UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On July 8, 2003, a newly formed wholly-owned subsidiary of Audiovox Corporation
(the Company) acquired for approximately $41.8 million the outstanding capital
stock of the Italian, German and Japanese subsidiaries of Recoton Corporation
(Recoton) together with certain assets and the businesses of certain of Recotons
United States subsidiaries. The Recoton entities are collectively referred to as
the Audio Business Group (the Group). As of the date of acquisition of the Group
and since April 2003, Recoton was operating under Chapter XI of the Federal
Bankruptcy Code.
The Group is a developer and marketer of consumer home and mobile, audio and
video products generally for aftermarket use. The Groups products are sold
primarily to retailers located in the United States and Europe.
The total purchase price was partially financed with proceeds of approximately
$12.8 million of long-term debt obtained by the Company shortly after the
acquisition with the balance paid from available cash on hand.
The unaudited pro forma combined financial statements give effect to the
acquisition of the Group under the purchase method of accounting. The following
unaudited proforma condensed combined statements of operations information has
been prepared to illustrate the effects of the acquisition and related financing
had these transactions been completed as of December 1, 2001. The following
unaudited proforma condensed balance sheet information as of May 31, 2003 has
been prepared assuming the acquisition had been completed at that date. The
proforma adjustments are based upon available information and certain
assumptions that Audiovox believes are reasonable under the circumstances.
The unaudited pro forma combined financial information reflects a preliminary
allocation of the purchase price based on market valuations in process as at the
date of the preparation of these statements, which valuations are subject to
revision upon completion. It is therefore subject to revision upon determination
of the fair value of assets acquired and liabilities assumed.
The pro forma periods for the year ended November 30, 2002 and for the six
months ended May 31, 2003 are the Companys historical financial reporting
periods. Recoton and the Group have historically reported on a calendar year
basis with equivalent interim quarterly basis reporting. The unaudited pro forma
financial statements combine the historical consolidated amounts of the Company
at May 31, 2003 and for the six months then ended and for the year ended
November 30, 2002 with those of the Group as at June 30, 2003 and for the six
months ended June 30, 2003 and for the year ended December 31, 2002. The Company
believes the effect of the difference in the reporting periods is not
significant to an understanding of the pro forma results of operations.
The proforma information, while helpful in illustrating the financial
characteristics of the combined company, does not attempt to predict or suggest
future results. The proforma information also does not attempt to show how the
combined company would actually have performed had the companies been combined
as of December 1, 2001. If the companies had actually been combined at the
beginning of the periods presented, these companies and businesses might have
performed differently. You should not rely on proforma financial information as
an indication of the results that would have been achieved if the acquisitions
had taken place earlier or the future results that the companies will
experience.
These unaudited proforma condensed combined financial statements should be read
in conjunction with the historical financial statements of the Group and the
historical financial statements of Audiovox Corporation.
Exhibit 99.2
1
AUDIOVOX CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MAY 31, 2003
(In thousands)
Audio Pro Forma
Audiovox Recoton Adjustments Pro Forma
-------- ------- ----------- ---------
Cash $ 24,122 $ 2,223 $ (41,800)(1) $ 936
(9)(1)
3,600 (4)
12,800 (2)
Accounts receivable, net 160,735 12,322 (599)(3) 172,458
Inventory, net 172,684 21,858 (816)(3) 193,726
Receivable from vendor 11,446 - - 11,446
Assets held for sale - - 3,600 (3) -
(3,600)(4)
Prepaid and other current assets 17,666 3,365 (140)(1) 20,891
---------- --------- ---------- -----------
Total current assets 386,653 39,768 (26,964) 399,457
Property, plant and equipment, net 15,616 2,830 (625)(1) 17,821
Excess cost over fair value of assets acquired and other intangible assets,
net 7,512 - - 7,512
Intangibles 3,466 9,986 (1) 7,801
(2,185)(3)
(3,466)(1)
Equity investments 11,665 - - 11,665
Other assets 9,205 731 - 9,936
---------- --------- ---------- -----------
Total assets $ 430,651 $ 46,795 $ (23,254) $ 454,192
========== ========= =========== ===========
Accounts payable $ 34,033 $ 18,558 $ (13,787)(1) $ 38,804
Accrued expenses 34,628 2,223 (273)(1) 36,578
Accrued sales incentives 8,245 - - 8,245
Income taxes payable 10,099 - - 10,099
Bank obligations 3,245 3,776 - 7,021
---------- --------- ---------- -----------
Total current liabilities 90,250 24,557 (14,060) 100,747
Other - 244 - 244
Long-term debt 8,132 - 12,800 (2) 20,932
Capital lease obligation 6,111 - - 6,111
Deferred income taxes payable 1,983 - - 1,983
Deferred compensation 4,293 - - 4,293
---------- --------- ---------- -----------
Total liabilities 110,769 24,801 (1,260) 134,310
---------- --------- ---------- -----------
Minority interest 5,359 - - 5,359
Stockholders' equity 314,523 21,994 (21,994)(1) 314,523
---------- --------- ---------- -----------
Total equity 314,523 21,994 (21,994) 314,523
---------- --------- ---------- -----------
Total liabilities and equity $ 430,651 $ 46,795 $(23,254) $ 454,192
========== ========= =========== ===========
SEE THE ACCOMPANYING NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS.
