253,092
------------ ------------ ------------ ------------
Gross profit 124,206 452 (10,987) 113,671
------------ ------------ ------------ ------------
Operating expenses:
Selling 36,514 -- (3,101) 33,413
General and administrative 60,106 38,838 (4,894) 94,050
Warehousing and technical support 5,783 -- (754) 5,029
------------ ------------ ------------ ------------
Total operating expenses 102,403 38,838 (8,749) 132,492
------------ ------------ ------------ ------------
Operating income (loss) 21,803 (38,386) (2,238) (18,821)
------------ ------------ ------------ ------------
Other income (expense):
Interest and bank charges (4,602) (2,244) 657 (6,189)
Equity in income of equity investees 3,279 -- -- 3,279
Other, net 556 -- 183 739
------------ ------------ ------------ ------------
Total other income (expense), net (767) (2,244) 840 (2,171)
------------ ------------ ------------ ------------
Income (loss) before provision for
income taxes and minority interest 21,036 (40,630) (1,398) (20,992)
Provision for (recovery of) income
taxes 9,407 (14,574) (1,280) (6,447)
Minority interest (expense) (390) -- -- (390)
------------ ------------ ------------ ------------
Net income (loss) $ 11,239 $ (26,056) $ (118) $ (14,935)
============ ============ ============ ============
Net income (loss) per common share
(basic) $ 0.51 $ (0.68)
============ ============
Net income (loss) per common share $ 0.51 $ (0.68)
(diluted) ============ ============
Weighted average number of common
shares outstanding (basic) 21,854,610 21,854,610
============ ============
Weighted average number of common
shares outstanding (diluted) 22,054,320 22,054,320
============ ============
(2) Represents pro forma adjustments as if the Recoton acquisition
occurred on November 30, 2002.
(3) Represents actual Recoton results included in the statement of
operations beginning on July 8, 2003. These amounts are removed from
operating results because pro forma adjustment (2) includes pro forma
results for the full fiscal year.
In addition, costs and expenses attributed to the wireless business include
direct costs primarily associated with that business as well as interest and
certain shared expenses, including treasury, legal and human resources. As such,
these financial statements do not reflect other non-direct cost savings that may
occur as a result of focusing our efforts on just the continuous monitoring
business going forward.
Page 11 of 13
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: November 5, 2004 /s/ Charles M. Stoehr
-----------------------------------
Charles M. Stoehr
Senior Vice President and
Chief Financial Officer
Page 12 of 13
EXHIBIT INDEX
Exhibit No. Description
99.1 Agreement between Audiovox Corporation and UTStarcom
dated November 1, 2004 (filed herewith).
99.2 Press release entitled "Audiovox Corporation Completes
Sale of Cellular Subsidiary to UTStarcom" (filed
herewith).
99.3 Credit Line Agreement with JP Morgan Chase (filed
herewith).
99.4 Transcript of conference call held on November 2, 2004
at 10:00 a.m. (filed herewith).
Page 13 of 13
CONFORMED COPY
UTSTARCOM, INC.
1275 Harbor Bay Parkway
Alameda, CA 94502
November 1, 2004
Charles M. Stoehr
Audiovox Corporation
150 Marcus Blvd.
Hauppauge, NY 11788
Philip Christopher
Audiovox Communications Corp.
555 Wireless Blvd.
Hauppauge, NY 11788
Gentlemen:
Reference is hereby made to the Asset Purchase Agreement, dated as of June 11,
2004 (the "Purchase Agreement"), by and among Audiovox Communications Corp.,
Quintex Mobile Communications Corporation, Audiovox Communications Canada Co.,
UTStarcom, Inc., UTStarcom Canada Company and, with respect to specified
sections thereof, Audiovox Corporation. Terms used but not defined herein shall
have the respective meanings assigned to such terms in the Purchase Agreement.
References to Sections and definitions are those contained in the Purchase
Agreement. Please indicate your agreement to the following by signing below.
1. Closing Date. The Closing will occur on November 1, 2004, as soon as
practicable following the Audiovox Stockholders Meeting.
2. Date of Closing Balance Sheet.
a. Definition of Closing Statement of Inventories: The phrase "as of 5:30
p.m. EST on the date of the Closing" in the definition of Closing
Statement of Inventories shall be amended to read as follows:
"as of 11:59 p.m. New York City time on October 31, 2004";
b. Definition of Closing Statement of Net Assets: The phrase "as of the
close of business on the date of the Closing" in the definition of
Closing Statement of Net Assets shall be amended to read as follows:
"as of 11:59 p.m. New York City time on October 31, 2004";
c. Definition of Excluded Taxes: Clause (ii) of the second sentence of
the definition of "Excluded Taxes" shall be amended to read as
follows:
Exhibit 99.1
Charles M. Stoehr
Philip Christopher Page 2 November 1, 2004
"Taxes (other than Property Taxes) relating to the Purchased
Assets for the Pre-Closing Tax Period shall be computed as if
such taxable period ended at 11:59 p.m. New York City time on
October 31, 2004";
d. Definition of Post-Closing Tax Period: The definition of Post-Closing
Tax Period shall be amended to read:
"any taxable period (or portion thereof) beginning on November 1,
2004";
e. Definition of Pre-Closing Tax Period: The definition of Pre-Closing
Tax Period shall be amended to read:
"any taxable period (or portion thereof) ending on or prior to
October 31, 2004";
f. Definition of Preliminary Statement of Net Assets: The phrase "as of
the close of business on the date of the Closing" in the definition of
Preliminary Statement of Net Assets shall be amended to read:
"as of 11:59 p.m. New York City time on October 31, 2004";
g. Definition of Receivables Listing: The phrase "as of 5:30 p.m. EST on
the date of the Closing" in the definition of Receivables Listing
shall be amended to read:
"as of 11:59 p.m. New York City time on October 31, 2004";
h. Straddle Period: the definition of Straddle Period shall be amended to
read:
"means any taxable period beginning prior to and ending on or
after November 1, 2004;
i. Section 2.01(b)(viii): Section 2.01(b)(viii) shall be amended to read:
"all Receivables of the Business (except for the Acquired
Receivables) as of 11:59 p.m. on October 31, 2004";
j. Section 2.07(a)(ii): The phrase "as of the close of business on the
date of the Closing" shall be amended to read:
"as of 11:59 p.m. New York City time on October 31, 2004";
k. Section 5.14: the phrase "first ending after the Closing" in the
fourth sentence of Section 5.14 shall be amended to read:
"first ending after November 1, 2004;"
l. Section 5.18(a): The phrase "12:01 A.M on the day after the date of
the Closing" in Section 5.18(a) shall be amended to read:
Exhibit 99.1
Charles M. Stoehr
Philip Christopher Page 3 November 1, 2004
"12:01 A.M. New York City time on November 1, 2004";
m. Section 5.18(b): The phrase "12:01 A.M on the day after the date of
the Closing" in Section 5.18(b) shall be amended to read:
"12:01 A.M. New York City time on November 1, 2004";
n. Section 5.18(c): The phrase "from and after the day after the date of
the Closing" in Section 5.18(c) shall be amended to read:
"from and after November 1, 2004".
3. Waiver of 404 Condition. The condition set forth in Section 7.02(j) of the
Purchase Agreement and any obligation of the Seller to satisfy such condition
shall be waived and shall not be applicable. Neither the Seller nor the
Purchaser shall have any obligations pursuant to Section 5.25 of the Purchase
Agreement.
4. Return of Inventory. Exhibit A to the Purchase Agreement (Rules for Valuing
Inventory) shall be amended by adding the following paragraph at the end of such
Exhibit:
"In addition, if, during the Collection Period, a Customer returns
Inventories and the Per Customer Amount of such Customer is reduced,
the Closing Statement of Inventories shall be adjusted upward as if
such Inventories had been owned by the Sellers as of October 31, 2004;
provided, that, notwithstanding anything to the contrary in this
Exhibit A, such returned Inventories shall be valued in accordance
with GAAP at the time such Inventories are returned ."
5. Vendor and Quintex Receivables.
a. Additional Definitions: The Agreement shall be amended to include the
following defined terms in the appropriate alphabetical order:
""Acquired Receivables" means the Quintex Receivables and the
Specified Vendor Receivables."
""Quintex Receivables" means any and all accounts receivable,
notes and other amounts receivable from third parties, including
Vendors, customers and employees, arising from the conduct of the
Business and owed to Quintex, whether or not in the ordinary
course, together with any unpaid financing charges accrued
thereon, as determined in accordance with GAAP."
""Specified Vendor Receivables" means the Receivables of the
Vendors set forth on Exhibit B hereto."
b. Addition of Exhibit B to the Purchase Agreement: A new Exhibit B shall
be added to the Purchase Agreement in the form set forth as Annex A to
this letter.
Exhibit 99.1
Charles M. Stoehr
Philip Christopher Page 4 November 1, 2004
c. Definition of Interim Statement of Net Assets: The definition of
"Interim Statement of Net Assets" shall be amended to read as follows:
""Interim Statement of Net Assets" means the statement of Net
Assets (including a calculation of the Net Working Capital
Balance) of the Business, dated as of February 29, 2004, a copy
of which is set forth in Section 3.04(a)(i) of the Disclosure
Schedule; provided; however, that the Interim Statement of Net
Assets shall not include the Acquired Receivables."
d. Definition of Net Assets: Clause (a) of the definition of Net Assets
shall be amended to read as follows:
"(a) the sum of Acquired Receivables, Inventories, Prepaids and
other Current Assets, Property, Plant and Equipment, and Other
Long-Term Assets Included in the Purchased Assets and"
e. Definition of Net Working Capital Balance: Clause (a) of the
definition of "Net Working Capital Balance" shall be amended to read
as follows:
"(a) the sum of Acquired Receivables, Inventories and Prepaids
and other Current Assets, and"
f. Definition of Preliminary Net Working Capital Balance: Clause (a) of
the definition of "Preliminary Net Working Capital Balance" shall be
amended to read as follows:
"(a) the sum of Acquired Receivables, Inventories and Prepaids
and other Current Assets, and"
g. Definition of Receivables Listing: The last sentence of the definition
of "Receivables Listing" shall be amended to read as follows:
"The Receivables Listing shall not include any Vendor Receivables
or Acquired Receivables."
h. Section 2.01(iv): Section 2.01(iv) shall be amended to read as
follows:
"the Acquired Receivables and all Inventories;"
b. Section 2.09(a): The proviso in Section 2.09(a) shall be amended to
(x) delete the word "and" prior to the "(ii)" and replace it with ","
and (y) add the following language at the end of the proviso:
" and (iii) the foregoing provisions of this Section 2.09(a)
shall not apply to the Acquired Receivables".
