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 August 31, 2001 -------------------------------------------- Commission file number 0-28839 ----------------------------------------------------- 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 (631) 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 October 8, 2001 --------------------------------------------------------------------- Class A Common Stock 20,621,338 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 November 30, 2000 and August 31, 2001 (unaudited) 3 Consolidated Statements of Operations for the Three and Nine Months Ended August 31, 2000 and August 31, 2001 (unaudited) 4 Consolidated Statements of Cash Flows for the Nine Months Ended August 31, 2000 and August 31, 2001 (unaudited) 5 Notes to Consolidated Financial Statements 6-13 ITEM 2 Management's Discussion and Analysis of Financial Operations and Results of Operations 14-32 PART II OTHER INFORMATION ITEM 6 Exhibits and Reports on Form 8-K 33 SIGNATURES 34 2
<TABLE> AUDIOVOX CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share data) November 30, August 31, 2000 2001 ------ ----- (unaudited) <S> <C> <C> Assets Current assets: Cash and cash equivalents $ 6,431 $ 3,824 Accounts receivable, net 279,402 187,114 Inventory, net 140,065 228,357 Receivable from vendor 5,566 2,935 Prepaid expenses and other current assets 6,830 7,666 Deferred income taxes, net 12,244 12,774 --------- --------- Total current assets 450,538 442,670 Investment securities 5,484 7,132 Equity investments 11,418 13,253 Property, plant and equipment, net 27,996 26,444 Excess cost over fair value of assets acquired and other intangible assets, net 5,098 4,831 Other assets 2,325 1,438 --------- --------- $ 502,859 $ 495,768 ========= ========= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 61,060 $ 23,094 Accrued expenses and other current liabilities 62,569 46,394 Income taxes payable 6,274 917 Bank obligations 8,104 5,973 Notes payable 5,868 5,395 Current installment of long-term debt 486 -- --------- --------- Total current liabilities 144,361 81,773 Bank obligations 15,000 73,275 Deferred income taxes, net 972 1,873 Capital lease obligation 6,260 6,239 Deferred compensation 2,208 3,922 --------- --------- Total liabilities 168,801 167,082 --------- --------- Minority interest 3,555 2,028 --------- --------- Stockholders' equity: Preferred stock, liquidation preference of $2,500 2,500 2,500 Common stock: Class A; 60,000,000 authorized; 20,291,046 and 20,615,894 issued at November 30, 2000 and August 31, 2001, respectively, 19,528,554 and 19,705,507 outstanding at November 30, 2000 and August 31, 2001, respectively 204 207 Class B convertible; 10,000,000 authorized; 2,260,954 issued and outstanding 22 22 Paid-in capital 248,468 250,784 Retained earnings 90,371 85,677 Accumulated other comprehensive loss (5,058) (5,145) Treasury stock, at cost, 762,492 and 910,387 Class A common stock at November 30, 2000 and August 31, 2001, respectively (6,004) (7,387) --------- --------- Total stockholders' equity 330,503 326,658 --------- --------- Commitments and contingencies Total liabilities and stockholders' equity $ 502,859 $ 495,768 ========= ========= </TABLE> See accompanying notes to consolidated financial statements. 3
AUDIOVOX CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations For the Three and Nine Months Ended August 31, 2000 and August 31, 2001 (In thousands, except share and per share data) (unaudited) <TABLE> Three Months Ended Nine Months Ended August 31, August 31, August 31, August 31, 2000 2001 2000 2001 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net sales $ 470,334 $ 313,897 $ 1,192,124 $ 920,776 Cost of sales 427,587 282,384 1,077,377 848,880 ------------ ------------ ------------ ------------ Gross profit 42,747 31,513 114,747 71,896 ------------ ------------ ------------ ------------ Operating expenses: Selling 10,363 10,561 31,673 27,525 General and administrative 11,806 12,261 34,350 33,971 Warehousing and assembly 5,520 5,895 15,574 17,197 ------------ ------------ ------------ ------------ Total operating expenses 27,689 28,717 81,597 78,693 ------------ ------------ ------------ ------------ Operating income (loss) 15,058 2,796 33,150 (6,797) ------------ ------------ ------------ ------------ Other income (expense): Interest and bank charges (1,060) (1,813) (5,366) (4,273) Equity in income of equity investments 474 601 2,253 3,162 Gain on sale of investments 541 -- 2,814 -- Gain on hedge of available-for-sale securities 749 -- 1,499 -- Other, net (335) 40 920 643 ------------ ------------ ------------ Total other income (expense), net 369 (1,172) 2,120 (468) ------------ ------------ ------------ ------------ Income (loss) before provision for (recovery of) income taxes 15,427 1,624 35,270 (7,265) Provision for (recovery of) income taxes 5,471 618 13,103 (2,573) ------------ ------------ ------------ ------------ Net income (loss) $ 9,956 $ 1,006 $ 22,167 $ (4,692) ============ ============ ============ ============ Net income (loss) per common share (basic) $ 0.45 $ 0.05 $ 1.04 $ (0.21) ============ ============ ============ ============ Net income (loss) per common share (diluted) $ 0.44 $ 0.05 $ 0.98 $ (0.21) ============ ============ ============ ============ Weighted average number of common shares outstanding (basic) 21,885,232 21,966,461 21,224,604 21,847,312 ============ ============ ============ ============ Weighted average number of common shares outstanding (diluted) 22,883,444 22,170,039 22,614,472 21,847,312 ============ ============ ============ ============ </TABLE> See accompanying notes to consolidated financial statements. 4
AUDIOVOX CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Nine Months Ended August 31, 2000 and August 31, 2001 (In thousands) (unaudited) <TABLE> August 31, August 31, 2000 2001 ------------------ ----------- <S> <C> <C> Cash flows from operating activities: Net income (loss) $ 22,167 $ (4,692) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Gain on hedge of available-for-sale securities (1,499) -- Depreciation and amortization 2,860 3,229 Provision for bad debt expense 1,443 1,115 Equity in income of equity investments (2,252) (3,162) Minority interest 809 (493) Gain on sale of investments (2,387) -- Gain from the sale of shares of equity investment (427) -- Deferred income tax (expense) benefit (2,106) 349 Gain on disposal of property, plant and equipment, net (6) (1) Income tax benefits on exercise of stock options (1,251) -- Changes in: Accounts receivable 24,217 90,990 Receivable from vendor 1,833 2,631 Inventory (13,626) (88,568) Accounts payable, accrued expenses and other current liabilities 31,425 (53,601) Income taxes