UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended February 28, 1998
Commission file number 1-9532
AUDIOVOX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1964841
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Marcus Blvd., Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 231-7750
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Number of shares of each class of the registrant's Common Stock outstanding as
of the latest practicable date.
Class Outstanding at April 7, 1998
Class A Common Stock 17,258,573 Shares
Class B Common Stock 2,260,954 Shares
1
AUDIOVOX CORPORATION
I N D E X
Page
Number
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements:
Consolidated Balance Sheets at
February 28, 1998 (unaudited) and
November 30, 1997 3
Consolidated Statements of Income
for the Three Months Ended
February 28, 1998 and February 28, 1997
(unaudited) 4
Consolidated Statements of Cash Flows
for the Three Months Ended February 28, 1998
and February 28, 1997 (unaudited) 5
Notes to Consolidated Financial Statements 6-8
ITEM 2 Management's Discussion and Analysis of
Financial Operations and Results of
Operations 9-19
PART II OTHER INFORMATION
ITEM 6 Reports on Form 8-K 20
SIGNATURES 21
2
AUDIOVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
FEBRUARY 28, NOVEMBER 30,
1998 1997
--------- ---------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 5,427 $ 9,445
Accounts receivable, net 78,705 104,698
Inventory, net 125,809 105,242
Receivable from vendor 9,000 5,000
Prepaid expenses and other current assets 11,410 9,230
Deferred income taxes 5,147 4,673
Equity collar -- 1,246
--------- ---------
Total current assets 235,498 239,534
Investment securities 27,950 22,382
Equity investments 10,657 10,693
Property, plant and equipment, net 8,819 8,553
Excess cost over fair value of assets acquired and other intangible assets, net 5,529 5,557
Other assets 2,784 3,108
--------- ---------
$ 291,237 $ 289,827
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,566 $ 24,237
Accrued expenses and other current liabilities 13,508 16,538
Income taxes payable 5,156 9,435
Bank obligations 4,166 6,132
Documentary acceptances 4,809 3,914
--------- ---------
Total current liabilities 45,205 60,256
Bank obligations 33,800 24,300
Deferred income taxes 11,061 8,505
Long-term debt 6,231 6,191
--------- ---------
Total liabilities 96,297 99,252
--------- ---------
Minority interest 2,677 2,683
--------- ---------
Stockholders' equity:
Preferred stock 2,500 2,500
Common stock:
Class A; 30,000,000 authorized; 17,253,533 issued 173 173
Class B; 10,000,000 authorized; 2,260,954 issued 22 22
Paid-in capital 145,178 145,155
Retained earnings 34,565 32,924
Cumulative foreign currency translation and adjustment (3,961) (3,428)
Unrealized gain on marketable securities, net 15,646 12,967
Gain on hedge of available-for-sale securities 929 --
Treasury stock, 340,000 Class A common stock, at cost (2,789) (2,421)
--------- ---------
Total stockholders' equity 192,263 187,892
--------- ---------
Commitments and contingencies
Total liabilities and stockholders' equity $ 291,237 $ 289,827
========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
AUDIOVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1998 1997
------------ ------------
(UNAUDITED) (UNAUDITED)
Net sales $ 120,974 $ 166,614
Cost of sales 98,715 138,612
------------ ------------
Gross profit 22,259 28,022
------------ ------------
Operating expenses:
Selling 8,290 11,701
General and administrative 8,422 8,919
Warehousing, assembly and repair 3,012 2,866
------------ ------------
Total operating expenses 19,724 23,486
------------ ------------
Operating income 2,535 4,516
------------ ------------
Other income (expense):
Debt conversion expense -- (12,686)
Interest and bank charges (846) (916)
Equity in income of equity investments 406 146
Management fees and related income 7 47
Gain on sale of equity investment -- 23,779
Other, net 134 442
------------ ------------
Total other income (expense) (299) 10,812
------------ ------------
Income before provision for income taxes 2,236 15,328
Provision for income taxes 597 11,125
------------ ------------
Net income $ 1,639 $ 4,203
============ ============
Net income per common share (basic) $ 0.09 $ 0.24
============ ============
Net income per common share (diluted) $ 0.09 $ 0.23
============ ============
Weighted average number of common shares outstanding (basic) 19,192,431 17,666,945
============ ============
Weighted average number of common shares outstanding (diluted) 19,494,126 18,517,988
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
AUDIOVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED FEBRUARY 28, 1998 AND 1997
(IN THOUSANDS)
1998 1997
-------- --------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income $ 1,639 $ 4,203
Adjustment to reconcile net income to net cash (used in) provided by
operating activities:
Debt conversion expense -- 12,386
Depreciation and amortization 455 437
Recovery of bad debt (73) (16)
Equity in income of equity investment (329) (795)
Minority interest (111) 265
Gain on sale of equity investment -- (23,779)
Recovery of deferred income taxes, net (132) (2,433)
Provision for unearned compensation 48 69
Gain on disposal of property, plant and equipment, net (7) (3)
Change in:
Accounts receivable 25,504 26,745
Inventory (20,930) (3,400)