6. Letters of Credit. If, from and after November 1, 2004, any letter of credit
established by Audiovox or Seller for the benefit of the Business is properly
drawn down or used, UTStarcom shall pay to Audiovox or Seller, as applicable,
Exhibit 99.1
Charles M. Stoehr
Philip Christopher Page 5 November 1, 2004
an amount equal to the amount by which the letter of credit was drawn down or
used. Such payment shall be made by UTStarcom to Audiovox or Seller, as
applicable, by wire transfer of immediately available funds within two Business
Days after receiving notice of such draw down or use to Keith San Felipe or his
designee.
7. Pre-Payments to Vendors. The definition of "Prepaids and other Current
Assets" shall be amended to read:
"(i) pre-payments made to Vendors of the Business related to operating
costs or for raw materials, components, spare parts, supplies, goods,
merchandise or services, which have not been used or provided, (ii)
pre-payments of real estate taxes and (iii) the value of non-cash assets
used in the Business due within one year as determined in accordance with
GAAP.".
8. Assignment; Designation. Pursuant to Section 10.05, the Purchaser has
designated its wholly-owned subsidiary, UTStarcom Personal Communications, LLC
("UPC LLC"), as the entity to which the Seller will convey certain of the
Purchased Assets and which will assume certain of the Assumed Liabilities and
has assigned to UPC LLC certain of its rights and obligations under the Purchase
Agreement. The Purchaser acknowledges and agrees that, notwithstanding such
assignment (or any further assignment by UPC LLC or its assignees), it shall
remain fully liable for all of its obligations as well as the obligations of
Purchaser's Affiliates under the Purchase Agreement, any Ancillary Agreement and
the transactions contemplated by the Purchase Agreement.
9. Third Party Consents. For purposes of clarity, nothing contained in any third
party consent delivered in connection with the Closing or pursuant to the
Purchase Agreement shall modify or amend the provisions of the Purchase
Agreement as between the Seller and the Purchaser.
10. Replication Service. Pursuant to Section 5.22 of the Purchase Agreement,
Audiovox and the Seller were to have completed the Replication Service on or
prior to the Closing. The following portions of the Replication Service will not
be completed by Closing and the Parties hereby agree as follows:
a. Within ninety days of Closing, Audiovox shall separate out Purchaser's
JDE environments (test and production) onto hardware separate from
Audiovox's hardware. The Purchaser's JDE environments shall provide
the same functionality and level of service as ACC was getting as of
the time just prior to Closing and shall also be integrated with the
back-end Webstore that Audiovox will continue to use. The hardware
brand and configuration used will be mutually agreed upon by Purchaser
and Seller in good faith prior to implementation.
b. Within ninety days of Closing, Audiovox shall separate out Purchaser's
Lotus Notes email environment from Audiovox's environment onto a
separate server for Purchaser so that Purchaser's email environment
can be operated and managed independently.
c. Within ninety days of Closing, Audiovox shall separate out the
DNS/DHCP Services for Purchaser onto a separate server so that
Purchaser's network can be independent of Audiovox's network.
Exhibit 99.1
Charles M. Stoehr
Philip Christopher Page 6 November 1, 2004
d. With respect to the website www.audiovox.com, effective on Closing and
continuing for the Term of the Transition Services Agreement, Audiovox
will make and maintain the appropriate, agreed upon changes within the
Wireless Products webpages to reflect the UTStarcom acquisition and
Audiovox will also continue to support, on behalf of Purchaser, the
Wireless Products accessories transaction sales that come through the
webpages to the webstore.
e. Purchaser shall not be obligated to make any other payments to
Audiovox or Seller with respect to completion of the work set forth in
(a) -(d) (including any expenses incurred by Audiovox or Seller for
hardware acquisition and maintenance) beyond the $70,000 limit
referenced in Section 5.22 of the Purchase Agreement.
Except as set forth herein or as later modified, amended or waived in accordance
with the Purchase Agreement, all other provisions of the Purchase Agreement
shall remain in full force and effect.
This letter agreement shall be governed by, and construed in accordance with,
the laws of the State of New York applicable to contracts executed in and to be
performed in that State. All disputes arising out of this letter agreement shall
be resolved in accordance with Section 10.09 of the Purchase Agreement.
Exhibit 99.1
Charles M. Stoehr
Philip Christopher Page 7 November 1, 2004
This letter agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed shall be deemed to be an
original, but all of which taken together shall constitute one and the same
agreement.
Sincerely,
UTSTARCOM, INC.
By: /s/ Hong Liang Lu
------------------------------------------
Name: Hong Liang Lu
Title: Chairman, President and Chief
Executive Officer
UTSTARCOM CANADA COMPANY
By: /s/ Hong Liang Lu
------------------------------------------
Name: Hong Liang Lu
Title: Chairman, President and Chief
Executive Officer
Accepted and agreed to as of the date set forth above:
AUDIOVOX CORPORATION
By: /s/ Charles M. Stoehr
--------------------------------------------
Name: Charles M. Stoehr
Title: Sr. Vice President and Chief
Financial Officer
Exhibit 99.1
Charles M. Stoehr
Philip Christopher Page 8 November 1, 2004
AUDIOVOX COMMUNICATIONS CORP.
By: /s/ Charles M. Stoehr
--------------------------------------------
Name: Charles M. Stoehr
Title: Vice President
QUINTEX MOBILE COMMUNICATIONS
CORPORATION
By: /s/ Charles M. Stoehr
--------------------------------------------
Name: Charles M. Stoehr
Title: Vice President
AUDIOVOX COMMUNICATIONS
CANADA CO.
By: /s/ Charles M. Stoehr
--------------------------------------------
Name: Charles M. Stoehr
Title: Vice President
cc: Robert S. Levy
Jonathan Adler
Carmen Chang
Exhibit 99.1
FOR IMMEDIATE RELEASE
AUDIOVOX CORPORATION COMPLETES SALE
OF CELLULAR SUBSIDIARY BUSINESS TO UTSTARCOM
Hauppauge, NY, November 1, 2004 . . . Audiovox Corporation (NASDAQ: VOXX)
announced today that it has completed the sale of its cellular subsidiary's
business, Audiovox Communications Corp. (ACC) to UTStarcom, Inc. (NASDAQ: UTSI).
The deal, initially announced in June, officially closed this afternoon after
receiving regulatory and shareholder approval.
As previously announced, Audiovox's majority owned subsidiary entered into a
definitive agreement to sell selected assets and liabilities (excluding its
receivables, inter-company accounts payable, and certain accrued expenses) to
UTStarcom for a total purchase price of $165.1 million in cash. Pursuant to the
terms of the agreement, net proceeds from the sale, after repurchasing Toshiba's
equity interest; paying executive and professional service fees and estimated
taxes; collecting the outstanding receivables and paying down the Company's bank
lines will be approximately $145 million.
"We are pleased with the overwhelming shareholder response in favor of this
transaction as it reinforces our belief that this sale is in the best interests
of Audiovox and its shareholders. In the months ahead our plans are to focus on
the continued development and growth of our Electronics company as well as
exploring other business opportunities," stated John J. Shalam, Chairman,
President and Chief Executive Officer of Audiovox Corporation. "Over the past
three years, our Electronics company has seen significant growth as we have
added new product categories and expanded existing ones. In addition, we have
made several synergistic acquisitions, which have also contributed to growth."
Shalam continued, "The net proceeds from today's transaction will give Audiovox
Corporation substantial capital, which in turn will place us in a strong
position to further enhance the Audiovox brand and expand our presence, both in
the U.S. and in Europe. We are excited about the next phase in our corporate
evolution and look forward to updating our shareholders on our plans for the
future as they materialize."
As previously announced, Audiovox will be hosting a conference call tomorrow
morning, Tuesday, November 2, 2004 at 10:00 a.m. EDT to discuss this
transaction, its fiscal third quarter and nine-month results and its electronics
business component. Interested parties can participate by logging onto the
Audiovox website at http://www.audiovox.com under "Investor Relations". For
those who will be unable to participate on the call, a replay has been arranged
Exhibit 99.2
and will be available approximately one hour after the call has been completed
and will last for one week thereafter.
o Replay Number: (888) 286-8010
o International Replay Number: (617) 801-6888
o Access Code: 88849225
About Audiovox
Audiovox Corporation is a leading international distributor and value added
service provider in the consumer electronics industry. The Company conducts its
business through subsidiaries and markets its products both domestically and
internationally under its own brands. It also functions as an OEM (Original
Equipment Manufacturer) supplier to several customers. For additional
information, please visit Audiovox on the Web at http://www.audiovox.com.
Safe-Harbor Language
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; 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/A for the fiscal year ended November 30, 2003 and Form
10-Q for the fiscal 2004 third quarter ended August 31, 2004.
