VOXX 10-Q Quarterly Report May 31, 2011

VOXX INTERNATIONAL CORP

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10-Q 1 q1201210q.htm Q1 2012 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2011

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-28839

Audiovox Corporation

(Exact name of registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)	13-1964841 (IRS Employer Identification No.)
180 Marcus Blvd., Hauppauge, New York (Address of principal executive offices)	11788 (Zip Code)
(631) 231-7750 (Registrant's telephone number, including area code)

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Number of shares of each class of the issuer's common stock outstanding as of the latest practicable date.



Class	As of July 9, 2011
Class A Common Stock	20,913,005 Shares
Class B Common Stock	2,260,954 Shares

Audiovox Corporation



Table of Contents
		Page
PART I	FINANCIAL INFORMATION

Item 1	FINANCIAL STATEMENTS (unaudited)
	Consolidated Balance Sheets at May 31, 2011 and February 28, 2011	3
	Consolidated Statements of Operations for the Three Months Ended May 31, 2011 and 2010	5
	Consolidated Statements of Cash Flows for the Three Months Ended May 31, 2011 and 2010	6
	Notes to Consolidated Financial Statements	7
Item 2	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	25
Item 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	33
Item 4	CONTROLS AND PROCEDURES	33

PART II	OTHER INFORMATION

Item 1	LEGAL PROCEEDINGS	34
Item 1A	RISK FACTORS	34
Item 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	34
Item 6	EXHIBITS	35
SIGNATURES		36

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Audiovox Corporation and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)



	May 31, 2011		February 28, 2011
Assets	( unaudited )
Current assets:
Cash and cash equivalents	$	16,237	$	98,630
Accounts receivable, net	118,649		108,048
Inventory	138,789		113,620
Receivables from vendors	7,776		8,382
Prepaid expenses and other current assets	11,479		9,382
Deferred income taxes	5,834		2,768
Total current assets	298,764		340,830
Investment securities	13,533		13,500
Equity investments	13,614		12,764
Property, plant and equipment, net	24,981		19,563
Goodwill	64,856		7,373
Intangible assets	179,249		99,189
Deferred income taxes	12		6,244
Other assets	4,710		1,634
Total assets	$	599,719	$	501,097
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	48,531	$	27,341
Accrued expenses and other current liabilities	39,384		36,500
Income taxes payable	609		1,610
Accrued sales incentives	18,295		11,981
Deferred income taxes	415		399
Current portion of long-term debt	4,075		4,471
Total current liabilities	111,309		82,302
Long-term debt	65,869		5,895
Capital lease obligation	5,311		5,348
Deferred compensation	3,770		3,554
Other tax liabilities	1,788		1,788
Deferred tax liabilities	11,014		4,919
Other long-term liabilities	4,064		4,345
Total liabilities	203,125		108,151
Commitments and contingencies
Stockholders' equity:
Series preferred stock, $.01 par value; 1,500,000 shares authorized, no shares issued or outstanding	—		—
Common stock:
Class A, $.01 par value; 60,000,000 shares authorized, 22,730,837 and 22,630,837 shares issued, and 20,913,005 and 20,813,005 shares outstanding at May 31, 2011 and February 28, 2011, respectively	226		226



Class B convertible, $.01 par value; 10,000,000 shares authorized, 2,260,954 shares issued and outstanding at May 31, 2011 and February 28, 2011	22			22
Paid-in capital	278,146			277,896
Retained earnings	139,514			137,027
Accumulated other comprehensive (loss)	(2,938		)	(3,849		)
Treasury stock, at cost, 1,817,832 shares of Class A common stock at May 31, 2011 and February 28, 2011	(18,376		)	(18,376		)
Total stockholders' equity	396,594			392,946
Total liabilities and stockholders' equity	$	599,719		$	501,097

See accompanying notes to consolidated financial statements.

Audiovox Corporation and Subsidiaries

Consolidated Statements of Operations

For the three months ended May 31, 2011 and 2010

(In thousands, except share and per share data)

(unaudited)



	2011			2010
Net sales	$	165,325		$	130,313
Cost of sales	121,637			103,252
Gross profit	43,688			27,061
Operating expenses:
Selling	11,904			8,829
General and administrative	22,653			17,330
Engineering and technical support	3,811			2,389
Acquisition-related costs	1,343			—
Total operating expenses	39,711			28,548
Operating income (loss)	3,977			(1,487		)
Other (expense) income:
Interest and bank charges	(1,483		)	(441		)
Equity in income of equity investees	1,129			908
Other, net	481			1,501
Total other income	127			1,968
Income before income taxes	4,104			481
Income tax expense (benefit)	1,617			(638		)
Net income	$	2,487		$	1,119
Net income per common share (basic)	$	0.11		$	0.05
Net income per common share (diluted)	$	0.11		$	0.05
Weighted-average common shares outstanding (basic)	23,079,394			22,887,187
Weighted-average common shares outstanding (diluted)	23,287,621			22,951,605

See accompanying notes to consolidated financial statements.

Audiovox Corporation and Subsidiaries

Consolidated Statements of Cash Flows

For the three months ended May 31, 2011 and 2010

(In thousands )

( unaudited )



	2011			2010
Cash flows from operating activities:
Net income	$	2,487		$	1,119
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,541			2,157
Bad debt expense	293			33
Equity in income of equity investees	(1,129		)	(908		)
Distribution of income from equity investees	279			239
Deferred income tax expense	358			—
Non-cash stock based compensation expense	250			428
Non-cash compensation adjustment	(36		)	342
Loss on sale of property, plant and equipment	11			(1		)
Impairment loss on marketable securities	300			—
Changes in operating assets and liabilities (net of assets and liabilities acquired):
Accounts receivable	19,038			32,156
Inventory	6,029			(9,718		)
Receivables from vendors	618			(957		)
Prepaid expenses and other	(973		)	764
Investment securities-trading	(27		)	(153		)
Accounts payable, accrued expenses, accrued sales incentives and other current liabilities	(249		)	(4,254		)
Income taxes payable	(1,042		)	(158		)
Net cash provided by operating activities	28,748			21,089
Cash flows from investing activities:
Purchases of property, plant and equipment	(484		)	(1,029		)
Proceeds from distribution of an equity investee	—			—
Issuance of short and long term note	59			49
Purchase of acquired business, less cash acquired	(167,250		)	—
Net cash used in investing activities	(167,675		)	(980		)
Cash flows from financing activities:
Repayment of short-term debt	(268		)	—
Borrowings from bank obligations	89,100			—
Deferred financing costs	(3,000		)
Repayments on bank obligations	(29,439		)	(5,637		)
Proceeds from exercise of stock options	—			35
Principal payments on capital lease obligation	(22		)	(68		)
Net cash provided by (used in) financing activities	56,371			(5,670		)
Effect of exchange rate changes on cash	163			(353		)
Net (decrease) increase in cash and cash equivalents	(82,393		)	14,086
Cash and cash equivalents at beginning of period	98,630			69,511
Cash and cash equivalents at end of period	$	16,237		$	83,597

See accompanying notes to consolidated financial statements.