payable (721) (5,360) Deferred compensation -- 1,713 Investment securities - trading (2,373) (1,713) Prepaid expenses and other, net 2,524 (65) --------- --------- Net cash provided by (used in) operating activities 60,630 (57,628) --------- --------- Cash flows from investing activities: Purchases of property, plant and equipment, net (10,128) (1,945) Net proceeds from sale of investment securities 13,227 -- Proceeds from distribution from equity investment 1,139 1,289 Proceeds from transfer of shares from equity investment 922 -- --------- --------- Net cash provided by (used in) investing activities 5,160 (656) --------- --------- Cash flows from financing activities: Net (repayments) borrowings of bank obligations (111,223) 56,295 Payment of dividend to minority shareholder of subsidiary (859) (1,034) Net repayments under documentary acceptances (1,994) -- Principal payments on capital lease obligation (14) (21) Proceeds from exercise of stock options and warrants 734 2,320 Repurchase of Class A common stock -- (1,382) Net proceeds from sale of common stock 96,573 -- Issuance of notes payable 6,068 -- Principal payments on subordinated debentures -- (486) --------- --------- Net cash (used in) provided by financing activities (10,715) 55,692 --------- --------- Effect of exchange rate changes on cash (16) (15) --------- --------- Net increase (decrease) in cash 55,059 (2,607) Cash at beginning of period 5,527 6,431 --------- --------- Cash and cash equivalents at end of period $ 60,586 $ 3,824 ========= ========= </TABLE> See accompanying notes to consolidated financial statements. 5
AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Three and Nine Months Ended August 31, 2000 and August 31, 2001 (Dollars in thousands, except share and per share data) (1) Basis of Presentation 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 November 30, 2000 and August 31, 2001, the consolidated statements of operations for the three and nine month periods ended August 31, 2000 and August 31, 2001, and the consolidated statements of cash flows for the nine month periods ended August 31, 2000 and August 31, 2001. 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 2000 Annual Report filed on Form 10-K. Certain reclassifications have been made to the 2000 consolidated financial statements in order to conform to the 2001 presentation. (2) Supplemental Cash Flow Information The following is supplemental information relating to the consolidated statements of cash flows: Nine Months Ended August 31, August 31, 2000 2001 ------ ----- Cash paid during the period: Interest (excluding bank charges) $ 4,417 $ 3,054 Income taxes (net of refunds) $15,380 $ 2,436 During the nine months ended August 31, 2000 and August 31, 2001, the Company recorded a net unrealized holding (loss) gain relating to available-for-sale marketable securities, net of deferred taxes, of $(7,533) and $(30), respectively, as a component of accumulated other comprehensive loss. 6
AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued During the quarter ended May 31, 2001, 314,800 warrants were exercised and converted into 314,800 shares of common stock. During 1997, the Company's Board of Directors approved the repurchase of up to 1,000,000 shares of the Company's Class A Common Stock. In 1999, the Company's Board of Directors approved an increase to the repurchase program to 1,563,000 shares of the Company's Class A common stock. During the nine months ended August 31, 2001, 147,895 shares were repurchased for an aggregate amount of $1,382. (3) Net Income (Loss) Per Common Share A reconciliation between the numerators and denominators of the basic and diluted income (loss) per common share is as follows: <TABLE> Three Months Ended Nine Months Ended August 31, August 31, August 31, August 31, 2000 2001 2000 2001 ------ ------ ------ ----- <S> <C> <C> <C> <C> Net income (loss) (numerator for basic income per share) $ 9,956 $ 1,006 $ 22,167 $ (4,692) Interest on 6 1/4% convertible subordinated 4 ------------ ------------ debentures, net of tax 7 -- 2 5 ------------ ------------ ------------ Adjusted net income (loss) (numerator for diluted income per share) $ 9,963 $ 1,006 $ 22,191 $ (4,687) ============ ============ ============ ============ Weighted average common shares (denominator for basic income per share) 21,885,232 21,966,461 21,224,604 21,847,312 Effect of dilutive securities: 6 1/4% convertible subordinated debentures 42,147 -- 47,307 -- Employee stock options and stock warrants 953,075 203,578 1,335,695 -- Employee stock grants 2,990 -- 6,866 -- ------------ ------------ ------------ Weighted average common and potential common shares outstanding (denominator for diluted income per share) 22,883,444 22,170,039 22,614,472 21,847,312 ============ ============ ============ ============ Basic income (loss) per share $ 0.45 $ 0.05 $ 1.04 $ (0.21) ============ ============ ============ ============ Diluted income (loss) per share $ 0.44 $ 0.05 $ 0.98 $ (0.21) ============ ============ ============ ============ </TABLE>
7 AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued There were no anti-dilutive stock options or stock warrants for the three and nine months ended August 31, 2000. Stock options and warrants totaling 1,599,200 and 1,984,568 for the three and nine months ended August 31, 2001, respectively, were not included in the net loss per common share calculation because their effect would have been anti-dilutive. (4) Comprehensive Income (Loss) --------------------------- The accumulated other comprehensive loss of $5,058 and $5,145 at November 30, 2000 and August 31, 2001, respectively, on the accompanying consolidated balance sheets is the net accumulated unrealized loss on the Company's available-for-sale investment securities of $190 and $220 at November 30, 2000 and August 31, 2001, respectively, and the accumulated foreign currency translation adjustment of $(4,868) and $(4,925) at November 30, 2000 and August 31, 2001, respectively. The Company's total comprehensive income (loss) was as follows: <TABLE> Three Months Nine Months Ended Ended August 31, August 31, 2000 2001 2000 2001 ------ ------ ------ ----- <S> <C> <C> <C> <C> Net income (loss) $ 9,956 $ 1,006 $ 22,167 $ (4,692) -------- -------- -------- -------- Other comprehensive income (loss): Foreign currency translation adjustments 3 (108) 460 (57) Unrealized gain (loss) on securities: Unrealized holding gain (loss) arising during period, net of tax 1,314 (450) (5,788) (30) Less: reclassification adjustment for gains realized in net income, net of tax (335) -- (1,745) -- -------- -------- -------- -------- Net unrealized gain (loss) 979 (450) (7,533) (30) -------- -------- -------- -------- Other comprehensive gain (loss), net of tax 982 (558) (7,073) (87) -------- -------- -------- -------- Total comprehensive income (loss) $ 10,938 $ 448 $ 15,094 $ (4,779) ======== ======== ======== ======== </TABLE> 8
AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The change in the net unrealized gain (loss) arising during the periods presented above are net of tax (expense) benefit of $600 and $(276) for the three months ended August 31, 2000 and August 31, 2001, respectively, and $(745) and $(18) for the nine months ended August 31, 2000 and August 31, 2001, respectively. The reclassification adjustment presented above is net of tax expense of $206 for the three months ended August 31, 2000 and $1,069 for the nine months ended August 31, 2000. There was no reclassification adjustment for the three and nine months ended August 31, 2001. (5) Segment Information The Company has two reportable segments which are organized by products: Wireless and Electronics. The Wireless segment markets wireless handsets and accessories through domestic and international wireless carriers and their agents, independent distributors and retailers. The Electronics segment sells autosound, mobile electronics and consumer electronics, primarily to mass merchants, power retailers, specialty retailers, new car dealers, original equipment manufacturers (OEM), independent installers of automotive accessories and the U.S. military. The Company evaluates performance of the segments based upon income before provision for income taxes. The accounting policies of the segments are the same as those for the Company as a whole. The Company allocates interest and certain shared expenses, including treasury, legal and human resources, to the segments based upon estimated usage. Intersegment sales are reflected at cost and have been eliminated in consolidation. A royalty fee on the intersegment sales, which is eliminated in consolidation, is recorded by the segments and included in other income (expense). Certain items are maintained at the Company's corporate headquarters (Corporate) and are not allocated to the segments. 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 the Company's management information systems, which are used by the Wireless and Electronics segments 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. During the nine months ended August 31, 2000 and August 31, 2001, certain advertising costs were not allocated to the segments. These costs pertained to an advertising campaign that was intended to promote overall Company awareness, rather than individual segment products. 9
AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Segment identifiable assets are those which are directly used in or identified to segment operations. <TABLE> Elimin- Consolidated Wireless Electronics Corporate ations Totals <S> <C> <C> <C> Three Months Ended August 31, 2000 Net sales $ 403,723 $ 66,611 -- -- $ 470,334 Intersegment sales (purchases) 20 (20) -- -- -- Pre-tax income (loss) 14,077 3,527 $ (2,177) -- 15,427 Three Months Ended August 31, 2001 Net sales $ 241,945 $ 71,952 -- -- $ 313,897 Intersegment sales (purchases) (141) 141 -- -- -- Pre-tax income (loss) 1,032 3,393 $ (2,801) -- 1,624 Nine Months Ended August 31, 2000 Net sales $ 992,410 $ 199,714 -- -- $ 1,192,124 Intersegment sales (purchases) (2,085) 2,085 -- -- -- Pre-tax income (loss) 26,886 10,559 $ (2,175) -- 35,270 Total assets 276,316 104,890 284,156 $ (160,080) 505,282 Nine Months Ended August 31, 2001 Net sales $ 707,744 $ 213,032 -- -- $ 920,776 Intersegment sales (purchases) (354) 354 -- -- -- Pre-tax income (loss) (11,413) 8,900 $ (4,752) -- (7,265) Total assets 315,607 118,738 285,365 $ (223,942) 495,768 </TABLE> (6) Audiovox Communications Corp. Dividend In February 2000 and 2001, the Board of Directors of Audiovox Communications Corp. (ACC), declared a dividend payable to its shareholders, Audiovox Corporation, a 95% shareholder, and Toshiba Corporation (Toshiba), a 5% shareholder for their respective share 10
AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued of net income for the previous fiscal years. ACC paid Toshiba its share of the dividend, which approximated $859 and $1,034 in the second quarter of 2000 and the first quarter of 2001, respectively. (7) Accounting for Derivative Instruments and Hedging Activities On December 1, 2000, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which, as amended, is effective for fiscal years beginning after June 15, 2000. The Company uses derivative instruments primarily to manage exposures related to foreign currency denominated receivables and payables. To accomplish this, the Company uses certain contracts, primarily foreign currency forward contracts, which minimize cash flow risks from changes in foreign currency exchange rates. Implementation of SFAS No. 133 did not have an impact on the Company's financial positions, results of operations or liquidity. As of August 31, 2001, the Company did not have any derivative instruments. (8) Product Return During the quarter ended February 28, 2001, Wireless refunded approximately $21,000 to a customer, who is a wireless carrier, for the return of approximately 97,000 tri-mode phones. During January 2001, Wireless also purchased 93,600 of the same model of tri-mode phone for a cost of $12.4 million. As a result of changes in the marketplace for wireless products, the selling price of the phones has been reduced below the original cost. The Company did not record a write-down on these phones as they expected to receive a full refund or partial credit from the manufacturer of the phones during the second quarter. In April 2001, the Company received a credit from the manufacturer of $12.4 million. The credit was applied against the carrying value of the phones on hand which approximated 190,600 phones, which are appropriately recorded at the lower of cost or market. (9) Inventory Write-Down . During the quarter ended May 31, 2001, the Company recorded a charge of $13.5 million to write-down its remaining inventory of analog mobile telephones which approximated 300,000 units. The write-down was recorded in response to market conditions at the time and a surplus of supply that other manufacturers were trying to reduce through decreased prices. During the third quarter of 2001, the Company was able to recover higher than anticipated 11
AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued values on our previously written-down analog inventory. (10) Stock Warrants During the quarter ended May 31, 2001, 314,800 of the Company's remaining 344,800 stock warrants were exercised and converted into 314,800 shares of common stock. The remaining 30,000 warrants expired during the quarter. (11) Bond Repayment During the quarter ended May 31, 2001, the Company paid $486 to the remaining holders of the Company's subordinated convertible debentures. There are no remaining debentures as of August 31, 2001. (12) Sales/Leaseback Transaction During the quarter ended May 31, 2000, the Company incorporated AX Japan, Inc. (AX Japan), a wholly-owned subsidiary, with 60,000,000 Yen (approximately $564). In April 2000, AX Japan purchased land and a building (herein referred to as the Property) from Shintom Co., Ltd. (Shintom) for 770,000,000 Yen (approximately $7,300) and entered into a leaseback agreement whereby Shintom has leased the Property from AX Japan for a one- year period. This lease is being accounted for as an operating lease by AX Japan. Shintom is a stockholder who owns all of the outstanding preferred stock of the Company and is a manufacturer of products purchased by the Company through its former equity investment, TALK Corporation. The Company currently holds stock in Shintom and has previously invested in Shintom convertible debentures. Upon the expiration of six months after the transfer of the title to the Property to AX Japan, Shintom had the option to repurchase the Property or purchase all of the shares of stock of AX Japan. These options could be extended for one additional six-month period. In May, 2001, upon the expiration of the additional six-month period, the Company and Shintom agreed to extend the lease for an additional one-year period. In addition, Shintom was again given the option to purchase the Property or shares of stock of AX Japan after the expiration of a six-month period or extend the option for one additional six-month period. AX Japan was also given the option to delay the repayment of the loans for an additional six months if Shintom extended its option for an additional six months. 12
AUDIOVOX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (13) Debt Convenants The Company maintains a revolving credit agreement with various financial institutions. The credit agreement contains several convenants requiring, among other things, minimum levels of pre-tax income and minimum levels of net worth and working capital. Additionally, the agreement includes restrictions and limitations on payments of dividends, stock repurchases and capital expenditures. During the quarter ended May 31, 2001, the Company was not in compliance with its pre-tax income covenant as a result of the analog inventory write-down and obtained a waiver for the quarter ended May 31, 2001. (14) Market Development Program In connection with the decline in the analog market, a market development program was terminated which resulted in a reversal of approximately $3.0 million of accrued market development funds for the nine months ended August 31, 2001. 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company markets its products under the Audiovox brand as well as private labels through a large and diverse distribution network both domestically and internationally. The Company operates through two marketing groups: Wireless and Electronics. Wireless consists of Audiovox Communications Corp. (ACC), a 95%-owned subsidiary of Audiovox, and 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 to carriers overseas. Quintex is a small operation for the direct sale of handsets, accessories and wireless telephone service. The Electronics Group consists of two wholly-owned subsidiaries, Audiovox Electronics Corp. (AEC) and American Radio Corp., and three majority-owned subsidiaries, Audiovox Communications (Malaysia) Sdn. Bhd., Audiovox Holdings (M) Sdn. Bhd. and Audiovox Venezuela, C.A. The Electronics Group markets automotive sound and security systems, electronic car accessories, home and portable sound products, FRS radios, in-vehicle video systems, flat-screen televisions, DVD players and navigation systems. Sales are made through an extensive distribution network of mass merchandisers, power retailers and others. In addition, the Company sells some of its products directly to automobile manufacturers on an OEM basis. 14
RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain statements of operations data for the Company expressed as a percentage of net sales: <TABLE> Percentage of Net Sales Three Months Ended Nine Months Ended August 31, August 31, 2000 2001 2000 2001 ------------- ----- --------- --------- <S> <C> <C> <C> <C> Net sales: Wireless Wireless products 84.1% 74.7% 81.1% 74.4% Activation commissions 1.6 2.0 1.8 2.2 Residual fees 0.1 0.3 0.1 0.2 Other -- 0.1 0.2 0.1 ----- ----- ----- ----- Total Wireless 85.8 77.1 83.2 76.9 ----- ----- ----- ----- Mobile electronics 7.6 13.1 8.8 12.2 Consumer electronics 2.5 3.9 2.5 5.6 Sound 3.9 5.7 5.1 5.2 Other 0.2 0.2 0.4 0.1 ----- ----- ----- ----- Total Electronics 14.2 22.9 16.8 23.1 ----- ----- ----- ----- Total net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 90.9 90.0 90.4 92.2 ----- ----- ----- ----- Gross profit 9.1 10.0 9.6 7.8 Selling 2.2 3.3 2.7 3.0 General and administrative 2.5 3.9 2.8 3.7 Warehousing and assembly 1.2 1.9 1.3 1.8 ----- ----- ----- ----- Total operating expenses 5.9 9.1 6.8 8.5 ----- ----- ----- ----- Operating income (loss) 3.2 0.9 2.8 (0.7) Interest and bank charges (0.2) (0.6) (0.4) (0.5) Equity in income in equity investments 0.1 0.2 0.2 0.3 Gain on sale of investments -- -- 0.2 -- Gain on hedge of available-for-sale securities 0.2 -- 0.1 -- Other, net -- -- 0.1 0.1 ----- ----- ---- ----- Income (loss) before provision for (recovery of) income taxes 3.3 0.5 3.0 (0.8) Provision for (recovery of) income taxes 1.2 0.2 1.1 (0.3) ----- ----- ----- ----- Net income (loss) 2.1% 0.3% 1.9% (0.5)% ===== ===== ===== ===== </TABLE> 15
Consolidated Results Three months ended August 31, 2000 compared to three months ended August 31, 2001 The net sales and percentage of net sales by marketing group and product line for the three months ended August 31, 2000 and August 31, 2001 are reflected in the following table: <TABLE> Three Months Ended August 31, 2000 August 31, 2001 --------------- --------------- <S> <C> <C> <C> <C> Net sales: Wireless Wireless products $395,346 84.1% $234,576 74.7% Activation commissions 7,827 1.6 6,230 2.0 Residual fees 550 0.1 954 0.3 Other -- -- 185 0.1 -------- ----- -------- ----- Total Wireless 403,723 85.8 241,945 77.1 -------- ----- -------- ----- Electronics Mobile electronics 35,534 7.6 41,242 13.1 Consumer electronics 11,692 2.5 12,344 3.9 Sound 18,319 3.9 17,867 5.7 Other 1,066 0.2 499 0.2 -------- ----- -------- ----- Total Electronics 66,611 14.2 71,952 22.9 -------- ----- -------- ----- Total $470,334 100.0% $313,897 100.0% ======== ===== ======== ===== </TABLE> Net sales for the third quarter of 2001 were $313,897, a decrease of $156,437, or 33.3%, from 2000. The decrease in net sales was in the Wireless Group which was slightly offset by an increase in the Electronics Group. Sales from our international subsidiaries increased from 2000 by approximately $699 or 10.0%. Gross margins were 10.0% in 2001 compared to 9.1% in 2000. The increase in gross margins was primarily due to a change in the overall mix of sales, from wireless products to electronics products, which have a higher gross margin. Individually, both divisions experienced lower gross margins in 2001 than 2000, 6.6% vs. 7.0% in Wireless and 21.6% vs. 22.0% in Electronics. In addition, we were able to recover higher than anticipated values on our previously 16