Accounts payable, accrued expenses and other current liabilities (9,308) (6,075)
Receivable from vendor (4,000) (10,876)
Income taxes payable (4,124) 10,818
Prepaid expenses and other, net (2,079) (4,196)
-------- --------
Net cash (used in) provided by operating activities (13,447) 3,350
-------- --------
Cash flows from investing activities:
Net proceeds from sale of equity collar 1,499 --
Purchases of property, plant and equipment, net (691) (1,103)
Net proceeds from sale of investment securities -- 30,182
Proceeds from distribution from equity investment 350 --
-------- --------
Net cash provided by investing activities 1,158 29,079
-------- --------
Cash flows from financing activities:
Net borrowings (repayments) under line of credit agreements 7,743 (29,089)
Net borrowings (repayments) under documentary acceptances 895 (836)
Debt issuance costs -- (13)
Repurchase of Class A Common Stock (369) --
-------- --------
Net cash provided by (used in) financing activities 8,269 (29,938)
-------- --------
Effect of exchange rate changes on cash 2 (22)
-------- --------
Net (decrease) increase in cash and cash equivalents (4,018) 2,469
Cash and cash equivalents at beginning of period 9,445 12,350
-------- --------
Cash and cash equivalents at end of period $ 5,427 $ 14,819
======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
AUDIOVOX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) The accompanying consolidated financial statements were prepared in
accordance with generally accepted accounting principles and include
all adjustments (which include only normal recurring adjustments)
which, in the opinion of management, are necessary to present fairly
the consolidated financial position of Audiovox Corporation and
subsidiaries (the Company) as of February 28, 1998 and November 30,
1997 and the results of operations and consolidated statements of cash
flows for the three-month periods ended February 28, 1998 and February
28, 1997. The interim figures are not necessarily indicative of the
results for the year.
Accounting policies adopted by the Company are identified in Note 1 of
the Notes to Consolidated Financial Statements included in the
Company's 1997 Annual Report filed on Form 10-K.
(2) The following is supplemental information relating to the consolidated
statements of cash flows:
Three Months Ended
-----------------------------
February 28, February 28,
1998 1997
Cash paid during the period:
Interest (excluding bank charges) $ 496 $1,701
Income taxes $3,973 $2,783
As of February 28, 1998, the Company recorded an unrealized holding
gain relating to available-for-sale marketable securities, net of
deferred taxes, of $15,646 as a separate component of stockholders'
equity.
During the first quarter of 1998, the Company sold its equity collar
for $1,499. The transaction resulted in a net gain on hedge of
available-for-sale securities of $929 which is reflected as a separate
component of stockholders' equity.
(3) In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 130, "Reporting Comprehensive Income", effective for
fiscal years beginning after December 15,
6
1997. This Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the
same prominence as other financial statements. This Statement further
requires that an entity display an amount representing total
comprehensive income for the period in that financial statement. This
Statement also requires that an entity classify items of other
comprehensive income by their nature in a financial statement. For
example, other comprehensive income may include foreign currency items
and unrealized gains and losses on investments in equity securities.
Reclassification of financial statements for earlier periods, provided
for comparative purposes, is required. Based on current accounting
standards, this Statement is not expected to have a material impact on
the Company's consolidated financial statements. The Company will adopt
this accounting standard effective December 1, 1998, as required.
In June 1997, the FASB issued Statement 131, "Disclosures about
Segments of an Enterprise and Related Information", effective for
fiscal years beginning after December 15, 1997. This Statement
establishes standards for reporting information about operating
segments in annual financial statements and requires selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. Operating segments are defined as components of an
enterprise about which separate financial information is available that
is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. This
Statement requires reporting segment profit or loss, ceratin specific
revenue and expense items and segment assets. It also requires
reconciliations of total segment revenues, total segment profit or
loss, total segment assets, and other amounts disclosed for segments to
corresponding amounts reported in the consolidated financial
statements. Restatement of comparative information for earlier periods
presented is required in the initial year of application. Interim
information is not required until the second year of application, at
which time comparative information is required. The Company has not
determined the impact that the adoption of this new accounting standard
will have on its consolidated financial statements disclosures. The
Company will adopt this accounting standard in fiscal 1999, as
required.