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements

May 31, 2011

(Dollars in thousands, except share and per share data)

(1) Basis of Presentation

The accompanying unaudited interim consolidated financial statements of Audiovox Corporation and subsidiaries (“Audiovox” or the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America and include all adjustments (consisting of normal recurring adjustments), which, in the opinion of management, are necessary to present fairly the consolidated financial position, results of operations and cash flows for all periods presented. The results of operations are not necessarily indicative of the results to be expected for the full fiscal year or any interim period. These consolidated financial statements do not include all disclosures associated with consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America. Accordingly, these statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto contained in the Company's Form 10-K for the fiscal year ended February 28, 2011 .

We have determined that we operate in one reportable segment, the Electronics Group, based on review of ASC 280 “ Segment Reporting ”.

(2) Acquisitions

Klipsch

On March 1, 2011, Soundtech LLC, a Delaware limited liability company and wholly-owned subsidiary of Audiovox, acquired all of the issued and outstanding shares of Klipsch Group, Inc. and its worldwide subsidiaries (“Klipsch”) for a total purchase price of $167.3 million, plus related transaction fees and expenses. Klipsch is a global provider of high-end speakers for audio, multi-media and home theater applications. The acquisition of Klipsch adds world-class brand names to Audiovox's offerings, increases its distribution network, both domestically and abroad, and provides the Company with entry into the high-end installation market at both the residential and commercial level. In addition to the Klipsch® brand, the Klipsch portfolio includes Jamo®, Mirage®, and Energy®.

In connection with the acquisition, the Company entered into a $175 million credit agreement with Wells Fargo Capital Finance, LLC to fund a portion of the acquisition and future working capital needs, as applicable. A portion of the acquisition was funded with approximately $78.2 million in cash on hand. At closing, approximately $89 million was borrowed under the Credit Agreement to fund the balance of the purchase price.

As the Klipsch acquisition occurred on March 1, 2011, the financial statements presented for the three months ended May 31, 2011 included the operations of Klipsch.

The Company is currently performing a formal valuation of the acquisition including an analysis of purchase price adjustments, if any, and a review of the assets and liabilities acquired to determine appropriate fair values. Management has estimated the fair value of tangible assets acquired and liabilities assumed based on preliminary estimates and assumptions. These preliminary estimates and assumptions could change during the purchase price measurement period as the Company finalizes the valuations of the net tangible and intangible assets.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed as of the date of the acquisition and the estimated amounts assigned to goodwill and intangible asset classifications:

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)



	As of March 1, 2011
Accounts Receivable	$	28,614
Inventory	30,167
Prepaid expenses and other current assets	846
Property, plant and equipment, net	6,347
Goodwill	57,483
Intangible assets	81,063
Other assets	5,843
Total assets acquired	210,363
Accounts payable	15,796
Accrued expenses and other liabilities	12,664
Deferred tax liabilities	$	14,552
Net tangible and intangible assets acquired	$	167,351

The preliminary amounts assigned to goodwill and intangible assets for the acquisition are as follows:



	March 1, 2011		Amortization Period (Years)
Goodwill (non-deductible)	$	57,483	N/A
Tradenames (non-deductible)	46,816		Indefinite
Customer relationships	33,000		15
Patents	1,247		13
	$	138,546

Acquisition related costs of $93 and $988 were expensed as incurred for the three months ended May 31, 2011 and February 28, 2011, respectively, and are included in operating expenses in the consolidated statement of income. In addition, the Company incurred $1,250 of costs which were contingent upon the completion of the acquisition and were expensed on March 1, 2011.

Pro Forma Information

The following unaudited pro forma information illustrates the effect on Audiovox's net sales and net income for the three-months ended May 31, 2011 and May 31, 2010, assuming that the acquisition had taken place on March 1, 2010.

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)



	Three Months Ended May 31,
	2011		2010
Net sales:
As reported	$	165,325	$	130,313
Pro forma	165,325		164,922
Net income:
As reported	$	2,487	$	1,119
Pro forma	3,301		2,483
Basic earnings per share:
As reported	$	0.11	$	0.05
Pro forma	0.14		0.11
Diluted earnings per share:
As reported	$	0.11	$	0.05
Pro forma	0.14		0.11
Average shares - basic	23,079,394		22,887,187
Average shares - diluted	23,287,621		22,951,605

The above pro-forma results include certain adjustments for the periods presented to adjust the financial results and give consideration to the assumption that the acquisition occurred on the first day of Fiscal 2011. These adjustments include costs such as an estimate for amortization and depreciation associated with intangible and fixed assets acquired, additional financing costs as a result of the acquisition, and the elimination of expenses specific to the acquisition. These pro-forma results of operations have been estimated for comparative purposes only and may not reflect the actual results of operations that would have been achieved had the transaction occurred on the date presented or be indicative of results to be achieved in the future.

(3) Net Income Per Common Share

Basic net income per common share is based upon the weighted-average common shares outstanding during the period. Diluted net income per common share reflects the potential dilution that would occur if common stock equivalent securities or other contracts to issue common stock were exercised or converted into common stock.

There are no reconciling items which impact the numerator of basic and diluted net income per common share. A reconciliation between the denominator of basic and diluted net income per common share is as follows:



	Three Months Ended May 31,
	2011	2010
Weighted-average common shares outstanding (basic)	23,079,394	22,887,187
Effect of dilutive securities:
Stock options and warrants	208,227	64,418
Weighted-average common shares and potential common shares outstanding (diluted)	23,287,621	22,951,605

Stock options and warrants totaling 14,606 and 219,584 for the three months ended May 31, 2011 and 2010 , respectively, were not included in the net income per diluted share calculation because the exercise price of these options and warrants was greater than the average market price of the Company’s common stock during these periods or their inclusion would have been anti-dilutive.

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)

(4) Fair Value Measurements and Derivatives

The Company adopted authoritative guidance on “Fair Value Measurements”, which among other things, requires enhanced disclosures about investments that are measured and reported at fair value. This guidance establishes a hierarchal disclosure framework that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Investments measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 - Quoted market prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable.

Level 3 - Unobservable inputs developed using the Company's estimates and assumptions, which reflect those that market participants would use.

The following table presents assets measured at fair value on a recurring basis at May 31, 2011 :



			Fair Value Measurements at Reporting Date Using
			Level 1		Level 2		Level 3
Cash and cash equivalents:
Cash and money market funds	$	16,237	$	16,237	$	—	$	—
Derivatives
Designated for hedging	$	549	$	549	$	—	$	—
Not designated	—		—		—		—
Total derivatives	$	549	$	549	$	—	$	—
Long-term investment securities:
Marketable securities
Trading securities	$	3,831	$	3,831	$	—	$	—
Available-for-sale securities	58		58		—		—
Held-to-maturity	7,512		—		7,512		—
Total marketable securities	11,401		3,889		7,512		—
Other investment at cost (a)	2,132		—		—		—
Total long-term investment securities	$	13,533	$	3,889	$	7,512	$	—

The following table presents assets measured at fair value on a recurring basis at February 28, 2011 :

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)



			Fair Value Measurements at Reporting Date Using
			Level 1		Level 2		Level 3
Cash and cash equivalents:
Cash and money market funds	$	98,630	$	98,630	$	—	$	—
Derivatives
Designated for hedging	$	238	$	238	$	—	$	—
Not designated	85		85		—		—
Total derivatives	$	323	$	323	$	—	$	—
Long-term investment securities:
Marketable securities
Trading securities	$	3,804	$	3,804	$	—	$	—
Available-for-sale securities	68		68		—		—
Held-to-maturity (b)	7,502		—		7,502		—
Total marketable securities	11,374		3,872		7,502		—
Other investment at cost (a)	2,126		—		—		—
Total long-term investment securities	$	13,500	$	3,872	$	7,502	$	—


(a)	There were no events or changes in circumstances that occurred to indicate a significant adverse effect on the cost of this investment.