Company Contact: Public and Investor Relations Contact:
- --------------------------- --------------------------------------
C. Michael Stoehr, SVP/CFO Glenn Wiener
Audiovox Corporation GW Communications
(631) 231-7750 (212) 786-6011 or GWIENER@GWCCO.COM
-----------------
# # # # #
Exhibit 99.2
MASTER GRID NOTE
(Prime and Fixed Rate Options Only)
$25,000,000 Hauppauge, N.Y.
----------
Date: November 1, 2004
On the due date for each Advance or on Demand (as recorded on the grid
attached hereto or on any additional pages thereof), but in any event on January
31, 2005 if outstanding on such date, for value received, the undersigned hereby
promises to pay to the order of JPMORGAN CHASE BANK (hereinafter the "Bank") at
its offices at 395 North Service Road, Melville, New York, the principal sum of
the aggregate unpaid principal amount of each Advance (as recorded on the grid
attached hereto or on any additional pages thereof) made by the Bank to the
undersigned. The undersigned further promises to pay interest on the unpaid
principal amount of each Advance (computed on the basis of the actual number of
days elapsed on the basis of a 360- day year) on 11/30/2004 (specific date) and
the last day of each month (insert "month", "third month", "quarter", etc.)
thereafter, and at maturity, at the per annum rate of interest recorded for such
Advance on the grid attached hereto or on any additional pages thereof, but in
no event higher than the maximum interest rate permitted under applicable law.
Advances for which the designated rate of interest is or includes "Prime Rate",
"Prime", "P" or similar designations (e.g., "P + 1% ") shall be read to refer to
a floating rate equaling or based upon the Bank's Prime Rate, and shall be
adjusted automatically on the date of each change thereof. Prime Rate shall be
the rate of interest as is publicly announced at the Bank's principal office
from time to time as its prime rate. Interest on any past due amount, whether at
the due date thereof or by acceleration, shall be paid at a rate of four percent
(4%) per annum in excess of the above stated rate, but in no event higher than
the maximum permitted under applicable law. Time for payment extended by law
shall be included in the computation of interest. The date, amount, rate of
interest and maturity date of each Advance and payment(s) (if any) of principal,
the Advance(s) to which such payment(s) will be applied (which shall be at the
discretion of the Bank) and the outstanding principal balance of Advances shall
be recorded by the Bank on its books and records (which may be electronic in
nature) and at any time and from time to time may be, and shall be prior to any
transfer and delivery of this Note, entered by the Bank on the schedule attached
or any continuation of the schedule attached hereto by the Bank (at the
discretion of the Bank, any such entries may aggregate Advances (and payments
thereon) with the same interest rate and tenor and, if made on a given date, may
show only the Advances outstanding on such date). Any such entries shall be
conclusive in the absence of manifest error. The failure by the Bank to make any
or all such entries shall not relieve the undersigned from its obligation to pay
any and all amounts due hereunder.
If any principal of this note which bears interest at a fixed interest rate
is paid prior to the scheduled payment and/or maturity date(s) set forth above
(whether by acceleration, prepayment or otherwise) the undersigned also agrees
to pay the Bank, on the date of prepayment (as liquidated damages and not as a
penalty), a prepayment charge equal to the sum of the differences between (a)
each scheduled interest payment which would have been made on the prepaid amount
if such prepayment had not occurred and (b) the corresponding fixed-rate
interest payment which would be received under an interest rate swap which the
Bank shall be deemed to have entered into as of the date of such prepayment (the
"Replacement Swap") covering its payment obligations under an interest rate swap
which the Bank shall be deemed to have entered into when the prepaid amount was
originally funded, with each such difference discounted to a present value as of
the date of prepayment using the fixed interest rate of the Replacement Swap as
the applicable discount rate. The undersigned acknowledges that the Bank might
not fund or hedge its fixed-rate loan portfolio, or any prepayment thereof, on a
loan-by-loan basis at all times and agrees that the foregoing is a reasonable
Exhibit 99.3
and appropriate method of calculating liquidated damages for any such prepayment
irrespective of whether any of the foregoing hedging transactions have in fact
occurred or occurred precisely as stated with respect to this loan. All
calculations and determinations by the Bank of the amounts payable pursuant to
the preceding provisions or of any element thereof, if made in accordance with
its then standard procedures for so calculating or determining such amounts,
shall be conclusive absent manifest arithmetic error.
The undersigned hereby grants to the Bank a lien on, security interest in
and right of set-off against all monies, securities and other property of the
undersigned and the proceeds thereof now or hereafter delivered to remain with
or in transit in any manner to the Bank, its correspondents or its agents from
or for the undersigned, whether for safekeeping, custody, pledge, transmission,
collection or for any other purpose, or coming into possession, control or
custody of the Bank, J.P. Morgan Securities Inc., or any other affiliate of the
Bank in any way, and, also, any balance of any deposit account and credits of
the undersigned with, and any other claims of the undersigned against, the Bank,
J.P. Morgan Securities Inc., or any other affiliate of the Bank at any time
existing (all of which are hereinafter collectively called "Collateral"), as
collateral security for the payment of this note and all other liabilities and
obligations now or hereafter owed by the undersigned to the Bank, contracted
with or acquired by the Bank, whether joint, several, direct, indirect,
absolute, contingent, secured, unsecured, matured or unmatured (all of which are
hereafter collectively called "Liabilities"), hereby authorizing the Bank at any
time or times, without notice or demand, to apply any such Collateral or any
proceeds thereof to any of such Liabilities in such amounts as it in its sole
discretion may select, whether contingent, unmatured or otherwise and whether
any other collateral security therefor is deemed adequate or not. The
undersigned authorizes the Bank to deliver to others a copy of this note as
written notification of the undersigned's transfer of a security interest in the
Collateral. The Bank further is authorized at any time or times, without demand
or notice to the undersigned, to transfer to or register in the name of its
nominee or nominees all or any part of the Collateral and to exercise any and
all rights, power and privileges (except that prior to an Event of Default the
Bank shall not have the right to vote or to direct the voting of any
Collateral). The collateral security and other rights described herein shall be
in addition to any other collateral security described in any separate agreement
executed by the undersigned.
In the event of: default in the prompt payment of any Liabilities; default
in any other indebtedness of the undersigned (which, for the purposes of this
sentence, means the undersigned or any guarantor, surety or endorser of, or any
person or entity which has pledged any of its property to secure, any
Liabilities); complete or partial liquidation or suspension of any business of
the undersigned; dissolution, merger, consolidation or reorganization of the
undersigned; death of or loss of employment by an individual or any member of
any partnership (if the undersigned is an individual or a partnership); failure
to furnish any financial information or to permit inspection of any books or
records at the Bank's request; a representation, warranty or statement of the
undersigned proving false in any material respect when made or furnished;
general assignment for the benefit of creditors or insolvency of the
undersigned; commencement of any proceeding supplementary to any execution
relating to any judgment against the undersigned; attachment; distraint, levy,
execution or final judgment against the undersigned or against the property of
the undersigned; assignment by the undersigned of any equity in any of the
Collateral without the written consent of the Bank; appointment of a receiver,
conservator, rehabilitator or similar officer for the undersigned, or for any
property of the undersigned; tax assessment by the United States Government or
any state or political subdivision thereof against the undersigned; the taking
of possession of, or assumption of control over, all or any substantial part of
the property of the undersigned by the United States Government, or any state or
political subdivision thereof, foreign government (de facto or de jure) or any
agency of any thereof; calling of a meeting of creditors, assignment for the
benefit of creditors or bulk sale or notice thereof; any mortgage, pledge of or
creation of a security interest in any assets without the consent of the holder
of this note; filing of a petition in bankruptcy, commencement of any proceeding
JPMorgan Chase Bank
Exhibit 99.3
under any bankruptcy or debtor's law (or similar law analogous in purpose or
effect) for the relief, reorganization, composition, extension, arrangement or
readjustment of any of the obligations by or against the undersigned; then, and
in any of those events (each, an "Event of Default"), all Liabilities, although
otherwise unmatured or contingent, shall forthwith become due and payable
without notice or demand and notwithstanding anything to the contrary contained
herein or in any other instrument. Further, acceptance of any payments shall not
waive or affect any prior demand or acceleration of these Liabilities, and each
such payment made shall be applied first to the payment of accrued interest,
then to the aggregate unpaid principal or otherwise as determined by the Bank in
its sole discretion. The undersigned hereby irrevocably consents to the in
personam jurisdiction of the federal and/or state courts located within the
State of New York over controversies arising from or relating to this note or
the Liabilities and irrevocably waives trial by jury and the right to interpose
any counterclaim or offset of any nature in any such litigation. The undersigned
further irrevocably waives presentment, demand, protest, notice of dishonor and
all other notices or demands of any kind in connection with this note or any
Liabilities. The undersigned shall be jointly and severally liable hereon.
The Bank may, at its option, at any time when in the judgment of the Bank
the Collateral is inadequate or the Bank deems itself insecure, or upon or at
any time after the occurrence of an Event of Default, proceed to enforce payment
of the same and exercise any of or all the rights and remedies afforded the Bank
by the Uniform Commercial Code as in effect from time to time (the "Code") or
otherwise possessed by the Bank. Any requirement of the Code for reasonable
notice to the undersigned shall be deemed to have been complied with if such
notice is mailed, postage prepaid, to the undersigned and such other persons
entitled to notice, at the addresses shown on the records of the Bank at least
four (4) days prior to the time of sale, disposition or other event requiring
notice under the Code.