written-down analog inventory. Operating expenses increased to $28,717 from $27,689, respectively, a 3.7% increase. As a percentage of sales, operating expenses increased to 9.1% in 2001 from 5.9% in 2000. Operating income for 2001 was $2,796 compared to operating income of $15,058 in 2000. Nine months ended August 31, 2000 compared to nine months ended August 31, 2001 The net sales and percentage of net sales by marketing group and product line for the nine months ended August 31, 2000 and August 31, 2001 are reflected in the following table: <TABLE> Nine Months Ended August 31, 2000 August 31, 2001 --------------- --------------- <S> <C> <C> <C> <C> Net sales: Wireless Wireless products $ 966,704 81.1% $ 685,070 74.4% Activation commissions 21,566 1.8 20,347 2.2 Residual fees 1,307 0.1 1,855 0.2 Other 2,833 0.2 472 0.1 ---------- ----- ---------- ----- Total Wireless 992,410 83.2 707,744 76.9 ---------- ----- ---------- ----- Electronics Mobile electronics 105,466 8.8 112,215 12.2 Consumer electronics 30,280 2.5 51,179 5.6 Sound 60,830 5.1 47,870 5.2 Other 3,138 0.4 1,768 0.1 ---------- ----- ---------- ----- Total Electronics 199,714 16.8 213,032 23.1 ---------- ----- ---------- ----- Total $1,192,124 100.0% $ 920,776 100.0% ========== ===== ========== ===== </TABLE> Net sales for the first nine months of 2001 were $920,776, a decrease of $271,348, or 22.8%, from 2000. The decrease in net sales was in the Wireless Group which was slightly offset by an increase in the Electronics Group. Sales from our international subsidiaries increased from 2000 by approximately 1.8%. Gross margins were 7.8% in 2001 compared to 9.6% in 2000. The decrease 17
in gross margins was primarily due to $13.9 million of charges, which includes both realized losses and a $13.5 million write-down during the second quarter relating to the Company's exit from the analog market, with the exception of fixed-based cellular. This was partially offset as we were able to recover higher than anticipated values on the previously written-down analog inventory. Operating expenses decreased to $78,693 from $81,597, a 3.6% decrease. As a percentage of sales, operating expenses increased to 8.5% in 2001 from 6.8% in 2000. Operating loss for 2001 was $(6,797) compared to operating income of $33,150 in 2000. Wireless Results Three months ended August 31, 2000 compared to three months ended August 31, 2001 The following table sets forth for the periods indicated certain statements of operations data for the Wireless Group as expressed as a percentage of net sales: <TABLE> Three Months Ended August 31, 2000 August 31, 2001 --------------- --------------- <S> <C> <C> <C> <C> Net sales: Wireless products $ 395,346 97.9% $ 234,576 97.0% Activation commissions 7,827 1.9 6,230 2.6 Residual fees 550 0.2 954 0.3 Other -- -- 185 0.1 --------- ----- --------- ----- 403,723 100.0% 241,945 100.0% Gross profit 28,078 7.0 15,965 6.6 Total operating expenses 12,811 3.2 12,417 5.1 --------- ----- --------- ----- Operating income 15,267 3.8 3,548 1.5 Other expense (1,190) (0.3) (2,516) (1.0) --------- ----- --------- ----- Pre-tax income $ 14,077 3.5% $ 1,032 0.5% ========= ===== ========= ===== </TABLE> 18
Net sales were $241,945 in the third quarter of 2001, a decrease of $161,778, or 40.0%, from last year. Unit sales of wireless handsets decreased by 339,000 units in 2001, or 13.7%, to approximately 2,132,000 units from 2,471,000 units in 2000. This decrease was primarily due to decreased sales of both analog and digital handsets which was due to delayed digital product acceptances by our customers and a decrease in tri-mode phone sales. The average selling price of handsets decreased to $105 per unit in 2001 from $154 per unit in 2000. This decrease was primarily due to the close out of approximately 300,000 analog handheld phones. We also sold additional TDMA product at lower average selling prices. The number of new wireless subscriptions processed by Quintex decreased 6.7% in 2001, with a corresponding decrease in activation commissions of approximately $1,889 in 2001. The average commission received by Quintex per activation decreased 17.8% from 2000. Gross profit margins decreased to 6.6% in 2001 from 7.0% in 2000, primarily due to lower average selling prices, partially offset by having a better than anticipated recovery on sales of analog product that was written down during the second quarter. Gross profit margins also decreased due to both delayed introductions and fewer new high-priced models, strong competition in the marketplace and closeout of older models. This also reflects the competitive nature of the wireless marketplace and pricing pressures associated with supporting various wireless carrier programs. Operating expenses decreased to $12,417 from $12,811. Selling expenses decreased from last year, primarily in divisional marketing. The decrease was partially offset by increases in commissions, salesmen's salaries, and travel. General and administrative expenses decreased from 2000, primarily in bad debt expense and employee benefits. Warehousing and assembly expenses decreased during 2001 from last year, primarily in tooling expenses, partially offset by an increase in temporary personnel. Operating income for 2001 was $3,548 compared to last 19