(b)	During Fiscal 2011, the Venezuelan government temporarily restricted the local brokerage houses inhibiting the Company's ability to obtain a fair value in the open market on this investment. As such, we have transferred our held-to-maturity investment in Venezuelan government bonds from Level 1 to Level 2.

The carrying amount of the Company's accounts receivable, short-term debt, accounts payable, accrued expenses, bank obligations and long-term debt approximates fair value because of (i) the short-term nature of the financial instrument; (ii) the interest rate on the financial instrument being reset every quarter to reflect current market rates; (iii) the stated or implicit interest rate approximates the current market rates or are not materially different than market rates and (iv) are based on quoted prices in active markets.

Derivative Instruments

The Company's derivative instruments include forward foreign currency contracts utilized to hedge a portion of its foreign currency inventory purchases as well as its general economic exposure to foreign currency fluctuations created in the normal course of business. The derivatives qualifying for hedge accounting are designated as cash flow hedges and valued using observable forward rates (Level 1). Forward foreign currency contracts not designated under hedged transactions were valued at spot rates (Level 1). The duration of open forward foreign currency contracts range from 1 - 9 months and are classified in the balance sheet according to their terms.

It is the Company's policy to enter into derivative instrument contracts with terms that coincide with the underlying exposure being hedged. As such, the Company's derivative instruments are expected to be highly effective. Hedge ineffectiveness, if any, is expensed as incurred through other income in the Company's Consolidated Statement of Operations and amounted to $90 for the three months ended May 31, 2011.

Financial Statement Classification

The Company holds derivative instruments that are designated as hedging instruments, and has held certain instruments not so designated. The following table discloses the fair value as of May 31, 2011 and February 28, 2011 for both types of derivative instruments:

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)



	Derivative Assets and Liabilities
		Fair Value
	Account	May 31, 2011		February 28, 2011
Designated derivative instruments
Foreign currency contracts	Accrued expenses and other current liabilities	$	549	$	—
	Prepaid expenses and other current assets	—		238

Derivatives not designated
Foreign currency contracts	Prepaid expenses and other current assets	—		85

Total derivatives		$	549	$	323

During the three months ended May 31, 2011 , the Company settled one remaining foreign currency contract which was a derivative not designated in a hedged transaction and as such, there are no current contracts of this nature outstanding at May 31, 2011.

Cash flow hedges

In November 2010 and January 2011, the Company entered into forward foreign currency contracts, which have a current outstanding notional value of $19,350, which are designated as cash flow hedges. For cash flow hedges, the effective portion of the gain or loss is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

Activity related to cash flow hedges recorded during the three months ended May 31, 2011 was as follows:



	Gain (Loss) Recognized in Other Comprehensive Income			Gain (Loss) Reclassified into Cost of Sales		Gain (Loss) for Ineffectiveness in Other Income
Cash flow hedges
Foreign currency contracts	$	(466	)	$	8	$	(90	)

The net loss recognized in other comprehensive income for foreign currency contracts is expected to be recognized in cost of sales within the next twelve months. No amounts were excluded from the assessment of hedge effectiveness during the respective periods. As of May 31, 2011 , no contracts originally designated for hedged accounting were de-designated or terminated. The Company did not hold derivatives designated for hedge accounting during the first quarter of Fiscal 2011.

(5) Investment Securities

In accordance with the Company's investment policy, all long and short-term investment securities are invested in "investment grade" rated securities. As of May 31, 2011 and February 28, 2011 , the Company had the following investments:

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)



	May 31, 2011							February 28, 2011
	Cost Basis		Unrealized holding gain/(loss)			Fair Value		Cost Basis		Unrealized holding gain/(loss)			Fair Value
Long-Term Investments
Marketable Securities
Trading
Deferred Compensation	$	3,831	$	—		$	3,831	$	3,804	$	—		$	3,804
Available-for-sale
Cellstar	—		3			3		—		6			6
Bliss-tel	925		(870		)	55		1,225		(1,163		)	62
Held-to-maturity Investment	7,512		—			7,512		7,502		—			7,502
Total Marketable Securities	12,268		(867		)	11,401		12,531		(1,157		)	11,374
Other Long-Term Investment	2,132		—			2,132		2,126		—			2,126
Total Long-Term Investments	$	14,400	$	(867	)	$	13,533	$	14,657	$	(1,157	)	$	13,500

Long-Term Investments

Trading Securities

The Company’s trading securities consist of mutual funds, which are held in connection with the Company’s deferred compensation plan. Unrealized holding gains and losses on trading securities offset those associated with the corresponding deferred compensation liability.

Available-For-Sale Securities

The Company’s available-for-sale marketable securities include a less than 20% equity ownership in CLST Holdings, Inc. (“Cellstar”) and Bliss-tel Public Company Limited (“Bliss-tel”).

Unrealized holding gains and losses, net of the related tax effect (if applicable), on available-for-sale securities are reported as a component of accumulated other comprehensive income (loss) until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis.

The fair value of the Cellstar and Bliss-tel investments are determined by quoted prices in active markets as they are publicly traded. On December 13, 2004, one of the Company's former equity investments, Bliss-tel, issued 575,000,000 shares on the SET (Security Exchange of Thailand) for an offering price of 2.48 baht per share. Prior to the issuance of these shares, the Company was a 20% shareholder in Bliss-tel and, subsequent to the offering, the Company owned 75,000,000 shares (or approximately 13%) of Bliss-tel's outstanding stock. In addition, on July 21, 2005, the Company received 22,500,000 warrants ("the warrants") which may be exercised beginning on September 29, 2006, and expire on July 17, 2012. Each warrant is exercisable into one share of Bliss-tel common stock at an exercise price of 8 baht per share.

During the year ended February 29, 2008, the Company sold 32,898,500 shares of Bliss-tel stock resulting in a gain of $1,533. During Fiscal 2010, Bliss-tel concluded a 4:1 reverse stock split. Accordingly, all share data has been retroactively restated. As of May 31, 2011 and February 28, 2011 , the Company owns 36,250,000 shares and 22,500,000 warrants in Bliss-tel with an aggregate fair value as of May 31, 2011 of $48 and $7 , respectively.