The undersigned agrees to pay to the Bank, as soon as incurred, all costs
and expenses incidental to the care, preservation, processing, sale or
collection of or realization upon any of or all the Collateral or incurred in
connection with the enforcement or collection of this note, or in any way
relating to the rights of the Bank hereunder, including reasonable inside or
outside counsel fees and expenses. Each and every right and remedy hereby
granted to the Bank or allowed to it by law shall be cumulative and not
exclusive and each may be exercised by the Bank from time to time and as often
as may be necessary. The undersigned shall have the sole responsibility for
notifying the Bank in writing that the undersigned wishes to take advantage of
any redemption, conversion or other similar right with respect to any of the
Collateral. The Bank may release any party (including any partner of any
undersigned) without notice to any of the undersigned, whether as co-makers,
endorsers, guarantors, sureties, assigns or otherwise, without affecting the
liability of any of the undersigned hereof or any partner of any undersigned
hereof.
Upon any transfer of this note, the undersigned hereby waiving notice of
any such transfer, the Bank may deliver the Collateral or any part thereof to
the transferee who shall thereupon become vested with all the rights herein or
under applicable law given to the Bank with respect thereto and the Bank shall
thereafter forever be relieved and fully discharged from any liability or
responsibility in the matter; but the Bank shall retain all rights hereby given
to it with respect to any Liabilities and Collateral not so transferred. No
modification or waiver of any of the provisions of this note shall be effective
unless in writing, signed by the Bank, and only to the extent therein set forth;
nor shall any such waiver be applicable except in the specific instance for
which given. This agreement sets forth the entire understanding of the parties,
and the undersigned acknowledges that no oral or other agreements, conditions,
promises, understandings, representations or warranties exist in regard to the
obligations hereunder, except those specifically set forth herein.
If the undersigned is a partnership, the agreement herein contained shall
JPMorgan Chase Bank
Exhibit 99.3
remain in force and applicable, notwithstanding any changes in the individuals
composing the partnership or any release of any partner or partners and their
partners shall not thereby be released from any liability. If this note is
signed by more than one party, the terms "undersigned", as used herein, shall
include and mean the "undersigned and each of them" and each undertaking herein
contained shall be their joint and several undertaking, provided, however, that
in the phrases "of the undersigned", "by the undersigned", "against the
undersigned", "for the undersigned", "to the undersigned", and "on the
undersigned", the term "undersigned" shall mean the "undersigned or any of
them", and the Bank may release or exchange any of the Collateral belonging to
any of the parties hereto and it may renew or extend any of the liabilities of
any of them and may make additional advances or extensions of credit to any of
them or release or fail to set off any deposit account or credit to any of them
or grant other indulgences to any of them, all from time to tune, before or
after maturity hereof, with or without further notice to or assent from any of
the other parties hereto. Each reference herein to the Bank shall be deemed to
include its successors, endorsees, and assigns, in whose favor the provisions
hereof shall also inure. Each reference herein to the undersigned shall be
deemed to include the heirs, executors, administrators, legal representatives,
successors and assigns of the undersigned, all of whom shall be bound by the
provisions hereof. This note may be pledged or assigned by the Bank to any
Federal Reserve Bank.
The provisions of this note shall be construed and interpreted and all
rights and obligations hereunder determined in accordance with the laws of the
State of New York, and, as to interest rates, applicable Federal Law.
Audiovox Corporation
By: /s/ Charles M. Stoehr
Name & Title: SVP and CFO
- ------------------------------
Address: 180 Marcus Blvd
Hauppauge, NY 11788
JPMorgan Chase Bank
Exhibit 99.3
AUDIOVOX CORPORATION
NOVEMBER 2, 2004
CALL PARTICIPANTS
o Glenn Wiener Audiovox Corporation
Investor Relations
o John Shalam; Audiovox Corporation
Chairman, President and CEO
o Michael Stoehr Audiovox Corporation
SVP, CFO and Director
o Pat Lavelle Audiovox Corporation
President, Audiovox Electronics
Corporation
o John Bucher Harris Nesbitt
Analyst
o Riley McCormick Tracer Capital
Analyst
o Matt Reems BCM
Analyst
o Ted Graham Caron Capital
Analyst
o Richard Greenberg Donald Smith & Company
Analyst
o Jim Schwartz Gilder
Analyst
PRESENTATION
Operator: Good day, ladies and gentlemen, and welcome to the quarter three 2004
Audiovox Corporation earnings conference call. At this time, all audio
participants are in a listen-only mode. However, at the conclusion of this
conference we will be facilitating question and answers via the telephone lines.
If at any time during this call you do require assistance, please key star, zero
and a coordinator will be happy to assist you. As a reminder, this conference is
Exhibit 99.4
being recorded. I would now like to turn this presentation over to your host for
today, Mr. Glenn Wiener. Sir, you may proceed.
Glenn Wiener: Good morning, everyone, and thank you for joining us today. The
purpose of this call is to discuss Audiovox's fiscal 2004 third quarter nine
month financial results and the closing of the sale of the company's wireless
assets to UTStarcom. As the operator mentioned, today's call is being Webcast on
the company's site, www.audiovox.com, and a replay has been arranged for your
convenience and will be available later today, airing for one week.
If you have not received a copy of this morning's announcement - excuse me - if
you have not received a copy of the third quarter announcement issued last week,
please visit the company's website or you can contact my office directly at
212-786-6011 and a copy will be forwarded to you.
Joining us on today's call will be John Shalam, Chairman and Chief Executive
Officer, Michael Stoehr, Senior Vice President and CFO, and Patrick Lavelle, CEO
of Audiovox Electronics Corporation. After opening remarks by management, there
will a question-and-answer session.
Before getting started, I'd like to briefly read the Safe Harbor language.
Except for historical information contained herein, statements made on today's
call and on today's webcast that would constitute forward-looking statements may
involve certain risks and uncertainties. All forward- looking statements 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. These
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, 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 statement, 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/A for the fiscal year ended
November 30, 2003 and Form 10-Q for the fiscal 2004 third quarter ended August
31, 2004. At this time, I'd like to introduce John Shalam, Chairman, President
and CEO of Audiovox. John?
John Shalam: Thank you very much, Glenn, and good morning, everyone. I am
pleased to report that, as of yesterday, following shareholder approval and
closing, the sale of the business of Audiovox Communications Corp., our cellular
subsidiary, has been completed. This was the single largest transaction in our
company's history and I'd like to spend a few moments to discuss it.
Exhibit 99.4
The cellular company has been a major driver in our growth. Over the past 20
years, the expansion into the high-tech telecommunications industry opened the
door to our company and gave us the ability to stage a successful IPO in 1987
and a secondary offering in the year 2000. However, over the past few years, the
cellular market has become more challenging and competitive. Driven by the
overall economic decline, consolidation in the customer base, intensified
pricing wars and our inability to successfully partner with a manufacturer,
which would have decreased our product acquisition costs and made us more
consistently profitable.
That limited control of product development and distribution, coupled with the
factors I've previously outlined, caused inconsistency in our cellular results
that led to our decision to exit. We believe there is a future in cellular.
However, we also believe that remaining a player that could deliver a
consistently profitable result will become more and more difficult for us. I was
gratified by the overwhelming shareholder support that this transaction
generated. In fact, if you eliminate the bulk of non-votes on the transaction as
well as my own shares, 99% of the shareholders voted in favor of this deal.
Starcom paid us $165.1 million and when we are done collecting the accounts
receivables, the total amount collected will exceed $315 million. Net proceeds
from the sale after collecting the receivables and paying all expenses,
including taxes, will leave us roughly $162 million in cash, a clean balance
sheet with almost no debts, cash flow from operations and access to capital if
and when needed to pursue strategic and complementary acquisitions as they
arise.
Which brings us to the question on most of your minds and that is what will we
do now? There are several answers to that question. Our goal is grow this
company and increase its shareholder value. We will continue to invest in our
electronic subsidiary where we have had a history of steady growth in both sales
and profits. In fact, sales of this group have grown 25% over the last five
years. We will look to strategic acquisitions that can be either synergistic
with our existing electronics business or in different markets or both. We will
invest nonessential cash to produce maximum return. And we will continue to
review existing operations for the productivity gains that result in better
bottom-line performance.
The next 12 months will be a major transition period for Audiovox as we adjust
to life after cellular. And I'm sure we will experience some growing pains in
the process. However, our commitment to consistently be profitable will not
waiver. And I am certain that we will capitalize on our successful history as we
continue to grow this company. And now, I would like to make a few points
regarding our electronics subsidiary before Pat brings you up to date on our
business model.
Over the past several years, Audiovox Electronics Corporation has dramatically
expanded its product offerings and that new mobile and consumer markets has
enhanced relationships with many of the leading retailers, mass merchants and
OEMs across the nation. In addition, Audiovox Electronics Corporation has also
Exhibit 99.4
successfully completed two acquisitions - Code- Alarm and Recoton - over the
last two years, both of which are beginning to post positive gains for our
company.
All of these factors have resulted not only in increased market share for
Audiovox Electronics Corporation, but have also led to substantial gain in both
revenues and profits. In the electronics marketplace, we are very controlled
over product development, distribution and pricing. We have a number of
manufacturing partners, which, along with our volume purchases shields us to a
degree from competitive pricing and component shortages.
Thanks to the large variety of product lines in different segments of the
electronics industry, we have a greater number of potential customers. This
opens the door to higher growth areas and allows us to enter new markets and to
expand our portfolio of products. We have the flexibility to respond quickly to
consumer trends and ride through product maturity with little downside. This has
been part of our business model since the expansion of our electronics
subsidiary out of car stereo and into the wider world of mobile and consumer
electronics, which translate into 12 years of steady growth and consistent
profits.
In a few moments, Pat will outline the product roadmap, our customer
concentration and trends within the electronics industry, both now and in the
foreseeable future. On a top-line basis, it's our goal to further build the
Audiovox family of brands, to maintain and increase, our leadership positions in
the mobile and consumer electronics product categories, by increasing our
expenditures on product development, engineering and marketing. And we'll look
for new product areas to develop - to keep price - to keep pace with the ever
changing trends in consumer electronics.