year's $15,267. Nine months ended August 31, 2000 compared to nine months ended August 31, 2001 The following table sets forth for the periods indicated certain statements of operations data for the Wireless Group as expressed as a percentage of net sales: <TABLE> Nine Months Ended August 31, 2000 August 31, 2001 --------------- --------------- <S> <C> <C> <C> <C> Net sales: Wireless products $ 966,704 97.4% $ 685,070 96.8% Activation commissions 21,566 2.2 20,347 2.8 Residual fees 1,307 0.1 1,855 0.3 Other 2,833 0.3 472 0.1 --------- ----- --------- ----- 992,410 100.0% 707,744 100.0% Gross profit 71,388 7.2 27,650 3.9 Total operating expenses 38,238 3.9 33,779 4.8 --------- ----- --------- ----- Operating income (loss) 33,150 3.3 (6,129) (0.9) Other expense (6,264) (0.6) (5,284) (0.7) --------- ----- --------- ----- Pre-tax income (loss) $ 26,886 2.7% $ (11,413) (1.6)% ========= ===== ========= ===== </TABLE> Net sales were $707,744 for the nine months ended August 31, 2001, a decrease of $284,666, or 28.7%, from last year. Unit sales of wireless handsets decreased by 957,000 units in 2001, or 15.4%, to approximately 5,266,000 units from 6,223,000 units in 2000. This decrease was attributable to decreased sales of both analog and digital handsets which was due to delayed digital product acceptances by our customers and slower sales. The average selling price of handsets decreased to $124 per unit in 2001 from $149 per unit in 2000. The number of new wireless 20
subscriptions processed by Quintex increased 3.0% in 2001, with a corresponding decrease, however, in activation commissions of approximately $2,205 in 2001. The average commission received by Quintex per activation decreased 12.4% from 2000. Gross profit margins decreased to 3.9% in 2001 from 7.2% in 2000, primarily due to the $13,900 of charges relating to the Company's exit from the analog market, with the exception of fixed-based cellular, partially offset as the final selling price of this inventory was better than anticipated. Gross profit margins also decreased due to delayed introductions of newer, higher-priced models, strong competition in the marketplace and closeout of older models. This decrease in margins also reflects the competitive nature of the wireless marketplace and pricing pressures associated with supporting various wireless carrier programs. Operating expenses decreased to $33,779 from $38,238. Selling expenses decreased from last year, primarily in divisional marketing. In connection with the decline in the analog market, a market development program was terminated which resulted in a reversal of approximately $3.0 million of accrued market development funds. Such decreases were partially offset by increases in commissions and travel. General and administrative expenses decreased from 2000, primarily in bad debt expense and office expenses. Warehousing and assembly expenses increased during 2001 from last year, primarily due to out-sourced personnel. Operating loss for 2001 was $(6,129) compared to last year's operating income of $33,150. Management believes that the wireless industry will continue to be extremely competitive in both price and technology. As the growth in the wireless marketplace has slowed, carrier customer purchasing practices have changed and pricing pressures have intensified. This has and could continue to affect gross margins and the carrying value of inventories in the future. As the market for digital products becomes more competitive, the Company may be required to adjust the carrying 21
value of its inventory in the future. Industry and financial market forecasts call for slower growth in the global handset market. Currently, there is a global surplus of handsets, both at manufacturer and carrier levels. Though this over-supply situation is abating, it may continue to impact the Company in the future. There is also the potential for shortages in the availability of certain wireless components and parts which may affect our vendors' ability to provide handsets to us on a timely basis, which may result in delayed shipments to our customers and decreased sales. Electronics Results Three months ended August 31, 2000 compared to three months ended August 31, 2001 The following table sets forth for the periods indicated certain statements of operations data and percentage of net sales by product line for the Electronics Group: <TABLE> Three Months Ended August 31, 2000 August 31, 2001 --------------- --------------- <S> <C> <C> <C> <C> Net sales: Mobile electronics $ 35,534 53.3% $ 41,242 57.3% Consumer electronics 11,692 17.6 12,344 17.2 Sound 18,319 27.5 17,867 24.8 Other 1,066 1.6 499 0.7 -------- ----- -------- ----- Total net sales 66,611 100.0 71,952 100.0 Gross profit 14,680 22.0 15,549 21.6 Total operating expenses 11,013 16.5 12,569 17.5 -------- ----- -------- ----- Operating income 3,667 5.5 2,980 4.1 Other income (expense) (140) (0.2) 413 0.6 -------- ----- -------- ----- Pre-tax income $ 3,527 5.3% $ 3,393 4.7% ======== ===== ======== ===== </TABLE> Net sales increased $5,341 compared to last year, an increase of 8.0%. Mobile electronics sales increased 16.1% compared to last year to $41,242, primarily due to increases in mobile video and security sales. Consumer electronics sales increased 5.6% from last year due to increased sales 22
of FRS radios, portable DVD players and home stereo products. Sound sales decreased 2.5% from last year to $17,867, primarily in the AV and SPS product lines. Net sales in the Company's Malaysian subsidiary decreased from last year by approximately 20.2% which reflects the slowing economy in the Far East and the decline in OEM sales in Malaysia. The Company's Venezuelan subsidiary experienced an increase of 54.5% in sales from last year primarily from OEM. Gross margins of the Electronics Group were 21.6% in 2001 and 22.0% in 2000. The decrease in gross profit margin was primarily in mobile and consumer electronics with the sound category showing an increase. Operating expenses increased $1,556 from last year to $12,569. As a percentage of sales, operating expenses increased to 17.5% from 16.5%. Selling expenses increased from last year, primarily in commissions and trade show expenses. General and administrative expenses increased from 2000, primarily in employee benefits, office salaries and bad debt expenses. Warehousing and assembly expenses increased from 2000, primarily in direct labor and field warehousing expenses. Operating income was $2,980 compared to last year's $3,667. 23