A decline in the market value of any available-for-sale security below cost that is deemed other-than-temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. The Company considers numerous factors, on a case-by-case basis, in evaluating whether the decline in market value of an available-for-sale security below cost is other-than-temporary. Such factors include, but are not limited to, (i) the length of time and the extent to which the market value has been less than cost; (ii) the financial condition and the near-term prospects of the issuer of the investment; and (iii) whether the Company's intent to retain the investment for the period of time is sufficient to allow for any anticipated recovery in market value. In Fiscal 2010, the Company

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)

determined that its investment in Bliss-tel was other than temporarily impaired based on its market price (which has been below our cost in excess of twelve months), Bliss-tel's recent losses, its deteriorating financial position, and conditions in the local and global economy, as well as the political environment in Thailand. This impairment of $1,000 related to the approximate value of the warrants which the Company determined it would not exercise. During Fiscal 2011, the Company continued to monitor the business plans and performance of Bliss-tel. Management noted that, during the year, Bliss-tel successfully restructured its debt position on favorable terms to the company; they further reduced overhead and discontinued non-profitable locations; they weathered the political unrest in the local metropolitan environments; they raised additional capital; and finally, they retained the services of a financial consultant to develop a new business strategy. Notwithstanding these positive factors, there are certain negative factors, exclusive of those associated with macroeconomics, which impacted management's consideration of the value of this investment. Specifically, the company continued to incur significant losses from operations, which raised substantial doubt about the company's ability to continue for a period of time in which management could anticipate a full recovery. Therefore, management determined that an additional portion of its investment was other-than-temporarily impaired. A loss of $1,600 was recorded on the income statement through other income and expense during the year ended February 28, 2011. During the Company's first fiscal quarter, Bliss-tel stopped trading on the Thai stock exchange. In discussions with the company, they are in the process of changing accountants and as a result, could not file with the exchange on time. Bliss-tel felt they would be current by their third quarter. Bliss-tel concluded their shareholders' meeting and approved an additional private issuance of shares to raise funds for the businesses. As a result of the potential further dilution of its investment, an additional impairment loss of $300 was recorded. As of May 31, 2011 , the Company maintains approximately $.9 million in unrealized losses on this investment in accumulated other comprehensive income. The Company will continue to evaluate this investment throughout Fiscal 2012, to determine the success of Bliss-tel's business plan, and the impact of the retention of the financial consultant on the company's performance and the associated market value. It is possible that the company's efforts may not be successful. In the event they are not successful, management will need to determine if further other-than-temporary impairments exist.

Held-to-Maturity Investment

Long-term investments include an investment in U.S. dollar-denominated bonds issued by the Venezuelan government, which is classified as held-to-maturity and accounted for under the amortized cost method.

Other Long-Term Investments

Other long-term investments include an investment in a non-controlled corporation of $2,132 accounted for by the cost method. As of May 31, 2011 , the Company held approximately 14% of the outstanding shares of this company.

(6) Other Comprehensive Income

The Company’s total comprehensive income was as follows:



	Three Months Ended May 31,
	2011			2010
Net income	$	2,487		$	1,119
Other comprehensive income:
Foreign currency translation adjustments	1,327			(249		)
Derivatives designated for hedging	(704		)	—
Other-than-temporary impairment loss on available-for-sale investment	300			—
Unrealized holding (loss) gain on available-for-sale investment securities arising during the period, net of tax	(12		)	(76		)
Other comprehensive income (loss), net of tax	911			(325		)
Total comprehensive income	$	3,398		$	794

The Company did not record tax expenses during the three months ended May 31, 2011 and 2010 as a result of the loss position for related securities.

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)

The Company’s accumulated other comprehensive losses consist of the following:



	May 31, 2011			February 28, 2011
Accumulated other comprehensive losses:
Foreign exchange losses	$	(1,581	)	$	(2,906	)
Unrealized losses on investments, net of tax	(891		)	(1,181		)
Derivatives designated in hedging relationship	(466		)	238
Total accumulated other comprehensive losses	$	(2,938	)	$	(3,849	)

(7) Supplemental Cash Flow Information

The following is supplemental information relating to the consolidated statements of cash flow:



	Three Months Ended May 31,
	2011		2010
Cash paid during the period:
Interest (excluding bank charges)	$	932	$	360
Income taxes (net of refunds)	$	254	$	333

(8) Accounting for Stock-Based Compensation

The Company has various stock-based compensation plans, which are more fully described in Note 1 of the Company’s Form 10-K for the fiscal year ended February 28, 2011 .

The Company granted 246,250 options during May of 2011, which vest on February 29, 2012, expire two years from date of vesting (February 28, 2014), have an exercise price equal to $7.75, $.25 above the sales price of the Company’s stock on the day prior to the date of grant, have a contractual term of 2.75 years and a grant date fair value of $3.08 per share determined based upon a Black-Scholes valuation model.

In addition, the Company issued 22,500 warrants during May of 2011 to purchase the Company’s common stock with the same terms as those of the options above as consideration for future legal and professional services. These warrants are included in the outstanding options and warrant table below and considered exercisable at May 31, 2011.

As of May 31, 2011 , the Company had unrecognized compensation costs of approximately $583 related to non-vested options. The unrecognized compensation costs related to these options will be completely recognized by February 29, 2012.



	Three months ended
	May 31, 2011
Dividend yield	0	%
Volatility	65.4	%
Risk-free interest rate	0.9	%
Expected life (years)	2.8

Information regarding the Company's stock options and warrants is summarized below:

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Outstanding and exercisable at February 28, 2011	886,250		$	6.40
Granted	268,750		7.75
Exercised	—		—
Forfeited/expired	(2,500	)	6.37
Outstanding and exercisable at May 31, 2011	1,152,500		$	6.71	2.15

In May of 2011, the Company granted 100,000 shares of restricted stock. A restricted stock award is an award of common stock that is subject to certain restrictions during a specified period. Restricted stock awards are independent of option grants and are subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the shares before the restricted shares vest. The restricted stock awards vest one-third on February 29, 2012, one-third on February 28, 2013 and one-third on February 28, 2014. The Company expenses the cost of the restricted stock awards on a straight-line basis over the period during which the restrictions lapse. For these purposes, the fair market value of the restricted stock, $7.60, is determined based on the closing price of the Company's common stock on the grant date.

The following table presents a summary of the Company's restricted stock activity for the three months ended May 31, 2011 :



	Number of shares (in thousands)	Weighted Average Grant Date Fair Value
Balance at February 28, 2011	—	$	—
Granted	100,000	7.60
Vested	—	—
Forfeited	—	—
Balance at May 31, 2011	100,000	$	7.60

During the three months ended May 31, 2011 , the Company recorded $5 in stock-based compensation related to restricted stock awards. As of May 31, 2011 , there was $755 of unrecognized stock-based compensation expense related to unvested restricted stock awards. This expense is expected to be fully recognized by February 28, 2014.