(4) During the second quarter of 1997, the Company's Board of Directors
approved the repurchase of 1,000,000 shares of the Company's Class A
Common Stock in the open market under a share repurchase program (the
Program). As of February 28, 1998, 340,000 shares were repurchased
under the Program at an average price of $8.20 per share for an
aggregate amount of $2,789.
(5) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of the contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
7
(6) In February 1997, the FASB issued Statement No. 128, "Earnings per Share"
(Statement 128). Statement 128 replaces the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Basic earnings per share excludes any dilution. It is based upon the
weighted average number of common shares outstanding during the period.
Diluted earnings per share reflects the potential dilution that would occur
if securities or other contracts to issue common stock were exercised or
converted into common stock. Earnings per share amounts for all periods
presented have been restated to conform to the new presentation. A
reconciliation between the numerators and denominators of the basic and
diluted earnings per common share is as follows:
1998 1997
----------- -----------
Net income (numerator for basic earnings per share) $ 1,639 $ 4,203
Interest on 6 1/4% convertible subordinated debentures,
net of tax 21 122
----------- -----------
Adjusted net income (numerator for diluted earnings per
share) $ 1,660 $ 4,325
=========== ===========
Weighted average common shares (denominator for basic
earnings per share) 19,192,431 17,666,945
Effect of dilutive securities:
6 1/4% convertible subordinated debentures 128,192 749,902
Employee stock options and stock warrants 106,706 36,803
Employee stock grants 66,797 64,338
----------- -----------
Weighted average common and potential common shares
outstanding (denominator for diluted earnings per share) 19,494,126 18,517,988
=========== ===========
Basic earnings per share $ 0.09 $ 0.24
=========== ===========
Diluted earnings per share $ 0.09 $ 0.23
=========== ===========
Employee stock options and stock warrants of 1,250,500 and 3,122,375 for the
quarter ended February 28, 1998 and 1997, respectively, were not included in
the net earnings per share calculation because their effect would have been
anti-dilutive.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company markets its products under its own brand as well as private
labels to a large and diverse distribution network both domestically and
internationally. The Company's products are distributed by two separate
marketing groups: Communications and Automotive. The Communications group
consists of Audiovox Communications Corp. (ACC) and the Quintex retail
operations (Quintex), both of which are wholly-owned subsidiaries of the
Company. The Communications group markets cellular telephone products and
receives activation commissions and residual fees from its retail sales. The
price at which the Company's retail outlets sell cellular telephones is often
affected by the activation commission the Company will receive in connection
with such sale. The activation commission paid by a cellular telephone carrier
is based upon various service plans and promotional marketing programs offered
by the particular cellular telephone carrier. The monthly residual fees are
based upon a percentage of customers' usage and are calculated based on the
amount of local air time fees collected from the base of customers activated by
the Company on a particular cellular carrier's system. The Automotive group
consists of Audiovox Automotive Electronics (AAE), a division of the Company,
Audiovox Communications (Malaysia) Sdn. Bhd., Audiovox Holdings (M) Sdn. Bhd.
and Audiovox Venezuela, C.A., which are majority-owned subsidiaries. Products in
the Automotive group include automotive sound and security equipment, car
accessories, home and portable sound products and mobile video. The Company
allocates interest and certain shared expenses to the marketing groups based
upon estimated usage. General expenses and other income items which are not
readily allocable are not included in the results of the various marketing
groups.
9
This Quarterly Report on Form 10-Q contains forward-looking statements
relating to such matters as anticipated financial performance and business
prospects. When used in this Quarterly Report, the words "anticipates,"
"expects," "may," "intend" and similar expressions are intended to be among the
statements that identify forward-looking statements. From time to time, the
Company may also publish forward-looking statements. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors, including, but not limited to, foreign currency
risks, political instability, changes in foreign laws, regulations and tariffs,
new technologies, competition, customer and vendor relationships, seasonality,
inventory obsolescence and inventory availability, could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements.