Nine months ended August 31, 2000 compared to nine months ended August 31, 2001 The following table sets forth for the periods indicated certain statements of operations data and percentage of net sales by product line for the Electronics Group: <TABLE> Nine Months Ended August 31, 2000 August 31, 2001 --------------- --------------- <S> <C> <C> <C> <C> Net sales: Mobile electronics $ 105,466 52.8% $ 112,215 52.7% Consumer electronics 30,280 15.2 51,179 24.0 Sound 60,830 30.5 47,870 22.5 Other 3,138 1.5 1,768 0.8 --------- ----- --------- ----- Total net sales 199,714 100.0 213,032 100.0 Gross profit 43,572 21.8 44,238 20.8 Total operating expenses 31,943 16.0 35,077 16.5 --------- ----- --------- ----- Operating income 11,629 5.8 9,161 4.3 Other expense (1,070) (0.5) (261) (0.1) --------- ----- --------- ----- Pre-tax income $ 10,559 5.3% $ 8,900 4.2% ========= ===== ========= ===== </TABLE> Net sales increased $13,318 compared to last year, an increase of 6.7%. Mobile electronics sales increased 6.4% compared to last year to $112,215, primarily due to increases in security and navigation products, partially offset by declines in sales of Protector Hardgoods. Consumer electronics sales also increased 69.0% from last year due to increased sales of FRS radios, portable DVD players and home stereo products. Sound sales decreased 21.3% from last year to $47,870, primarily in the AV and SPS product lines. Net sales in the Company's Malaysian subsidiary decreased from last year by approximately 17.1%. The Company's Venezuelan subsidiary experienced an increase of 30.2% in sales from last year. Gross margins of the Electronics Group were 20.8% in 2001 and 21.8% in 2000. Operating expenses increased $3,134 from last year to 16.5% of sales up from last year's 16.0% of sales. Selling expenses increased from last year, 24
primarily in commissions, advertising and trade show expenses. General and administrative expenses increased from 2000, primarily in office salaries, employee benefits and insurance expenses. Warehousing and assembly expenses increased from 2000, primarily in direct labor and field warehousing expenses. Operating income was $9,161 compared to last year's $11,629. The Company believes that the Electronics Group has an expanding market with a certain level of volatility related to both domestic and international new car sales. As the Company moves further into the Consumer Electronics market, it may become susceptible to changes in overall economic conditions. Also, certain of its products are subject to price fluctuations which could affect the carrying value of inventories and gross margins in the future. The Electronics Group may also experience additional competition in the mobile video category as more distributors enter the market and from increased competition in the Malaysian and Venezuelan markets. Global economic uncertainty could also affect the markets for our products. Other Income and Expense Interest expense and bank charges increased by $753 and decreased by $1,093 for the three and nine months ended August 31, 2001, respectively, compared to the same periods last year. The increase in interest expense and bank charges during the quarter as compared to the same period in the prior year was due to higher interest-bearing debt, partially offset by a decline in interest rates, while the decrease for the nine months as compared to the same period in the prior year was due to lower outstanding debt during the first part of the fiscal year and lower interest rates. Equity in income of equity investments increased $127 and $909 for the three and nine months ended August 31, 2001, respectively, as compared to the same periods last year. For the three and nine months 25
ended August 31, 2000 and 2001, Audiovox Specialty Applications, LLC represented the majority of equity in income of equity investments. Other income for the quarter and nine months decreased from last year's similar periods due to non-recurring transactions related to sale of investments and hedge of available-for-sale securities. Provision for Income Taxes The effective tax (recovery) rate for the three and nine months ended August 31, 2001 was (38.1%) and (35.4%) compared to last year's 35.5% and 37.2% for the comparable periods. The changes in the effective tax rates were principally due to changes in the proportion of domestic and foreign earnings and benefits as a result of the losses incurred. LIQUIDITY AND CAPITAL RESOURCES The Company's cash position at August 31, 2001 decreased $2,607 from the November 30, 2000 level. Operating activities used $57,628, primarily from an increase of $88,568 in inventory and decreases in accounts payable and accrued expenses of $53,601, partially offset by decreases in accounts receivable of $90,990. Accounts receivable days on hand increased to 50 days at August 31, 2001 from 42 days at August 31, 2000. The increase in accounts receivable days on hand was in the Wireless Group and is due to delayed customer remittances. Inventory days on hand increased from 33 days last year to 68 days this year. The increase in inventory value and days on hand was primarily in the Wireless Group, due to late product introductions, which resulted in a build-up of tri- mode inventory. Investing activities used $656, primarily from the purchase of property, plant and equipment and partially offset by distributions received from an equity investment. Financing 26
activities provided $55,692, primarily from borrowings on the line of credit agreement, partially offset by repurchases of Class A common stock and the payment of a dividend to the minority stockholder of ACC for their share of last year's profits. The Company maintains a revolving credit agreement with various financial institutions. The credit agreement provides for $250,000 of available credit, including $15,000 for foreign currency borrowings and expires July 27, 2004. 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 are guaranteed by certain of the Company's subsidiaries and is secured by accounts receivable, inventory and the Company's shares of ACC. The Company's ability to borrow under its credit facility is a maximum aggregate amount of $250,000, subject to certain conditions, based upon a formula taking into account the amount and quality of its accounts receivable and inventory. The credit agreement also allows for commitments up to $50,000 in forward exchange contracts. 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. Additionally, the agreement includes restrictions and limitations on payments of dividends, stock repurchases and capital expenditures. During the quarter ended May 31, 2001, the Company was not in compliance with its pre-tax income covenant due to the analog write-down and obtained a waiver for the quarter ended May 31, 2001. The Company also has revolving credit facilities in Malaysia and Venezuela to finance additional working capital needs. The Malaysian credit facilities are partially secured by the Company under standby letters of credit and are payable upon demand or upon expiration of the standby letters 27