(9) Goodwill and Intangible Assets

The change in goodwill is as follows:



Balance at February 28, 2011	$	7,373
Klipsch purchase adjustments (Note 8)	57,483
Balance at May 31, 2011	$	64,856

At May 31, 2011 , intangible assets consisted of the following:

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)



	Gross Carrying Value		Accumulated Amortization		Total Net Book Value
Trademarks/Tradenames not subject to amortization	$	129,385	$	—	$	129,385
Customer relationships subject to amortization (5-20 years)	51,440		4,979		46,461
Trademarks/Tradenames subject to amortization (3-12 years)	1,237		657		580
Patents subject to amortization (2-13 years)	2,943		849		2,094
License subject to amortization (5 years)	1,400		1,003		397
Contract subject to amortization (5 years)	1,557		1,225		332
Total	$	187,962	$	8,713	$	179,249

At February 28, 2011 , intangible assets consisted of the following:



	February 28, 2011
	Gross Carrying Value		Accumulated Amortization		Total Net Book Value
Trademarks/Tradenames/Licenses not subject to amortization	$	82,569	$	—	$	82,569
Customer relationships subject to amortization (5-20 years)	18,439		4,142		14,297
Trademarks/Tradenames subject to amortization (3-12 years)	1,237		634		603
Patents subject to amortization (5-10 years)	1,696		797		899
License subject to amortization (5 years)	1,400		933		467
Contract subject to amortization (5 years)	1,556		1,202		354
Total	$	106,897	$	7,708	$	99,189

The Company recorded amortization expense of $1,045 and $550 for the three months ended May 31, 2011 and 2010 , respectively. The estimated aggregate amortization expense for the cumulative five years ending May 31, 2016 amounts to $4,129 , $3,966 , $3,849 , $3,813 and $3,734 .

We evaluate the carrying value of long-lived assets, including intangible assets subject to amortization, when events and circumstances warrant such a review. The carrying value of long-lived assets is considered impaired when the estimated undiscounted cash flows from such assets are less than their carrying value. In that event, a loss is recognized equal to the amount by which the carrying value exceeds the fair value of the long-lived assets. Fair value is determined by primarily using a discounted cash flow methodology that requires considerable management judgment and long-term assumptions. There were no impairment triggering events during the three months ended May 31, 2011 , therefore, management believes the current carrying value of its intangible assets is not impaired. Our estimate of net future cash flows is based on historical experience and assumptions of future trends, which may be different from actual results. We periodically review the appropriateness of the estimated useful lives of our long-lived assets.

(10) Equity Investments

As of May 31, 2011 and February 28, 2011 , the Company had a 50% non-controlling ownership interest in Audiovox Specialized Applications, Inc. (“ASA”) which acts as a distributor of televisions and other automotive sound, security and accessory products for specialized vehicles, such as RV’s and van conversions.

The following presents summary financial information for ASA. Such summary financial information has been provided herein based upon the individual significance of ASA to the consolidated financial information of the Company.

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)



	May 31, 2011		February 28, 2011
Current assets	$	27,075	$	24,521
Non-current assets	5,123		5,240
Current liabilities	4,971		4,233
Members' equity	27,227		25,528

	Three Months Ended May 31,
	2011		2010
Net sales	$	20,673	$	20,276
Gross profit	6,054		5,182
Operating income	2,249		1,810
Net income	2,257		1,816

The Company's share of income from ASA for the three months ended May 31, 2011 and 2010 was $1,129 and $908 , respectively.

(11) Income Taxes

The Company’s provision for income taxes consists of U.S. and foreign taxes in amounts necessary to align the Company’s year-to-date provision for income taxes with the effective tax rate that the Company expects to achieve for the full year. The Company’s annual effective tax rate for Fiscal 2012 excluding discrete items is estimated to be 38.8% (which includes U.S., state and local and foreign taxes) based upon the Company’s anticipated earnings both in the U.S. and in its foreign subsidiaries.

For the three months ended May 31, 2011 the Company had an effective tax rate of 39.4% and recorded an income tax expense of $1,617 .

For the three months ended May 31, 2010 , the Company had an effective tax rate of (132.6)% recorded an income tax benefit of $638 . The income tax benefit includes a discrete item related to the recognition of a tax receivable as a result of a favorable resolution of an income tax audit offset by a tax provision related to federal, state, local and foreign taxes.

(12) Inventory

Inventories by major category are as follows:



	May 31, 2011		February 28, 2011
Raw materials	$	14,820	$	10,562
Work in process	2,035		1,653
Finished goods	121,934		101,405
Inventory, net	$	138,789	$	113,620

(13) Accrued Sales Incentives

A summary of the activity with respect to sales incentives is provided below:

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)



	Three Months Ended May 31,
	2011			2010
Opening balance	$	11,981		$	10,606
Accruals (includes acquired sales incentive liabilities)	14,645			5,986
Payments and credits	(8,009		)	(5,600		)
Reversals for unearned sales incentive	(28		)	(151		)
Reversals for unclaimed sales incentives	(294		)	(131		)
Ending balance	$	18,295		$	10,710

(14) Product Warranties and Product Repair Costs

The following table provides a summary of the activity with respect to product warranties and product repair costs:



	Three Months Ended May 31,
	2011			2010
Opening balance	$	9,051		$	13,058
Liabilities accrued for warranties issued during the period	2,642			2,582
Warranty claims paid during the period (includes the acquired warranty liabilities)	(2,184		)	(4,174		)
Ending balance	$	9,509		$	11,466

(15) Financing Arrangements

The Company has the following financing arrangements:



	May 31, 2011		February 28, 2011
Domestic bank obligations (a)	$	59,430	$	—
Foreign bank obligation (b)	1,812		1,902
Euro term loan agreement (c)	2,898		3,488
Oehlbach (d)	—		86
Other (e)	5,804		4,890
Total debt	69,944		10,366
Less: current portion of long-term debt	4,075		4,471
Total long-term debt	$	65,869	$	5,895

(a) Domestic Bank Obligations

The Company may borrow under the Credit Facility as needed, provided the aggregate amounts outstanding will not exceed 85% of certain eligible accounts receivable, plus 65% of certain eligible inventory balances less the outstanding amounts for Letters of Credit Usage, if applicable. This amount may be further reduced by the aggregated amounts of reserves that may be required at the reasonable discretion of Wells Fargo in its role as the Administrative Agent.

Generally, the Company may designate specific borrowings under the Credit Facility as either Base Rate Loans

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)

or LIBOR Rate Loans, except that Swing Loans may only be designated as Base Rate Loans. Loans designated as LIBOR Rate Loans shall bear interest at a rate equal to the then applicable LIBOR rate plus a range of 2.25 - 2.75% based on excess availability in the borrowing base. Loans designated as Base Rate loans shall bear interest at a rate equal to the base rate plus an applicable margin ranging from 1.25 - 1.75% based on excess availability in the borrowing base. As of May 31, 2011, the interest rate on the facility was 3.1%.

All amounts outstanding under the Credit Facility will mature and become due on March 1, 2016. The Company may prepay any amounts outstanding at any time, subject to payment of certain breakage and redeployment costs relating to LIBOR Rate Loans. The commitments under the Credit Facility may be irrevocably reduced at any time without premium or penalty.

The Credit Agreement contains covenants that limit the ability of certain entities of the Company to, among other things: (i) incur additional indebtedness: (ii) incur liens; (iii) merge, consolidate or exit a substantial portion of their business; (iv) transfer or dispose of assets; (v) change their names, organizational identification number, state or province of organization or organizational identity; (vi) make any material change in their nature of business; (vii) prepay or otherwise acquire indebtedness; (viii) cause any Change of Control; (ix) make any Restricted Junior Payment; (x) change their fiscal year or method of accounting; (xi) make advances, loans or investments; (xii) enter into or permit any transactions with an Affiliate of certain entities of the Company; (xiii) use proceeds for certain items; (xiv) issue or sell any of their stock; and/or (xv) consign or sell any of their inventory on certain terms.