10
The following table sets forth for the periods indicated certain statements
of income data for the Company expressed as a percentage of net sales:
Percentage of Net Sales
Three Months Ended February 28,
--------------------------------
1998 1997
----- -----
Net sales:
Product sales:
Cellular wholesale 55.5% 64.5%
Cellular retail 0.7 1.5
Sound 15.2 11.8
Security and accessories 18.7 12.9
----- -----
90.1 90.7
Activation commissions 5.2 6.2
Residual fees 0.8 0.8
Other 3.8 2.3
----- -----
Total net sales 100.0 100.0
Cost of sales 81.6 83.2
----- -----
Gross profit 18.4 16.8
Selling 6.9 7.0
General and administrative expense 7.0 5.4
Warehousing, assembly and repair 2.5 1.7
----- -----
Total operating expenses 16.3 14.1
----- -----
Operating income 2.1 2.7
Debt conversion expense -- 7.6
Interest and bank charges 0.7 0.5
Equity in income of equity investments 0.3 0.1
Management fees and related income -- --
Gain on sale of equity investment -- 14.3
Other income 0.1 0.3
Provision for income taxes 0.5 6.7
----- -----
Net income 1.4% 2.5%
===== =====
RESULTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO THREE MONTHS ENDED FEBRUARY 28,
1997
CONSOLIDATED RESULTS
Net sales were $120,974 for 1998, a decrease of $45,640, or 27.4%, over
the same period last year. The decrease in net sales was partially offset by a
corresponding increase in gross profit
11
margins to 18.4% from 16.8% last year. Operating expenses decreased to $19,724
from $23,486, a 16.0% decrease. Operating income for 1998 was $2,535, a decrease
of $1,981 compared to last year.
The net sales and percentage of net sales by product line and marketing
group for the three months ended February 28, 1998 and February 28, 1997 are
reflected in the following table:
Three Months Ended
February 28,
----------------------------------------
1998 1997
------------------ ------------------
Net sales:
Communications
Cellular wholesale $ 67,110 55.5% $107,419 64.5%
Cellular retail 852 0.7 2,518 1.5
Activation commissions 6,347 5.2 10,377 6.2
Residual fees 998 0.8 1,315 0.8
Other 2,760 2.3 2,643 1.6
-------- ----- -------- -----
Total Communications 78,067 64.5 124,272 74.6
-------- ----- -------- -----
Automotive
Sound 18,428 15.2 19,628 11.8
Security and accessories 22,677 18.7 21,493 12.9
Other 1,802 1.5 961 0.6
-------- ----- -------- -----
Total Automotive 42,907 35.5 42,082 25.3
Other -- -- 260 0.2
-------- ----- -------- -----
Total $120,974 100.0% $166,614 100.0%
======== ===== ======== =====
COMMUNICATION RESULTS
The Communications group is composed of ACC and Quintex, both
wholly-owned subsidiaries of Audiovox Corporation. Since principally all of the
net sales of Quintex are cellular in nature, all operating results of Quintex
are being included in the discussion of the Communications group's product line.
12
Net sales were $78,067, a decrease of $46,205, or 37.2%, over the same
period last year. Unit sales of cellular telephones decreased 86,600 units, or
12.2%, from 1997. Average unit selling prices decreased approximately 27.7% to
$102 from $141 but were offset by a corresponding decrease of 23.3% in average
unit cost. The number of new cellular subscriptions processed by Quintex
decreased 36.8%, with an accompanying decrease in activation commissions of
approximately $4,030, or 38.8%. The average commission received by Quintex per
activation also decreased approximately 3.1% from last year. Unit gross profit
margins decreased to 9.2% from 14.0% last year. The Communications group may
experience lower gross profits in the future as the group completes the
transition from analog product to digital product. Operating expenses decreased
to $11,439 from $14,852. As a percentage of net sales, however, operating
expenses increased to 14.7% during 1998 compared to 12.0% in 1997. Selling
expenses decreased $3,345 from last year, primarily in advertising and
divisional marketing, partially offset by increases in trade show expenses.
General and administrative expenses decreased during 1998 by $309 from 1997,
primarily in office expenses and professional fees. Warehousing and assembly
expenses increased by $241 during 1998 over last year, primarily in direct labor
and field warehouse expenses. Pre-tax income for 1998 was $459, a decrease of
$3,301 compared to last year.