In closing, I would like to answer another frequently asked question regarding
the new cash rich position. At this moment, we have no plans to offer a dividend
or to buyback the company stock. However, these options do remain open. We're
reinvesting in our existing operations or look to acquire new ones. Know that we
will look for all opportunities that we feel are in the best interest of our
shareholders.
One closing comment before I turn the call over to Michael and to Pat. As
chairman, president and chief executive officer of Audiovox Corporation, I own
nearly 20% of the shares of this company and I am the single largest
shareholder. Make no mistake, my interests are very much in line with yours and,
as a team, we are working to drive shareholder value. Now, I'll turn the call
over to Mike Stoehr, our CFO, who will review the finances. Michael?
Michael Stoehr: Thank you, John. Good morning, everyone. This morning, I will be
discussing the financial transaction of the Starcom (inaudible) deal, the
company's third quarter performance and some guidance for the fourth quarter and
for fiscal 2005. As John mentioned, the after-tax - the gross after-tax - gross
proceeds for the Starcom transaction was approximately 317 million. This is
165.1 million for the asset purchase and we anticipate collecting an additional
$152 million of accounts receivable.
Exhibit 99.4
Our outlays on this transaction was approximately $15 million to Toshiba to
repurchase the shares of ACC and to pay down the subordinated debt. The employee
packages approximated 26.9 million. We repaid our main bank lines of $79
million. We estimate the professional fees in this transaction to be 4 million
and we also estimate the taxes to be approximately $30 million or cash out of
about 154.9 million.
This will leave us with available cash of about $162.2 million. We assumed in
here that we got back the $8.2 million of the escrow money that was placed up
for the transaction. As John mentioned, while we study and review the potential
strategies for the use of this cash, these funds will be invested and managed by
J. P. Morgan. I'd like to now address the company's financial performance for
the third quarter and again provide you with some guidance for the fourth and
the next year.
As a result of signing the asset purchase agreement on June 11, the company was
required to move to a reporting format that separated earnings into continued
and discontinued operations, even though the company still continued to operate
its two segments with an administrative company providing certain overhead,
until the sale was actually completed by November 1.
As a result of the asset sale, Audiovox Corporation now consists of an operating
group that we call Audiovox Electronics Corp. or Electronics, which is a
wholly-owned subsidiary and a separate administrative service group. The third
quarter results from continuing operations is based on this structure. AEC sales
were 132.9 million this year versus 135.2 million third quarter 2003. The
reduction in sales can be attributed to lower video sales, primarily in mobile
video, specifically video in the bag and DVD products. These decreases were
partially offset by increased business from our recent acquisition of the Jensen
and other related brands, as well as increased sales in the satellite radio.
For the quarter, the AEC group alone had income - net income of 3.7 million
versus 5.1 million. Pat will outline electronics credit line performance in more
detail in a few moments. Our Venezuelan operation improved by approximately
323,000 as a result of a better economy and improving political situations. The
sales in our Malaysian operations were down, principally due to the company's
tightening its credit guidelines in Malaysia.
Electronics also had increment increases in our joint venture, ASA, which
experienced sales in the majority of its product lines, especially in its newly
acquired Jensen Marine Services. We also experienced increase license income as
a result of our Jensen related brands purchase. As a result of higher in asset
positions, specific on our inventory, interest expense increased by $500,000 for
the quarter.
Gross margins for the company include the 17.4% versus 16.8 in the third quarter
versus the third quarter. This is a result of a credit from favorable
negotiations on defective repair charges with a certain vendor. Products only
gross margins for the quarter were down, were 16.3%, down slightly from the same
period last year, due largely to the impact of price competition and video. We
look to a slight improvement in margins during the fourth quarter as inventory
Exhibit 99.4
positions are lowered.
AEC's overhead was 17.6 million versus 14.1, third quarter last year, an
increase of 3.5 million. A portion of this increase or approximately 1.2 million
was attributable to a full quarter of operations in Europe versus only two
months reported during third quarter of 2003.
Other increases in the overhead were an increase in selling expenses of
approximately 205,000 related to the recent launches of new Jensen product which
is now coming on stream - 105,000 in higher commissions to code systems, which
has now begun - which has now experience higher sales in the last year, 312,000
additional advertising and trade show expenses as a result of new product lines,
312,000 increase in professional fees and legal expenses related to patent lines
and obtaining new patents, and an increase of 200,000 of bad debt expenses,
which is our normal accrual - but versus third quarter last year, we had a
credit balance in that account.
The administrative group. The company's administrative group provides IT
services, human resources, tax work, public reporting and compliance, treasury
functions and 404 compliance. A portion of these expenses are allocated to the
operating group based on a variety of methods. For example, for system users for
the IT expenses, head count for human resources. The administrative group also
charges the operating group interest on funds loaned.
The total administrative expenses, before allocations, were $4.6 million in the
third quarter of 2004. Of this, 63% or 2.9 million were non-employee related and
covered the following expense categories. Advertising was $1 million,
professional fees of 1.3 million, depreciation was 300,000 and the D&O insurance
and insurance for the company was $300,000.
These expenses increased - this category of expenses increased 731,000 from
third quarter 2003. This - these increases were as follows -- $500,000 in the
additional PR and media programs that we have to promote the company's brand and
image and a $378,000 increase in professional fees, which is a direct result of
expenses related for the compliance testing for Sarbanes-Oxley, which will
continue in the fourth quarter.
Expenses related to employees in occupancy course are actually down, third
quarter 2004 versus 2003. We are now formulating plans to reduce the
administrative expenses to reflect the new structure of our company, which took
place on November 1, 2004.
We don't expect these reductions to take - really take effect until 2005. The
EPS for the company from continuing operations is breakeven compared to $0.10
last year. This is a result of discussions I've had concerning electronics and
also the unadjusted administrative expenses as the discontinued option still
part of the company continued to need support during the third quarter.
Just a brief discussion on the company's liquidity. Not looking at the funds
that we received from the Starcom transaction, we anticipate, during the fourth
quarter, continual cash from operations as our inventory positions begin to move
out to a more seasonal level. We also anticipate this turn for the first quarter
of 2005.
Exhibit 99.4
For guidance, we anticipate revenue for the fourth quarter to be in the range of
between $150-155 million and we look to the EPS from continuing operations
before the gain on the sale of transaction and any other adjustments to be in
the range of between $0.05 and $0.10 a share versus third quarter of 132 million
and breakeven.
For fiscal 2005, we are targeting a top-line growth of between five and 10%. As
we get closer to the end of this year, we'll take another look at that target
range. We anticipate an increase in our gross margins and we also anticipate a
reduction in the consolidated overhead of the company as the restructuring takes
place during 2005. Our target for a consolidated operating income level is a 5%
and as (inaudible) provide you with further information on this as we have our
next call and we discuss our fiscal earnings for 2005.
I'll now turn this call back to John. Thanks.
John Shalam: Michael, thank you very much. Now, I would like to introduce Pat
Lavelle, President of Audiovox Electronics Corporation, to give you a report on
this outlook.
Pat Lavelle: Thank you, John, and good morning, everyone. As you know, Audiovox
Electronics is made up of two primary marketing groups - mobile and consumer
electronics. And mobile electronics consists of mobile video, car sound,
satellite radio, vehicle security and other mobile accessories, with mobile
video being the largest category within this group.
During the past quarter, our video sales have been impacted negatively by a
number of trends, some of which may be short-lived and others which will
continue. Higher fuel prices have affected SUV sales and the deterioration began
in the second quarter and continued through Q3. JD Power reported SUV sales
drops of 14% in August alone. Since mobile video is installed primarily on
minivans and SUVs, the drop in volume here affects us immediately. This trend
could ease if fuel prices stabilize or retrench. However, we do not believe that
this will happen in the fourth quarter.
Increased competition has reduced average selling prices by approximately 32%
compared with third quarter 2003. We expect this trend to continue, but we do
not expect price erosion to be a drastic as we are getting close to component
costs on many of these systems. Finally, OEMs have rolled out a number of their
own systems, which have eliminated opportunity for sale of after market product.
To help counter this, we have stepped up our own OE efforts as well as developed
several larger screen sizes and systems not being carried by the '03s. For your
information, the third quarter OEM sales of video was 63% ahead of third quarter
'03.
In spite of the negatives mentioned, Audiovox remains the number one supplier of
after market mobile video. In fact, in a recent survey conducted by NPD
Techworld, of the top 10 selling models, Audiovox had seven out of the 10,
including the top four units. As we look into the fourth quarter and into 2005,
we believe we'll be able to raise average selling prices, due to a shift towards
bigger screens and all-in-one headrest systems, which generally run for more
money than the current product.
Exhibit 99.4
We are also introducing a brand new concept in mobile video at the upcoming
senior show. Called the shuttle, the system includes a screen with built-in DVD
player and a series of docking stations that allow a consumer to move these
newly designed portables from an overhead in the vehicle to a tabletop system or
to an under counter kitchen system or to a battery-operated portable. This new
product will give Audiovox a value play that no competitor in the industry has
at this time.
Initial response to these systems has been very good and we expect good
placement during 2005, which is help in reversing some of the negative trends
that have permeated the third and fourth quarter.
Additionally, we will introduce a number of custom mirror monitors, which we
believe will grow into a new rare observation safety category. Eliminating blind
spots in the big SUV is a serious safety issue and speaks to the same buyer as
our mobile video products, namely parents. Our system includes a four-inch
screen embedded in a rear view mirror that will activate when the car is put
into reverse, giving a clear view of whatever is behind the vehicle.
This system will also double as a navigation screen that will automatically turn
on when a navigation computer is indicating a turn or maneuver. Our first
model-specific unit will be for Toyota and we plan to role out a number of
model-specific mirror monitors during 2005.