In addition, at any time that Excess Availability falls below 12.5% of the Maximum Credit, the Company must maintain a minimum Fixed Charge Coverage Ratio for certain entities, of not less than 1.0:1.0 until such time as Excess Availability has equaled or exceeded 12.5% of the Maximum Availability at all times for a period of thirty (30) consecutive days.

The Credit Agreement contains customary events of default, including, without limitation: failure to pay when due principal amounts in respect of the Credit Facility; failure to pay any interest or other amounts under the Credit Facility for a period of three (3) business days after becoming due; failure to comply with certain agreements or covenants in the Credit Agreement; failure to satisfy certain judgments against a Loan Party or any of its Subsidiaries; certain insolvency and bankruptcy events; and failure to pay when due certain indebtedness in principal amount in excess of $5 million.

The Obligations under the Credit Facility are secured by a general lien on and security interest in substantially all of the assets of certain entities of the Company, including accounts receivable, equipment, real estate, general intangibles and inventory. The Company has guaranteed the obligations of all entities under the Credit Agreement.

On March 1, 2011, the Company borrowed approximately $89 million under this credit facility as a result of its stock purchase agreement related to Klipsch Group, Inc. As of May 31, 2011, approximately $57 million was outstanding under the line.

As a result of the addition of the new Credit Facility, the Company has incurred debt financing costs of approximately $3 million which are recorded as deferred financing costs that are included in other assets and amortized through interest and bank charges over a five year period. During the three months ended May 31, 2011 , the Company amortized $170 of these costs.

(b) Euro Asset-Based Lending Obligation

Foreign bank obligations include a financing arrangement totaling 16,000 Euros consisting of a Euro accounts receivable factoring arrangement and a Euro Asset-Based Lending ("ABL") (up to 60% of eligible non-factored accounts receivable) credit facility for the Company's subsidiary, Audiovox Germany, which expires on November 1, 2012. Selected accounts receivable are purchased from the Company on a non-recourse basis at 85% of face value and payment of the remaining 15% upon receipt from the customer of the balance of the receivable purchased. The activity under the factoring agreement is accounted for as a sale of accounts receivable. The rate of interest is the three month Euribor plus 1.9%, and the Company pays 0.22% of its gross sales as a fee for the accounts receivable factoring arrangement. As of May 31, 2011 , the amount of accounts receivable available for factoring exceeded the amounts outstanding under this obligation.

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)

The Company had a $2,000 credit line in Venezuela to fund the short-term working capital needs of the local operation. This line expired on June 30, 2011. There were no amounts outstanding as of May 31, 2011 .

On March 30, 2008, Audiovox Germany entered into a new 5 million Euro term loan agreement. This agreement is for a five-year term with a financial institution and was used to repay the Audiovox Germany intercompany debt to Audiovox Corporation. Payments under the term loan are to be made in two semi-annual installments of 500 Euros beginning on September 30, 2008 and ending on March 30, 2013. Interest accrues at a fixed rate of 4.82%. Any amount repaid can not be reborrowed. The term loan is secured by a pledge of the stock of Audiovox Germany and the Magnat brand name, prohibits the distribution of dividends, and takes precedence to all other intercompany loans with Audiovox Corporation.

(d) Oehlbach

In connection with the Oehlbach acquisition, the Company acquired short and long term debt payable to various third parties, which was repaid in March 2011.

(e) Other Debt

This amount includes a call/put option owed to certain employees of Audiovox Germany, an assumed liability in connection with the Company's Invision acquisition, and a note payable on a facility acquired in connection with the Company's Klipsch acquisition.

(16) Other Income (Expense)

Other income (expense) is comprised of the following:



	Three Months Ended May 31,
	2011		2010
Interest income	$	151	$	171
Rental income	140		117
Miscellaneous	190		1,213
Total Other, net	$	481	$	1,501

Other income for Fiscal 2011 includes a gain on forward exchange contracts of approximately $1,100.

(17) Foreign Currency

The Company has certain operations in Venezuela. Venezuela has recently been operating in a difficult economic environment, which has been troubled with local political issues and various foreign currency and price controls. The country has experienced high rates of inflation over the last several years. The President of Venezuela has the authority to legislate certain areas by decree, which allows the government to nationalize certain industries or expropriate certain companies and property. These factors may have a negative impact on our business and our financial condition. In 2003, Venezuela created the Commission of Administration of Foreign Currency (“CADIVI”) which establishes and administers currency controls and their associated rules and regulations. These controls include creating a fixed exchange rate between the Bolivar and the U.S. Dollar, and the ability to restrict the exchange of Bolivar Fuertes for U.S. Dollars and vice versa.

Effective January 1, 2010, according to the guidelines in ASC 830, Venezuela had been designated as a hyper-inflationary economy. A hyper-inflationary economy designation occurs when a country has experienced cumulative inflation of approximately 100 percent or more over a 3 year period. The hyper-inflationary designation requires the local subsidiary in Venezuela to record all transactions as if they were denominated in U.S. dollars. The Company transitioned to hyper-inflationary accounting on March 1, 2010 and continues to account for Venezuela under this method.

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)

On January 8, 2010, the Venezuelan government announced its intention to devalue its currency (Bolivar fuerte) and move to a two tier exchange structure, 2.60 for essential goods and 4.30 for non-essential goods and services. Products sold by our Venezuelan operation are classified as non-essential, however, the Company has certain US dollar denominated assets and liabilities for which the 2.60 rate was applied. In January, 2011, the Venezuelan government eliminated the two-tier exchange rate.

On June 9, 2010, the Venezuelan government introduced a newly regulated foreign currency exchange system, Sistema de Transacciones con Titulos en Moneda Extranjera (“SITME”), which is controlled by the Central Bank of Venezuela (“BCV”). The SITME imposes volume restrictions on the conversion of Venezuelan Bolivar Fuertes to U.S. Dollars, currently limiting such activity to a maximum equivalent of $350,000 per month. As a result of this restriction, we have limited new U.S. dollar purchases to remain within the guidelines imposed by SITME.

(18) Lease Obligations

During 1998, the Company entered into a 30-year capital lease for a building with its principal stockholder and current chairman, which was the headquarters of the discontinued Cellular operation. This lease was refinanced in December 2006, and expires on November 30, 2026. On November 1, 2004, we entered into an agreement to sublease the building to Personal Communication Devices, LLC (Formerly UTStarcom) for monthly payments of $46 until November 1, 2009. The sublease lease agreement has been renewed and requires, for a term of three years, monthly payments of $50 until November 1, 2012. We also lease another facility from our principal stockholder which expires on November 30, 2016.

As a result of the acquisition of Klipsch, the Company assumed a lease for the facility housing the Klipsch headquarters in Indianapolis. The lessor is Woodview, LLC, of which certain partners are executives of Klipsch. Lease payments are based on current market rates, as determined by independent valuation, and continue until the lease expiration on May 31, 2021.

Total lease payments required under all related party leases for the five-year period ending May 31, 2016 are $13,035 .