13
The following table sets forth for the periods indicated certain
statements of income data for the Communications group expressed as a percentage
of net sales:
COMMUNICATIONS
Three Months Ended
February 28,
1998 1997
-------------------- --------------------
Net sales:
Cellular product - wholesale $ 67,110 86.0% $ 107,419 86.4%
Cellular product - retail 852 1.1 2,518 2.0
Activation commissions 6,347 8.1 10,377 8.4
Residual fees 998 1.3 1,315 1.1
Other 2,760 3.5 2,643 2.1
-------- ------ --------- -----
Total net sales 78,067 100.0 124,272 100.0
Gross profit 13,199 16.9 19,701 15.9
Total operating expenses 11,439 14.7 14,852 12.0
-------- ------ --------- -----
Operating income 1,760 2.3 4,849 3.9
Other expense (1,301) (1.7) (1,089) (0.9)
-------- ------ --------- -----
Pre-tax income $ 459 0.6 $ 3,760 3.0%
======== ===== ========= =====
AUTOMOTIVE RESULTS
Net sales increased approximately $825 compared to last year, an increase
of 2.0%. Increases were experienced in the security and accessories product
lines and were partially offset by decreases in automotive sound product lines.
Automotive sound decreased 6.1% compared to last year, primarily due to
decreased sales in Prestige Audio and SPS product lines, partially offset by an
increase in AV and Private Label. Also during 1997, the Company contributed the
net assets of the Heavy Duty Sound division to a newly-formed 50%-owned joint
venture. Excluding this event, sound sales increased 8.3% during 1998 compared
to 1997. It is anticipated that the loss of this revenue will be realized from
the joint venture. Automotive security and accessories increased 5.5%
14
compared to last year, primarily due to increased sales in Prestige security,
Protector Hardgoods and Mobile Video, partially offset by decreases in net sales
of cruise controls and AA Security. Gross margins increased to 21.2% from 20.4%
last year. This increase was experienced in SPS, AV and Prestige Audio sound
products and Protector Hardgoods. Operating expenses increased to $6,756 from
$6,381. Selling expenses decreased from last year by $39, primarily in
international operations and the transfer of the Heavy Duty Sound division,
offset by increases in commission, advertising and trade shows. General and
administrative expenses increased over 1997 by $429, primarily in bad debt
expenses and office salaries in both the international and domestic operations.
Warehousing and assembly expenses decreased from 1997 by $15. Pre-tax income for
1998 was $1,379, an increase of $64 compared to last year.
The following table sets forth for the periods indicated certain statement
of income data for the Automotive group expressed as a percentage of net sales:
AUTOMOTIVE
Three Months Ended
February 28,
-------------------------------------------
1998 1997
-------------------- --------------------
Net sales:
Sound $ 18,428 42.9% $ 19,628 46.6%
Security and accessories 22,677 52.9 21,493 51.1
Other 1,802 4.2 961 2.3
-------- ------ --------- -----
Total net sales 42,907 100.0 42,082 100.0
Gross profit 9,099 21.2 8,571 20.4
Total operating expenses 6,756 15.7 6,381 15.2
-------- ------ --------- -----
Operating income 2,343 5.5 2,190 5.2
Other expense (964) (2.2) (875) (2.1)
-------- ------ --------- -----
Pre-tax income $ 1,379 3.2% $ 1,315 3.1%
======== ===== ======== =====
15
OTHER INCOME AND EXPENSE
Interest expense and bank charges decreased by $70 for the three months
ended February 28, 1998 compared to the same period last year, primarily due to
the decrease in interest bearing subordinated debentures which were exchanged
for shares of common stock during the first quarter of 1997. Equity in income of
equity investments and management fees and related income increased $220 for the
three months ended February 28, 1998 compared to the same periods last year. The
equity investment primarily responsible for the increase was ASA, accounting for
$155 of the increase compared to last year for the three months ended, partially
offset by a decline in Audiovox Pacific.
During the first quarter of 1997, the Company sold a total of 1,360,000
shares of CellStar for net proceeds of $30,182 and a net gain of $14,743.
PROVISION FOR INCOME TAXES
Income taxes are provided for at a blended federal and state rate of 40%
for profits from normal business operations. Over the last several months, the
Company has implemented various tax strategies which have resulted in lowering
the effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at February 28, 1998 decreased approximately
$4,018 from the November 30, 1997 level. Operating activities used approximately
$13,447, primarily from increases in cellular inventory, an advance to a
supplier for product to be delivered during the second quarter of 1998, and
decreases in accounts payable and accrued expenses, partially offset by
profitable operations and a decrease in accounts receivable. Investing
activities provided approximately $1,158, primarily from the sale of an equity
collar. Financing activities provided approximately $8,269,
16
primarily from the borrowings under line of credit agreements and documentary
acceptances.