Our security business continues to expand and we are able to increase sales by
17% quarter over quarter. We have just begun shipments of our Car Link CO100
(ph), which will convert any one of our remote start or security systems into a
remote paging system.
Consumers, via a telephone, can unlock doors, remotely start the vehicle,
disable the vehicle in case of theft and arm or disarm the security system. This
system will offer man of the Onstar-like features without the monthly service
fee. For your information, the most common use of Onstar is for remote door
unlock. In our system, if you lock you keys in the car or trunk one time, you
just paid for the module.
Sound sales grew by 78%, due in part to the new lines launched as part of the
acquisition of Jensen, Advent and AR brands, as well as an increase in our
satellite radio sales. We expect satellite radio sales to grow as we begin
limited distribution this month of our XM plug-and-play unit. XM radio should
have greater impact in 2005 as we expand distribution through the rest of our
network. With the addition of our XM unit, we expect to be able to double unit
sales from 300,000 to approximately 600,000 units next year.
However, I need to point out as serious satellite radio sales will be impacted
by a change in their subsidy structure, this change will effectively lower our
billing price by as much as 40%, since the subsidy will no longer be coming to
Audiovox. We will now be purchasing the product on a net basis, which will
eliminate the subsidy. Without the subsidy, our book revenue will drop by
approximately 40%.
Exhibit 99.4
To recap, we expect mobile video sales to rebound with the introduction of our
new versatile video shuttle system, new larger screen sizes, new dual all-in-one
headrest systems and rear observation systems.
In addition, we expect sales of satellite radio to be a key driver for the year
in security, continued penetration at the OE level by our code security system
and increased after-market penetration of the Audiovox lines will drive our
12-volt security business for the year.
In consumer electronics, sales for the group were off approximately 12% for the
quarter. We have been negatively impacted by the continued decline of portable
DVD selling prices, which dropped an average of 20% over Q3 2003. This margin
erosion has caused us to reconsider some third and fourth quarter promotions and
we elected not to participate in some of the Black Friday promotions that drove
sales of this category last year. And for those of you who are - do not know,
Black Friday promotions are the big promotions the major retailers run the day
after Thanksgiving to kick off the Christmas season.
Portable DVDs have become a commodity and their sales are no longer a valuated
proposition for Audiovox. As a result, we have scaled back our portable DVD
business and we'll look to new emerging technologies to help fuel sales in this
category.
Besides LCD TVs, products on the horizon include multimedia portables
incorporating MPEG4, MP3 and JPEG, which we believe will give Audiovox
opportunities to grow sales within the consumer group.
Additionally, we will introduce new wireless home theater systems for 2005 as
well as completely new Advent and Acoustic Research speaker lines. These will
add to the consumer category growth in 2005. To recap, for 2005, we expect sales
of LCD TVs, new multimedia portables, wireless home theater and new speaker
lines to be the key drivers for 2005 and to help offset the negative impact of
all prices in sales of portable DVDs.
And as discussed in previous calls, we distribute to a wide range of customers -
mass merchants, power retailers, independent distributors, expeditors and
retailers and original equipment manufacturers. To date, our largest account
represents only 11% of our total volume.
We believe our wide distribution network protects us from a downturn in any one
segment and gives us opportunities for sustained growth. Our recent Code-Alarm
and Recoton acquisitions continue to perform well with code systems posting a
70% increase in sales over Q3 '03. The Recoton acquisition is meeting targets
and we expect sales for the year to reach 95 million, which is right in line
with our initial forecast.
We expect 2004 to be the biggest sales year for AEC, despite the fact that the
fourth quarter will come in below last year's numbers, but in line with our
internal projections. Our plans for next year will be consistent with our past
strategies, to continue to add new products to our mix, leveraging our brand and
distribution network, seeking early entry into new emerging technologies and
Exhibit 99.4
and acquiring strategic partners to grow sales, strengthen customer
relationships and enhance bottom-line performance.
As John indicated, we have consistently grown our company's top-line revenue and
bottom-line performance with this strategy and I anticipate that we will
continue to do so. Thank you. John?
John Shalam: Thank you very much for this outstanding report. Ladies and
gentlemen, this is the end of our formal presentation. We are now prepared to
receive your questions.
QUESTION AND ANSWER SESSION
Operator: Ladies and gentlemen, if you do wish to ask a question at this time,
please key star, one on your telephone. If your question has been answered or
you do wish to withdraw your question, please key star, two. Questions will be
taken in the order they are received. Again, that's star, one for questions at
this time. A moment as we compile our initial list of questions. And your first
question will come from the line of Mr. John Bucher of Harris, Nesbitt.
John Bucher: Congratulations on closing the transaction and thank you for the
financial outlook for the current quarter. Question for you, Michael, just on
some housekeeping stuff. With the ACC assets divested, what tax rate should we
assume for the November quarter and for 2005 for modeling purposes?
Michael Stoehr: John, for modeling purposes in 2005, we'll be coming back to our
regular rate of 35 federal and 6% state. It might be a little sloppy in the
fourth quarter as we wind up this transaction, but for modeling purposes, you
probably can use the same rate.
John Bucher: OK. And can you give us - what we should expect in the way of the
overhead expenses? Any change that we might see, both - I guess, really, for
2005.
Michael Stoehr: Yes. Any of the changes will be in 2005 and Pat and I and John
are really going through this right now.
John Bucher: OK.
Michael Stoehr: I tried to indicate that what we're trying to target for the
company because this discussion has been asked by several people. Is that we're
trying to target an operating income level of 5%, which is aggressive,
historically, for the company and that will probably be accomplished in a couple
of steps. That - we'll take a look at not only the administrative overhead, but
it looks at margins and a few other things.
John Bucher: So, that's - that might not be an average operating margin level
for 2005. That might be an operating margin that you reach at some point during
2005?
Michael Stoehr: That's correct. I would latter that, John, assuming the first
quarter is the lowest and then move it up as you go second, third and fourth.
Exhibit 99.4
John Bucher: OK. Can you say what the headcount is opposed to ACC asset
divestiture?
Michael Stoehr: The headcount is - the headcount for the company is about 700
personnel worldwide.
John Shalam: John, this is John Shalam. You know, we just closed the deal
yesterday and we've been entirely focused for the last several months, talking
with our lawyers and our auditors and everybody else in order to achieve this
conclusion, which we did yesterday.
And now that this is behind us, we will start to focus now on our business now
with Audiovox Electronics and we will start to focus and to review on all the
matters we've discussed - specifically, overhead, margins, product lines. We
just haven't really been able to give it as much attention in the last few weeks
as we will in the future.
Michael Stoehr: Correct. And as we're reporting in the K, John, the headcount at
this point is approximately right on the nose with 763 without ACC.
John Bucher: OK. Thank you very much and with that, I think I'll just ask Pat a
question or two and then yield the floor here. And I appreciate very much, Pat,
the detailed sub-segment discussion there. I'm wondering in the area of new
product opportunities, whether you see digital, high definition radio as - I
think we've got a couple thousand broadcasters that have indicated - broadcast
stations, I should say, that have indicated their intention to move to the new
digital AM and FM. And also GPS, whether you see that as a potential growth
driver going forward. Or any other new product categories. Thank you, Pat.
Pat Lavelle: OK. Well, as far as HD radio, we expect to be a big player in HD
radio. We don't expect to, for HD radio, to have a big impact in sales in 2005,
as it's really just starting to roll out. HD is an emerging category that,
although some products have been introduced, some of the broadcasters won't be
on until the later part of the year. But we are definitely looking at HD and
with our acquisition of Jensen and our audio brands, we feel that we will be a
dominant player in the field of HD.
As far as GPS, we are involved in GPS in some of our security systems, some of
our tracking systems and some of our navigation systems. But we have no plans at
this particular point, reportable GPS. There are players in the business that
have secured good market share and it's primarily their business and we don't
have any plans reportable GPS at this point. The areas where we look for strong
growth is, again, in satellite radio where I think you see a lot of activity.
Audiovox remains one of the few companies that has the ability to sell both
Sirius and XM. And we plan to continue to support both very, very aggressively.
We think that's a good area for growth. LCD TVs certainly can be a very
explosive category as more and more consumers shift away from the old CRT and
analog sets.
Exhibit 99.4
John Bucher: Thank you very much. I'll give somebody else a chance here.
Pat Lavelle: OK.
John Shalam: Thank you, John.
Operator: Your next question will come from the line of Riley McCormick of
Tracer Capital.
Riley McCormick: Hey, guys. How are you doing?
John Shalam: OK. Thank you.
Riley McCormick: Two questions. First of all, the - you talked about cash flow
for the fourth quarter. You said it was going to be positive because you're
drawing down inventory. Is that correct?
Michael Stoehr: That's correct.
Riley McCormick: OK. So any uptick in accounts receivable just due to, you know,
T+30 or T+90 is going to be offset by drawing down inventory?
Michael Stoehr: That's correct.
Riley McCormick: OK. The second question, your 5% operating margin target for
'05, does that include the Malaysian sub and the, you know, the equity income
you get from Malaysian and from ASA or is that ...
Michael Stoehr: No, the operating - Malaysia and Venezuela are consolidated. It
includes all our wholly-owned subsidiaries, the majority on subsidiaries. It
does not include the joint venture income.
Riley McCormick: OK. So, that 5% is before the million to million-and-a-half of
other income you get from these subsidiaries.
Michael Stoehr: That's because licensing (inaudible) and also the ASA joint
venture.
Riley McCormick: OK. And should that stay at around 1.5 million a quarter going
forward? Any reason for that to change?
Michael Stoehr: I mean, for modeling purposes, you can use that.
Riley McCormick: OK. All right. Thanks a lot, guys.
Operator: Once again, ladies and gentlemen, for any additional questions at this
Exhibit 99.4
time, please key star, one. For any additional questions, please key star, one.
