Audiovox Corp. Reports Operating Results (10-Q)
Audiovox Corp. has a market cap of $142.6 million; its shares were traded at around $6.91 with a P/E ratio of 19.7 and P/S ratio of 0.3. VOXX is in the portfolios of Irving Kahn of Kahn Brothers & Company Inc., Seth Klarman of The Baupost Group, Chuck Royce of Royce& Associates, George Soros of Soros Fund Management LLC, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:Electronic sales represented 73.6% and 73.1% of the net sales for the three and six months ended August 31, 2010, respectively, compared to 63.3% and 64.6% in the prior year periods. For the three and six months ended August 31, 2010, approximately $13,400 and $24,400, respectively of the increase in sales from this product group was the result of our recent acquisition of Invision, a manufacturer of rear seat entertainment systems, and the addition of a new security distribution agreement. Our OEM sales increased as a result of increased car manufacturing and its related sales, as well as our new OEM programs. Our audio, video and digital player product lines also experienced an increase in revenue period over period. Partially offsetting these increases were declines in certain electronics products.
During the quarter ended August 31, 2010, sales incentive expenses increased by $1,587 primarily as a result of our Schwaiger acquisition, which has several marketing programs. Sales incentive expenses for the six months ended August 31, 2010 increased $1,540 primarily as a result of the Schwaiger acquisition, partially offset by a decline in Accessories sales which has higher sales incentives. The release of unearned or unclaimed sales incentives was $361 and $643 for the three and six months ended August 31, 2010, respectively. We believe the reversal of unearned but unclaimed or unearned sales incentives upon expiration of the claim period is a disciplined, rational, consistent, and systematic method of reversing these claims. These sales incentive programs are expected to continue and will either increase or decrease based upon competition and customer demands.
Operating expenses increased $4,514 and $10,371 for the three and six months ended August 31, 2010. respectively, from $22,780 and $45,472 in the prior year periods. As a percentage of net sales, operating expenses increased to 21.1% and 21.5% as compared to 18.2% and 18.6% for the three and six months ended August 31, 2009, respectively. The increase in total operating expenses was primarily due to our Schwaiger and Invision acquisitions which accounted for $4.0 million and $6.6 million during the three and six months ended August 31, 2010, respectively. In addition, the Company recorded charges for employee stock option costs and professional fees, bad debt expenses associated with a bankruptcy settlement, and severance charges associated with the consolidation of a German operating location. The balance of the increase was due to a reinstatement of a portion of the reductions originally instituted in the salary reduction program to all employees below the level of vice president.
As of August 31, 2010, we had working capital of $242,239 which includes cash and short-term investments of $73,196, compared with working capital of $239,787 at February 28, 2010, which included cash and short-term investments of $69,511. The increase in cash is primarily due to a decrease in accounts receivable, partially offset by an increase in inventory, the purchase of short-term investments and the repayment of the Suntrust loan. We plan to utilize our current cash position as well as collections from accounts receivable, the cash generated from our operations and the income on our investments to fund the current operations of the business. However, we may utilize all or a portion of current capital resources to pursue other business opportunities, including acquisitions.
Up until March 31, 2010, the Company had a secured credit line to fund the temporary short-term working capital needs of the domestic operations. This line allowed aggregate borrowings of up to $10,000 at an interest rate of Prime (or similar designations) plus 1% or LIBOR plus 5%. The line was subsequently replaced by a $15,000 three-year facility at an interest rate of LIBOR plus 2.8%. As of August 31, 2010 and February 28, 2010, no direct amounts were outstanding under either of these agreements. At August 31, 2010, the Company had $3,017 and $429 outstanding in standby and commercial letters of credit, respectively, which reduces the amount available under the secured credit line.
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