On May 5, 1995, the Company entered into the Second Amended and Restated
Credit Agreement (the "Credit Agreement") which superseded the first amendment
in its entirety. During 1997 and 1996, the Credit Agreement was amended ten
times providing for various changes to the terms. The terms as of February 28,
1998 are summarized below. Under the Credit Agreement, the Company may obtain
credit through direct borrowings and letters of credit. The obligations of the
Company under the Credit Agreement continue to be guaranteed by certain of the
Company's subsidiaries and are secured by accounts receivable and inventory of
the Company and those subsidiaries. The obligations were secured at November 30,
1996 by a pledge agreement entered into by the Company for 2,125,000 shares of
CellStar Common Stock and 100 shares of ACC. Subsequent to November 30, 1996,
the shares of CellStar Common Stock were released from the Pledge Agreement.
Availability of credit under the Credit Agreement is a maximum aggregate amount
of $95,000, subject to certain conditions, and is based upon a formula taking
into account the amount and quality of its accounts receivable and inventory.
The Credit Agreement expires on February 28, 2000. The Credit Agreement contains
several covenants requiring, among other things, minimum levels of pre-tax
income and minimum levels of net worth and working capital as follows: pre-tax
income of $4,000 per annum; pre-tax income of $1,500 for the two consecutive
fiscal quarters ending May 31, 1997, 1998 and 1999; pre-tax income of $2,500 for
the two consecutive fiscal quarters ending November 30, 1997, 1998 and 1999; the
Company cannot have pre-tax losses of more than $1,000 in any quarter; and the
Company cannot have pre-tax losses in any two consecutive quarters. In addition,
the Company must maintain a minimum level of total net worth of $170,000. The
17
Company must maintain a minimum working capital of $125,000. The Credit
Agreement provides for adjustments to the covenants in the event of certain
specified non-operating transactions. Additionally, the agreement includes
restrictions and limitations on payments of dividends, stock repurchases and
capital expenditures.
The Company believes that it has sufficient liquidity to satisfy its
anticipated working capital and capital expenditure needs through November 30,
1998 and for the reasonable foreseeable future.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income", effective for fiscal years beginning after December 15, 1997. This
Statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This Statement further requires that an entity display an
amount representing total comprehensive income for the period in that financial
statement. This Statement also requires that an entity classify items of other
comprehensive income by their nature in a financial statement. For example,
other comprehensive income may include foreign currency items and unrealized
gains and losses on investments in equity securities. Reclassification of
financial statements for earlier periods, provided for comparative purposes, is
required. Based on current accounting standards, this Statement is not expected
to have a material impact on the Company's consolidated financial statements.
The Company will adopt this accounting standard effective December 1, 1998, as
required.
In June 1997, the FASB issued Statement 131, "Disclosures about Segments of
an Enterprise and Related Information", effective for fiscal years beginning
after December 15, 1997. This
18
Statement establishes standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. This Statement
requires reporting segment profit or loss, certain specific revenue and expense
items and segment assets. It also requires reconciliations of total segment
revenues, total segment profit or loss, total segment assets, and other amounts
disclosed for segments to corresponding amounts reported in the consolidated
financial statements. Restatement of comparative information for earlier periods
presented is required in the initial year of application. Interim information is
not required until the second year of application, at which time comparative
information is required. The Company has not determined the impact that the
adoption of this new accounting standard will have on its consolidated financial
statements disclosures. The Company will adopt this accounting standard in
fiscal 1999, as required.
19
PART II - OTHER INFORMATION
Item 6. Reports on Form 8-K
No reports were filed on Form 8-K during the first quarter.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AUDIOVOX CORPORATION
By:s/John J. Shalam
John J. Shalam
President and Chief
Executive Officer
Dated: April 14, 1998
By:s/Charles M. Stoehr
Charles M. Stoehr
Senior Vice President and
Chief Financial Officer
21
5
0000807707
Audiovox Corp.
1000
3-MOS
Nov-30-1998
Feb-28-1998
5427
0
88721
10016
125809
235498
29393
20574
291237
45205
6231
0
2500
195
189568
291237
113629
120974
95077
98715
0
(73)
846
2236
597
1639
0
0
0
1639
0.09
0.09