Exhibit 99.2
2
AUDIOVOX CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED MAY 31, 2003
(In thousands, except per share amounts)
Audio Pro Forma
Audiovox Recoton Adjustments Pro Forma
-------- ------- ----------- ---------
Net sales $ 597,828 $ 35,551 $ (932)(5) $ 632,447
Cost of sales 546,748 35,047 (654)(5) 581,141
----------- ------------ -------- -----------
Gross profit 51,080 504 (278) 51,306
Selling, general, administrative, warehouse and technical support
expenses 43,565 19,326 93 (6) 62,984
----------- ------------ -------- -----------
Operating income (loss) 7,515 (18,822) (371) (11,678)
Interest 4(7)
(353)(8)
(2,118) (628) (145)(9) (3,240)
Other Income (expense) 587 - - 587
----------- ------------ -------- -----------
Income (loss) from continuing operations before provision for (recovery
of) income taxes and minority interest 5,984 (19,450) (865) (14,331)
Provision for (recovery of) income taxes 1,958 (1,750) (5,537)(10) (5,329)
Minority interest (743) - - (743)
----------- ------------ -------- -----------
Net income (loss) $ 3,283 $ (17,700) $ 4,672 $ (9,745)
=========== =========== ======== ===========
Net income (loss) per common share - basic $ 0.15 $ (0.45)
=========== ===========
Net income (loss) per common share - diluted $ 0.15 $ (0.45)
=========== ===========
Weighted average number of common shares outstanding:
Basic 21,834,099 21,834,099
=========== ===========
Diluted 21,949,521 21,834,099
=========== ===========
SEE THE ACCOMPANYING NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS.
Exhibit 99.2
3
AUDIOVOX CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED NOVEMBER 30, 2002
(In thousands, except per share amounts)
Audio Pro Forma
Audiovox Recoton Adjustments Pro Forma
-------- ------- ----------- ---------
Net sales $ 1,100,382 $211,399 $ (6,569)(5) $1,305,212
Cost of sales 1,025,783 161,064 (4,275)(5) 1,182,572
----------- -------- --------- ----------
Gross profit 74,599 50,335 (2,294) 122,640
Selling, general, administrative, warehouse and technical support expenses 88,675 46,668 378 (6) 135,721
----------- -------- --------- ----------
Operating income (loss) (14,076) 3,667 (2,672) (13,081)
Gain on issuance of subsidiary's shares 14,269 - - 14,269
Interest (4,219) (2,645) 1,277(7) (6,583)
(706)(8)
(290)(9)
Other Income (expense) (2,377) 519 - (1,858)
----------- -------- --------- ----------
Income (loss) from operations before provision for (recovery of) income
taxes, minority interest (6,403) 1,541 (2,391) (7,253)
Provision for (recovery of) income taxes 12,932 787 (932)(10) 12,787
Minority interest 5,055 - - 5,055
----------- -------- --------- ----------
Income (loss) from continuing operations $ (14,280) $ 754 $ (1,459) $ (14,985)
=========== ======== ========= ===========
Loss from continuing operations per common share - basic $ (0.65) $ (0.69)
=========== ===========
Loss from continuing operations per common share - diluted $ (0.65) $ (0.69)
=========== ===========
Weighted average number of common shares outstanding:
Basic 21,850,035 21,850,035
=========== ===========
Diluted 21,850,035 21,850,035
=========== ===========
SEE THE ACCOMPANYING NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS.
Exhibit 99.2
4
AUDIOVOX CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED NOVEMBER 30, 2002
AND SIX MONTH PERIOD ENDED MAY 31, 2003
(In thousands, except per share amounts)
NOTE 1 - Group Pro Forma Adjustments
1. Represents the adjustment to record the acquisition of certain United
States subsidiaries of the Audio Business Group of Recoton Corporation
and the stock of its Italian, German and Japanese subsidiaries (the
Group) by adjusting their historical values of certain assets and
liabilities which were not acquired and recording assets and
liabilities acquired at their preliminary estimated fair values. The
acquisition cost is approximately $41.8 million in cash, including
estimated transaction costs of $1.5 million. We have allocated the
purchase price to acquired assets and liabilities based on a
preliminary valuation in accordance with the purchase method of
accounting. The excess of the estimated purchase price over the fair
value of assets and liabilities acquired of $9,986,000 has been
preliminarily allocated to trademarks, with an indefinite useful life.
The actual allocation of purchase price to assets and liabilities
acquired will be dependent upon the final valuation study. The
acquisition is assumed to be funded with bank loan proceeds of $12.8
million, cash on hand and cash obtained in the acquisition and cash
obtained from the sale of the Group's marine products division as noted
below.
2. Represents the partial financing of the purchase price with bank debt
of approximately $12.8 million (euro $11.9 million)
3. Represents the classification of accounts receivable, inventory and
trademark attributable to the marine products division of the Group as
assets held for sale based upon their estimated fair values. The sale
of the marine division assets is required since the Company is
precluded from selling marine products as a result of its joint venture
agreement with Audiovox Specialized Applications, Inc. (ASA), an equity
investee of the Company.
4. Represents the sale of the marine division assets and liabilities of
the Group classified as assets held for sale to ASA for $3.6 million.
5. Elimination of sales and cost of sales of the marine products division
as a result of its sale to ASA.
6. Represents additional compensation expense related to compensation
agreements entered into with management of the German subsidiary of the
Group.
7. Represents the elimination of the Group's historical allocated interest
expense.
8. Represents the pro forma interest expense from the beginning of the
period on the bank loan utilized to partially fund the acquisition of
the Group utilizing an interest rate of 5.5%.
9. Elimination of interest income related to cash utilized to partially
fund the acquisition of the Group.
10. Represents the income tax benefit of the proforma adjustments for the
twelve months ended November 30, 2002 and six months ended May 31, 2003
and the tax benefit resulting from the combined operations for the six
months ended May 31, 2003.
Exhibit 99.2
5