At May 31, 2011 , the Company was obligated under non-cancellable capital and operating leases for equipment and warehouse facilities for minimum annual rental payments as follows:



	Capital Lease		Operating Leases
2012	$	547	$	7,134
2013	574		5,747
2014	574		4,876
2015	574		4,563
2016	574		3,538
Thereafter	6,912		6,201
Total minimum lease payments	9,755		$	32,059
Less: minimum sublease income	850
Net	8,905
Less: amount representing interest	3,477
Present value of net minimum lease payments	5,428
Less: current installments included in accrued expenses and other current liabilities	117
Long-term capital obligation	$	5,311

The Company leases certain facilities from its principal stockholder and other executives. At May 31, 2011 , minimum annual rental payments on these related party leases, in addition to the capital lease payments, which are included in the above table, are as follows:

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)



2012	$	2,630
2013	2,692
2014	2,728
2015	2,729
2016	2,766
Thereafter	10,635
Total	$	24,180

(19) Contingencies and Derivative Settlement

Contingencies

The Company is currently, and has in the past been, a party to various routine legal proceedings incident to the ordinary course of business. If management determines, based on the underlying facts and circumstances, that it is probable a loss will result from a litigation contingency and the amount of the loss can be reasonably estimated, the estimated loss is accrued for. The Company believes its outstanding litigation matters disclosed below will not have a material adverse effect on the Company's financial statements, individually or in the aggregate; however, due to the uncertain outcome of these matters, the Company disclosed these specific matters below:

Certain consolidated class actions transferred to a Multi-District Litigation Panel of the United States District Court of the District of Maryland against the Company and other suppliers, manufacturers and distributors of hand-held wireless telephones alleging damages relating to exposure to radio frequency radiation from hand-held wireless telephones are still pending. No assurances regarding the outcome of this matter can be given, as the Company is unable to assess the degree of probability of an unfavorable outcome or estimated loss or liability, if any. Accordingly, no estimated loss has been recorded for the aforementioned case.

During the fourth quarter of Fiscal 2009, the Company became aware that certain personal consumer credit card information had been accessed by an intrusion by an unauthorized source. The Company has notified the various state and federal authorities in which the consumers reside and is offering a plan of credit monitoring and protection for the affected individuals. The Company is partially covered by insurance but anticipates amounts will be necessary to cover the cost of this issue. The Company recorded certain costs associated with this issue as of February 28, 2011 , based on information available at the time. There were no additional costs recorded during the three months ended May 31, 2011 .

The products the Company sells are continually changing as a result of improved technology. As a result, although the Company and its suppliers attempt to avoid infringing known proprietary rights, the Company may be subject to legal proceedings and claims for alleged infringement by its suppliers or distributors, of third party patents, trade secrets, trademarks or copyrights. Any claims relating to the infringement of third-party proprietary rights, even if not meritorious, could result in costly litigation, divert management’s attention and resources, or require the Company to either enter into royalty or license agreements which are not advantageous to the Company or pay material amounts of damages.

(20) Subsequent Events

In October 2010, we were notified that Qualcomm has decided to suspend its direct to consumer sales of new FLO TV devices. The Company has resolved the matter with FLO TV and Qualcomm and transitioned out of the business. In June, 2011, the Company finalized its agreement with FLO TV and Qualcomm with terms that were satisfactory to both parties and did not have a material impact on the Company.

(21) New Accounting Pronouncements

In January 2010, the FASB issued an accounting pronouncement that improves disclosures around fair value measurements. This pronouncement requires additional disclosures regarding transfers between Levels 1, 2 and 3 of the fair value hierarchy of this pronouncement as well as a more detailed reconciliation of recurring Level 3 measurements. Certain disclosure requirements of this pronouncement were effective and adopted by the Company on March 1, 2010. The remaining disclosure requirements of this pronouncement were effective for the Company’s first quarter in Fiscal 2012. The adoption of this pronouncement did not have a material impact on the Company’s financial statements.

Audiovox Corporation and Subsidiaries

Notes to Consolidated Financial Statements, continued

May 31, 2011

(Dollars in thousands, except share and per share data)

In May 2010, the FASB issued authoritative guidance included in ASC 830 “Foreign Currency” which requires certain disclosures when a company uses alternative exchange rates for re-measurement of U.S. dollar-denominated balances which are subsequently translated at official exchange rates for financial reporting purposes. The guidance, which was effective in March 2010, did not have a material impact on the Company.

In January 2011, the FASB issued authoritative guidance included in ASC 805 “Business Combinations” which modifies certain pro-forma disclosures related to business combinations. The guidance was effective for the Company on March 1, 2011, and did not have a material impact on the Company's financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain information in this Quarterly Report on Form 10-Q would constitute forward-looking statements, including but not limited to, information relating to the future performance and financial condition of the Company, the plans and objectives of the Company’s management and the Company’s assumptions regarding such performance and plans that are forward-looking in nature and involve certain risks and uncertainties. Actual results could differ materially from such forward-looking information.

We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) with an overview of the business. This is followed by a discussion of the Critical Accounting Policies and Estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. In the next section, we discuss our results of operations for the three months ended May 31, 2011 compared to the three months ended May 31, 2010 . We then provide an analysis of changes in our balance sheets and cash flows, and discuss our financial commitments in the sections entitled “Liquidity and Capital Resources”. We conclude this MD&A with a discussion of “Related Party Transactions” and “Recent Accounting Pronouncements”.

Unless specifically indicated otherwise, all amounts and percentages presented in our MD&A below are exclusive of discontinued operations and are in thousands, except share and per share data.

Business Overview

Audiovox Corporation (“Audiovox", “We", "Our", "Us" or “Company") is a leading international distributor in the accessory, mobile and consumer electronics industries. On March 1, 2011, the Company acquired Klipsch Group, Inc. and its worldwide subsidiaries, a global provider of high-end speakers for audio, multi-media and home theater applications. With our most recent acquisitions of Klipsch Group, Inc. and Invision Automotive Systems, Inc. we have added manufacturing capabilities to our business model. We conduct our business through eighteen wholly-owned subsidiaries: American Radio Corp., Audiovox Electronics Corporation (“AEC”), Audiovox Accessories Corp. (“AAC”), Audiovox Consumer Electronics, Inc. (“ACE”), Audiovox German Holdings GmbH (“Audiovox Germany”), Audiovox Venezuela, C.A., Audiovox Canada Limited, Audiovox Hong Kong Ltd., Audiovox International Corp., Audiovox Mexico, S. de R.L. de C.V. (“Audiovox Mexico”), Technuity, Inc., Code Systems, Inc, Oehlbach Kabel GmbH ("Oehlbach"), Schwaiger GmbH (“Schwaiger”), Invision Automotive Systems, Inc. (“Invision”), Klipsch Holding LLC ("Klipsch") and Omega Research and Development, LLC ("Omega") and Audiovox Websales LLC. We market our products under the Audiovox® brand name, other brand names and licensed brands, such as Acoustic Research®, Advent®, Ambico®, Car Link®, Chapman®, Code-Alarm®, Discwasher®, Energizer®, Energy®, Heco®, Incaar ^™ , Invision®, Jamo®, Jensen®, Klipsch®, Mac Audio ^™ , Magnat®, Mirage®, Movies2Go®, Oehlbach®, Omega®, Phase Linear®, Prestige®, Pursuit®, RCA®, RCA Accessories®, Recoton®, Road Gear®, Schwaiger®, Spikemaster® and Terk®, as well as private labels through a large domestic and international distribution network. We also function as an OEM ("Original Equipment Manufacturer") supplier to several customers and presently have one reportable segment (the "Electronics Group"), which is organized by product category.