Your next question will come from the line of Matt Reems of BCM(ph)
Matt Reems: Good morning. Could you further explain the significant long-term
payouts to the ACC CEO, particularly what the $16 million was related to in
tangibles? It seems like a large portion of the payouts, approximately 75%, went
to one individual. I just would like additional color into what's behind that.
John Shalam: Matt, this is John Shalam and I will try and give you a
satisfactory answer. Philip Christopher has been an executive with Audiovox
Corporation pretty much since the inception of the company going back some 30
years. And 20 years ago, we founded the wireless cellular phone division in
which Philip had played a very, very active and very major role in building up
that company and helping us to achieve not only as a result of the wireless
business, but the IPO in 1987, the secondary offering in the year 2000, which
generated close to $100 million in capital for this corporation. And this is
primarily due to the efforts of Philip Christopher and his team at Audiovox
Communications Corporation.
In negotiations with the Stockholm organization, it became very clear that
Stockholm in acquiring the assets of ACC was principally buying the team of
Philip Christopher and his executives and the sales and relationships that had
been established by Philip, whether that is large service providers such as
Verizon and Sprint and many other accounts and as well as the strong
relationships and with the direct result of Philip's relationship with Toshiba
and with (inaudible) and other key suppliers of this organization. And as such,
we felt that this payment to Philip is fully justified in terms of what he's
achieved and he has allowed us to build a really strong value for ACC and, as a
result of that, to obtain, really, a very, very worthwhile advice of UTStarcom.
And without Philip's participation and without his having received this payment,
this deal would not have happened.
Matt Reems: So, the intangibles are primarily just relationships and, you know,
goodwill that he's built up over the past 20 years?
John Shalam: Yes, and it primarily also, you need to keep in mind, besides
everything else I've told you, but Philips presence and continuing to run the
company was a contract requirement with Stockholm. Without that agreement on
Philip's part, this deal would not have happened and the deal is very, very
worthwhile for the shareholders and for Audiovox.
As I said before, the total value of the assets sold to Stockholm, including the
receivables, is in excess of $317 million. So, we felt that this payment was
more than justified. And it's true that we're recognizing Philip's contribution,
the relationships that he generated as the major assets that should be accounted
for.
Matt Reems: OK. Now that you're sitting on a significant amount of capital,
obviously, as you look out into the marketplace, can you just give us an idea of
what it looks like? Are there fairly large companies, similar to yourself, that
you would look to acquire or distributors or, you know, what's out there that
Exhibit 99.4
you're contemplating acquiring?
John Shalam: I'll have to be completely honest with you. We've really not done
very, very much in the area of acquisitions. We know that, basically and
strategically, we would like to deploy some of our new resources to strengthen
both the existing Audiovox Electronics groups and, as well, to diversify and to
build up the overall sales and revenue of the corporation to the benefit of the
shareholders. But we haven't really had a chance to speak to anybody or to
really do any kind of serious exploration of the possibilities.
We are looking and we will be looking at some possible acquisitions, but we
don't really have a master plan at this time. We know that we wanted to pull out
the resources and make more acquisitions, whether it's within the consumer
electronics field or outside the consumer electronic fields, I can't tell you at
this time. We have a lot of work and research and exploration to do and we will
be doing this in the course of the next few months.
But I do want to caution you, as well, that there is - and it's not for me to
tell you that. I'm sure you know better than I do that there's an enormous
amount of money floating around in the economy, looking for investment and
looking for homes.
And a lot of the more attractive or companies that one might want to consider
acquiring are way overpriced. You have to pay a very large price to pay for
quality. So, we want to be very careful about that and make sure that we are
acquiring something that will be worthwhile, that we can handle and digest and
operate correctly. But that, basically, is my thinking on the issue. But as
things develop and as we run across, situations could be more interesting, we
will be discussing these things in our subsequent telephone conversations.
Matt Reems: Do you - are you going to come up with criteria for buying in the
sense that it has to be accretive at a certain amount of time? And, you know,
given some of the more recent acquisitions you've made, which have been fairly
sizable, are those - have they been immediately accretive to what you're doing
or to the - do you see that being much more accretive, you know, a year out or
so?
John Shalam: Well, I think that our acquisitions of both the Recoton assets and
the Code-Alarm assets, that worked out very well. I think, I'm not sure, whether
Code was accretive from the very beginning and Mike Stoehr can answer that
better than I can. I don't think it was.
Michael Stoehr: It took us - it took us not too long a time to get it - about a
year - almost a year- and-a-half, two years. But that was a different situation.
The Jensen acquisition was good right from the - right from the start for us.
John Shalam: I think the Jensen acquisition worked out very well for us. Looking
back at what we paid for those assets and for the operation in Germany as well,
turns out to be an excellent acquisition on our part and is working out quite
well.
Exhibit 99.4
Michael Stoehr: The answer to that being accretive. Yes, that's one of the
things that we do look at. It has to be.
Matt Reems: But then - what? From the beginning or within a set period of time?
Michael Stoehr: ... not to tie ourselves down to day one - within a year.
Matt Reems: OK. Well, I think you've always been very innovative in coming up
with new products and things like that. This will obviously give you a lot more
firepower to ramp that up. In addition to that, are there certain product areas
that you don't think you're particularly - have any expertise in developing to
be able to innovate where it might make more sense to buy? And what might that -
what might those type of products be?
Pat Lavelle: There are a number of - this is Pat Lavelle. There are a number of
new technologies that are out there that a number of suppliers that we do
business with have done a tremendous amount of R&D and we don't have to develop
that technology. And one of the strengths that we have within our group is the
broad breadth of manufacturers that we do business with. I can pretty much tell
you, from a consumer electronics side, every one of our manufacturers - or when
I put all of our manufacturers together, they are quite active in every one of
the new technologies and some of the emerging technologies, whether it be,
again, LCD, multimedia, continued development of mobile video. We have a very,
very deep pool that we can draw from..
John Shalam: And I would just like to add a comment that the consumer electronic
industry continues to develop really exciting new products on a continual basis
that stimulates, purchases at retail, the products like the iPods, products like
the plasma TVs and another major area - satellite radio and HD radio - are all
major stimulants to the entire industry. And I think the outlook for the
consumer electronics industry continues to be quite positive for the next few
years.
Matt Reems: OK. Well, thanks. I appreciate your time and I look forward to
speaking with you later.
John Shalam: Thank you very much, Matt.
Operator: Your next question will come from the line of Ted Graham (ph) of Caron
(ph) Capital.
Ted Graham: Hi. Two questions. Could you give some more color on the - you
mentioned Toyota, using - getting involved with the rearview mirror product. And
also, how much flexibility do you have to sort of move away from commodity
product lines and shift focus towards some of these new and - it looks like a
very exciting product line - ahead. So, just more color on both of those.
Pat Lavelle: As far as the Toyota program that we have for the mirror monitor,
Exhibit 99.4
that is not a program that we are running with Toyota. That is - that is just
the first model specific mirror monitor that we're doing. OK? And we will be
developing a number of custom mirror monitors that would replace the existing
mirror in the car. And that's the reason why they're custom. That is a, again,
that is strength, a core competency that Audiovox Electronics has that will
definitely take us out of the commodity type of product where we will develop
custom kits for different vehicles. We've done that successfully over our
history in car audio, certainly in mobile video and there are opportunities for
us to continue to develop products along those lines.
When we look at the mix of our business, we look at what we consider some niche
business that will take us out of the core, like under counter kitchen TVs, some
of the satellite radio business that we're doing and again, some of the
different mobile video-type products like our shuttle system will take us out of
the commodity-type product. But we look for a balance. We look for some
explosive growth and, in some cases, the explosive growth will come from a
commodity- type item.
So, we're looking for a balance within our book of business that will allows us
to generate good margin on some niche product, but also generate some
substantial sales on the more commodity- type items.
Ted Graham: Has the - I guess, on the radio side, there's some talk in the after
market that the newer lines are getting more and more complicated to install
different devices. Do you see that as an advantage or a disadvantage or is it
really a problem that's out there?
Pat Lavelle: Well, you know, as far as the inability to get on the dashboard on
some of the new cars, that's a disadvantage, obviously, to the after market. But
as you develop product that works in conjunction with the car manufacturers
product, again, this will take it out of the commodity range because you have to
have the engineering to develop or reverse engineers some of the protocol that
are out there. We'll work on some of the protocols that are being established,
like most, is a protocol that the Consumer Electronics Association has supported
as an industry standard for interface with a number of different car
manufacturers.
So, yes, it can be a deterrent, but if you're in a position like Audiovox where
we do work closely with a number of different manufacturers, a number of
different importers, it can take your product out of that commodity price range
because you would be working on protocols that is not available to everyone.
Ted Graham: OK. And then, a time line for new products, let's say the new, you
know, the stuff you announced today. When should we expect to ...
Pat Lavelle: The shuttle system will be - will be delivering in January, will be
showing at this week's senior show and we will - we will be delivering in
January. The wireless home theater systems will be ready in the January time
frame. I would pretty much say everything that I talked about today would be
ready in the first quarter of '05.
Exhibit 99.4
Ted Graham: OK. Great. Thanks a lot.
Operator: Your next question will come from the line of Richard Greenberg of
Donald Smith & Company (ph).
Richard Greenberg: Mike, just two quick housekeeping items. Assumption of
fully-diluted shares for next year. And then, just tell me what your debt
outstanding is. You have a 162 million of cash. What is the total debt right
now?
Michael Stoehr: OK. The shares outstanding would be 22.1 million.
Richard Greenberg: OK.
Michael Stoehr: And as for the debt, right now we have approximately - we have
2.5 million in Malaysia and we have $12 million in Germany.