of credit. The obligations of the Company under the Malaysian credit facilities are secured by the property and building in Malaysia owned by Audiovox Communications Sdn. Bhd. The Venezuelan credit facility is secured by the Company under a standby letter of credit and is payable upon demand or upon expiration of the standby letter of credit. The Company believes that it has sufficient liquidity to satisfy its anticipated working capital and capital expenditure needs through November 30, 2001 and for the reasonable foreseeable future. Recent Accounting Pronouncements On December 3, 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 - "Revenue Recognition in Financial Statements" (SAB No. 101). SAB No. 101 provides the SEC staff's views in applying generally accepted accounting principles to revenue recognition in the financial statements. SAB No. 101 delayed the implementation date for registrants to adopt the accounting guidance contained in SAB No. 101 by no later than the fourth fiscal quarter of the fiscal year ending November 30, 2001. Management of the Company does not believe that applying the accounting guidance of SAB No. 101 will have a material effect on its financial position or results of operations. In March 2000, the Emerging Issues Task Force issued EITF 99-19, "Reporting Revenue Gross as a Principal verses Net as an Agent" (EITF 99-19). EITF 99-19 addresses whether a company should report revenue based on (a) the gross amount billed to the customer because it has earned revenue from the sale of the goods or services or (b) the net amount retained (that is, the amount billed to a customer less the amount paid to a supplier) because it has earned a commission or fee. The Task Force reached a consensus that whether a company should recognize revenue at 28
the gross amount billed or the net amount retained, as defined above, because it has earned a commission or fee is a matter of judgment that depends on the relevant facts and circumstances. The Task Force also gave examples which should be considered in that evaluation. The consensus is effective for the fourth quarter of the Company's fiscal year ending November 30, 2001. Upon application of the consensus, comparative financial statements should be reclassified. The Company will adopt EITF 99-19 during the quarter ended November 30, 2001. Management does not believe that implementation of EITF 99-19 will have a material impact on the Company's consolidated financial statements. In April 2001, the Emerging Issues Task Force (EITF) reached a final consensus on EITF Issue No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products," which requires that, unless specific criteria are met, consideration from a vendor to a retailer (e.g., "slotting fees", cooperative advertising arrangements, "buy downs", etc.) be recorded as a reduction from revenue, as opposed to a selling expense. This consensus is effective for fiscal quarters beginning after December 15, 2001. Management of Company is in the process of assessing the impact that implementing EITF Issue No. 00-25 will have on the consolidated financial statements. In July 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141, "Business Combinations" (Statement 141), and Statement No. 142, "Goodwill and Other Intangible Assets" (Statement 142). Statement 141 requires companies to account for acquisitions entered into after June 30, 2001 using the purchase method and establishes criteria to be used in determining whether acquired intangible assets are to be recorded separately from goodwill. These criteria are to be applied to business combinations completed after June 30, 2001. Statement 141 will require, upon 29
adoption of Statement 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. The Company does not believe that implementation of Statement 141 will have an impact on the Company's financial position and results of operations. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but rather will be tested for impairment at least annually. Statement 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". Upon adoption of Statement 142, the Company will be required to perform an assessment of whether there is an indication that goodwill (and equity-method goodwill) is impaired as of the date of adoption. To accomplish this, the Company must identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company is required to adopt the provisions of Statement 142 effective December 1, 2002, however, the Company is considering adopting Statement 142 effective December 1, 2001. The Company has not yet determined the impact that the adoption of Statement 142 will have on its financial position or results of operations. 30
Forward-Looking Statements Except for historical information contained herein, statements made in this release that would constitute forward-looking statements may involve certain risks such as our ability to keep pace with technological advances, significant competition in the wireless, mobile and consumer electronics businesses, quality and consumer acceptance of newly-introduced products, our relationships with key suppliers and customers, market volatility, non-availability of product, excess inventory, price and product competition, new product introductions, the uncertain economic and political climate in the United States and throughout the rest of the world and the potential that such climate may deteriorate further and other risks detailed in the Company's Form 10-K for the fiscal year ended November 30, 2000 and the Form 10-Q for the second quarter ended May 31, 2001. These factors, among others, may cause actual results to differ materially from the results suggested in the forward-looking statements. Forward-looking statements include statements relating to, among other things: o growth trends in the wireless, automotive and consumer electronic businesses o technological and market developments in the wireless, automotive and consumer electronics businesses o liquidity o availability of key employees o expansion into international markets o the availability of new consumer electronic products These forward-looking statements are subject to numerous risks, uncertainties and assumptions about the Company including, among other things: o the ability to keep pace with technological advances o significant competition in the wireless, automotive and consumer electronics businesses o quality and consumer acceptance of newly introduced products o the relationships with key suppliers o the relationships with key customers o possible increases in warranty expense o the loss of key employees 31
o foreign currency risks o political instability o changes in U.S. federal, state and local and foreign laws o changes in regulations and tariffs o seasonality and cyclicality o inventory obsolescence, availability and price volatility due to market conditions 32
PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- No reports were filed on Form 8-K for the quarter ended August 31, 2001. 33
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: October 15, 2001 By:s/Charles M. Stoehr ------------------------ Charles M. Stoehr Senior Vice President and Chief Financial Officer 34