Richard Greenberg: OK. The second topic is this issue of operating margin, you
know, in setting a 5% goal without really yet totally scrubbing the expense
base, my concern is that, you know, and that's a, you know, a reasonable goal.
It's kind of what a company like this should be - should be earning, but what
are the chances that you guys, once you kind of go through the expense base,
say, oh, my god, you know, we really can't cut expenses enough to achieve that
goal. We needed that larger sales base to support it and we really are going to
need acquisitions to advertise that fixed cost expense base in order for us to
get to the 5%. Or can you really see the 5%, you know, from a high level now?
Michael Stoehr: I think, I think, Richard, the answer to that question is a
little bit of both. We're going into the expenses to bring it down to reflecting
where the expense level should be. There's going to be some improvement in
operating because the margins will move up a little bit and, as John just
outlined for us, there may be some acquisitions in there.
Richard Greenberg: OK. So, it's going to be - it's not just one home run. It's
going to be a lot of - a lot of work and a lot of, as you know how we operate.
We go in and we just chop away at it and also plain going forward.
John Shalam: Richard, you know, all these things take time. So, you know, right
now we're just stepping down and beginning to start walking around in the next
few weeks. And we will take a lot of steps in all the directions you outlined.
But you really shouldn't expect too many results for at least a few months.
Richard Greenberg: Yes. OK. I would just love to hear you be able to say you're
pretty confident. Even if we do no acquisitions and, you know, pay out a,
whatever, $6 special dividend, which I know is not your intention, you know, we
think that this business can, you know, we can get our expenses down so that we
could generate a 5% operating margin. But you're really not ready to say that,
right?
Exhibit 99.4
Michael Stoehr: No, I - as I - Richard, as you know, again, as we - John
mentioned - as we get into the earnings release for 2004, we'll have - it'll be
- - the picture for both Pat, John and myself will be much clearer at that time,
as we're coming through, both on the product end, on the overhead end and we'll
have a much better view. At this point, right now, as John mentioned, we're
still unwinding wireless from the operations of Audiovox. We're in the process
of doing three audits - an audit of ACC, which is part of the deal, our regular
audit and we've got the compliance audit with Sarbanes. So, we've got a lot on
our place right now.
Richard Greenberg: OK. Just finally, on this whole acquisition strategy, you
know, your previous acquisitions took on a little bit of goodwill, but it wasn't
tremendous. And I think, Mike, you would argue that it certainly was worth it. I
mean, as you go through this process, can you give us some assurance that, hey,
we're not going to be loading up the balance sheet with goodwill, you know, and
destroying tangible book value. I mean, is that one of the criteria that you do
look at or are you really focused on, well, we don't really care about
intangibles and, you know, we're just going to look at what it adds to our
earnings?
Michael Stoehr: I think Mr. Shalam prefaced that conversation with a statement
where he stated that, at this point, there's so much money out there, there's a
lot of overvalued companies and we're not in the process of doing an
acquisition, just as you said, to build up a lot of goodwill on the balance
sheet. There has to be - and I think I mentioned of a previous discussion, it
has to be - it has to be accretive to the company. It has to make sense and it
has to - you know, we have stand the test of time with goodwill, too, now.
John Shalam: And Richard, I believe in an earlier conversation, telephone
conference, I think that you had pointed out to us that the track record of most
companies that make acquisitions has not been very successful. And you urged us
to proceed very cautiously. Was that correct?
Richard Greenberg: Yes. That is correct. I mean, John, I would - I would have no
problem if you would allocate some of that money to a buyback. I know that's not
where you're headed at, but with a roughly $17 book, $14 stock price ...
John Shalam: Yes.
Richard Greenberg: It would seem to me to make a lot sense. It's a lot less
risky than making acquisitions. At least get it going. You know, and then if
your stock moves up, then you can shift to acquisitions. But to say, hey, yes,
maybe it makes sense to buy, you know, a couple million shares with our stock at
this kind of value, I don't see what the harm in doing that is.
John Shalam: Well, I assure you, Richard, we will consider all these options.
Richard Greenberg: OK. OK, guys. Thanks a lot. Good luck.
Pat Lavelle: Richard, let me just make one comment as far as what we're looking
at from AEC as part of an acquisition. The main driver for us, as part of an
Exhibit 99.4
acquisition, within the AEC group, is going to be something that's synergistic
with what we do. Where we can take down overhead in the acquiring company and
enhance profitability, from a financial side.
From a marketing side, we want to be able, with any acquisition, to enhance our
customer relationships. And those are going to be the two drivers. More so, than
price, OK, that we would look at in an acquisition.
Obviously, we're not going to overpay, but the - those are the two areas. One,
where it can be accretive. It's synergistic, so we can take down overhead. And
the other is to enhance sales and customer relationships.
Richard Greenberg: You know what? You know, that's reasonable, Pat. It's just
fine. And you guys certainly have experiences - experience with joint ventures
that - a lot of what managements think is synergistic could really, you know,
they're paying a premium in price for that and some of those could - same
synergies could be achieved just through a joint venture. Maybe not so much on
the overhead, but everything could be.
So, to just pay a big premium to get it under your control sometimes, that's
where companies tend to overpay.
Pat Lavelle: Understood. OK. Good day, Richard.
Richard Greenberg: OK. Thanks.
John Shalam: Thanks, Richard.
Operator: Your next question will come from the line of Jim Schwartz (ph) of
Gilder (ph).
Jim Schwartz: Hey, guys. Pat, a question for you. In terms of proprietary
development, I mean, what are you guys looking forward to, you know, maybe in
'05 and '06 in terms of proprietary designs versus, you know, the more commodity
products and maybe a margin differential between the proprietary designs versus,
you know, the regular commodity product?
Pat Lavelle: Well, a number of - a number of our after market product - our 12-O
(ph) product, our Audiovox proprietary designs. So that's something that we do
on a regular basis, whether it be our security systems, our mobile video system,
even some of our head units are all Audiovox proprietary design that we believe
we will be able to generate a better margin than a commodity- type project. Then
we also have the OEM business and our business with Sirius, where - Sirius and
XM where there aren't that many players in those categories selling product,
which gives us an opportunity to make margin. So, pretty much within every one
of our product groups, we have our own design development that we believe will
be able to give us better margin than some of the commodity products.
Jim Schwartz: OK. And that should increase going forward. Is that one of the
Exhibit 99.4
criteria? When you're looking for an acquisition, something that can add to your
proprietary mix or is it proprietary immediately?
Pat Lavelle: We tend to look for, you know, that advantages that we can gain
from the company. Certainly, if they have proprietary products that can give
better margins, that's certainly going to be very positive.
Jim Schwartz: OK. But that - I mean, what - so what type of - what's the gross -
is the gross margin 16%, roughly, for a proprietary ...
Pat Lavelle: For proprietary, it's going to be a little bit higher than that and
that's where we end up getting out blend is when you're dealing with the
commodity products, is, you know, the margins are lower and when you're dealing
with your own proprietary or OEM type products, the margins are higher.
Jim Schwartz: OK. So then, I mean, '06 versus '05, I mean, looking forward, what
percent mix shift will we see towards proprietary, do you think? Or, you know,
'05 versus '04.
Pat Lavelle: I think - I don't think you're going to see a big shift in, you
know, in what we've done historically. We do believe we're going to see an
increase in the margins as we restore and develop new products, get to new price
points that help restore our normal margins. When you get into the price erosion
that you see, related to any DVD product, we expect to see a smaller problem
with price erosion, as we get closer and closer to actual component costs.
Jim Schwartz: OK. Thanks.
Pat Lavelle: You're welcome.
Operator: Your final question will be a follow-up from the line of John Bucher
of Harris Nesbitt.
John Bucher: Thank you very much. Michael, could you say what your peak
borrowing requirements are anticipated to be over the course of the next 12
months?
Michael Stoehr: John, at this point, that's not going to change from the numbers
that I just outlined in what was left outstanding on the balance sheet.
John Bucher: OK. Great.
Michael Stoehr: We have - we have put in place for the company small bridge
loans, about 25 million for letters of credit and stuff, but we don't anticipate
any volumes at this time, unless we deploy the proceeds. But at this point, we
don't see it.
John Bucher: Fantastic. And then, last for Patrick. Do you disclose or can you
Exhibit 99.4
say what the percentage of sales were from products that were introduced in the
last 12 months for the quarter that you all reported a couple weeks ago?
Pat Lavelle: No, I wouldn't at this point. I'd have to look at that.
John Bucher: Just wondering, could you - any sort of seat-of-the-pants feel for
what that ratio might have been?
Pat Lavelle: John, I wouldn't want to take a guess at it at this point.
John Bucher: OK. OK. Thank you very much.
John Shalam: John, it's not a clear situation because you have different types
of so-called new product introductions. Some of them are new categories of
products also. Some of them are products that have had many changes or where
we've added a piece or two, but it's really a continuation of an existing model
that's been alive for some time. So, you can't really get that big of a picture.
But we'll attempt to get that information for you.
John Bucher: Thank you, sir.
John Shalam: OK.
Operator: We thank you for your questions, ladies and gentlemen. I would now
like to turn it back to the senior management of Audiovox for closing remarks.
John Shalam: Well, thank you very much for participating on the call with us
today. We appreciate your continued support of Audiovox. There's been some
tremendous changes, obviously, taking place here. We're facing, I think, a
positive future. We'll have many new opportunities now. We have a super strong
balance sheet, cash on hand, availabilities, many options to proceed further.
And I think we'll be in a very good position to continue growing the company and
to create additional shareholder value. Again, thank you very much for joining
us today. And look forward to speaking with all of you again in the very near
future. Thank you.
Operator: Ladies and gentlemen, we thank you for joining the Audiovox 2004
earnings release. This call is concluded and you may disconnect now. Good day.
Exhibit 99.4