The Company currently reports sales data for the following two product categories:

Electronics products include:


▪	mobile multi-media video products, including in-dash, overhead and headrest systems,


▪	autosound products including radios, speakers, amplifiers and CD changers,


▪	satellite radios including plug and play models and direct connect models,


▪	automotive security and remote start systems,


▪	automotive power accessories,


▪	rear observation and collision avoidance systems,


▪	home and portable stereos,


▪	digital multi-media products such as personal video recorders and MP3 products,


▪	camcorders,


▪	clock-radios,


▪	digital voice recorders,


▪	home speaker systems,


▪	portable DVD players,


▪	digital picture frames, and


▪	e-readers.

Accessories products include:


▪	High-Definition Television (“HDTV”) antennas,


▪	Wireless Fidelity (“WiFi”) antennas,


▪	High-Definition Multimedia Interface (“HDMI”) accessories,


▪	home electronic accessories such as cabling,


▪	other connectivity products,


▪	power cords,


▪	performance enhancing electronics,


▪	TV universal remotes,


▪	flat panel TV mounting systems,


▪	iPod specialized products,


▪	wireless headphones,


▪	rechargeable battery backups (UPS) for camcorders, cordless phones and portable video (DVD) batteries and accessories,


▪	power supply systems,


▪	electronic equipment cleaning products, and


▪	set-top boxes.

We believe our product groups have expanding market opportunities with certain levels of volatility related to domestic and international markets, new car sales, increased competition by manufacturers, private labels, technological advancements, discretionary consumer spending and general economic conditions. Also, all of our products are subject to price fluctuations which could affect the carrying value of inventories and gross margins in the future.

Our objective is to continue to grow our business by acquiring new brands, embracing new technologies, expanding product development and applying this to a continued stream of new products that should increase gross margins and improve operating income. In addition, it is our intention to continue to acquire synergistic companies that would allow us to leverage our overhead, penetrate new markets and expand existing product categories through our business channels.

Reportable Segments

We have determined that we operate in one reportable segment, the Electronics Group, based on review of ASC 280, “Segment Reporting”. The characteristics of our operations that are relied on in making and reviewing business decisions include the similarities in our products, the commonality of our customers, suppliers and product developers across multiple brands, our unified marketing and distribution strategy, our centralized inventory management and logistics, and the nature of the financial information used by our Executive Officers. Management reviews the financial results of the Company based on the performance of the Electronics Group.

Critical Accounting Policies and Estimates

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies and estimates relate to revenue recognition; sales incentives; accounts receivable reserves; inventory reserves; goodwill and other intangible assets; warranties; stock-based compensation; income taxes; and the fair value measurements of financial assets and liabilities. A summary of the Company's significant accounting policies is identified in Note 1 of the Consolidated Financial Statements in the Company's Form 10-K for the fiscal year ended February 28, 2011 . Since February 28, 2011 , there have been no changes in our critical accounting policies or changes to the assumptions and estimates related to them.

The Company evaluates its indefinite lived intangible assets for impairment triggering events at each reporting period in accordance with ASC 350. Based on our evaluation, there were no triggering events and no impairment of indefinite lived intangible assets in the quarter ended May 31, 2011 . Due to the continued economic volatility, including fluctuations in interest rates, growth rates and changes in demand for our products, there could be a change in the valuation of indefinite lived intangible assets when the Company conducts its annual impairment test.

Results of Operations

As you read this discussion and analysis, refer to the accompanying consolidated statements of operations, which present the results of our operations for the three months ended May 31, 2011 and 2010 .

The following tables set forth, for the periods indicated, certain statements of operations data for the three months ended May 31, 2011 and 2010 .

Net Sales



	Three Months Ended May 31,
	2011		2010		$ Change			% Change
Electronics	$	132,316	$	94,519	$	37,797		40.0	%
Accessories	33,009		35,794		(2,785		)	(7.8	)
Total net sales	$	165,325	$	130,313	$	35,012		26.9	%

Electronic sales represented 80.0% of the net sales for the three months ended May 31, 2011 compared to 72.5% in the prior year period. Approximately $35.1 million of the increase in sales from this product group was the result of our recent acquisition of Klipsch. The remaining balance of the increase in sales was the improvement in audio and video sales, partially offset by declines in consumer good products such as clock radios, camcorders, digital players and voice recorders. Further impacting Electronics sales was a decline in the satellite radio category. The major impact on our consumer electronic sales was a lack of traffic at retail.

Accessory sales represented 20.0% of our net sales for the three months ended May 31, 2011 compared to 27.5% in the prior year period. The sales in this group continue to be impacted by the slowness in retail sales though there was some increase in international business.

Overall, a portion of our total international sales has been impacted by the strengthening of the Euro versus the U.S. dollar; and the economic and political climate in Venezuela.

During the quarter ended May 31, 2011 , sales incentive expenses increased by $3.5 million primarily as a result of our Klipsch acquisition, which has several marketing programs. The release of unearned or unclaimed sales incentives was $322. 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.

Gross Profit



	Three Months Ended May 31,
	2011			2010
Gross profit	$	43,688		$	27,061
Gross margins	26.4		%	20.8		%

Gross margins, which increased by 560 basis points, were favorably impacted by a shift in the business away from lower margined sales such as consumer electronics and fulfillment products toward higher margined products including audio, security, accessories, video and OEM categories. Further impacting gross margins was the addition of our Klipsch acquisition.

Operating Expenses and Operating Loss



	Three Months Ended May 31,
	2011		2010			$ Change		% Change
Operating expenses:
Selling	$	11,904	$	8,829		$	3,075	34.8	%
General and administrative	22,653		17,330			5,323		30.7
Engineering and technical support	3,811		2,389			1,422		59.5
Acquisition-related costs	1,343		—			1,343		N/A
Total operating expenses	$	39,711	$	28,548		$	11,163	39.1	%

Operating (loss) income	$	3,977	$	(1,487	)	$	5,464	(367.5	)%

Operating expenses increased $11.2 million for the three months ended May 31, 2011 from $28,548 in the three months ended May 31, 2010 . As a percentage of net sales, operating expenses increased to 24.0% as compared to 21.9% for the three months ended May 31, 2010 . The increase in total operating expenses was primarily due to our Klipsch acquisition, which accounted for $9.6 million, and a success fee of $1,250 paid in connection with this acquisition.

Other Income (Expense )



	Three Months Ended May 31,
	2011			2010			$ Change			% Change
Interest and bank charges	$	(1,483	)	$	(441	)	$	(1,042	)	236.3	%
Equity in income of equity investees	1,129			908			221			0.2
Other, net	481			1,501			(1,020		)	(0.7	)
Total other income	$	127		$	1,968		$	(1,841	)	(93.5	)%

Interest and bank charges represent expenses for bank obligations of Audiovox Corporation and Audiovox Germany, and interest for a capital lease.

Other income decreased due to the absence of gains on forward exchange contracts recorded during Fiscal 2011, and an other than temporary impairment charge recorded during the three months ended May 31, 2011 relating to its Bliss-tel investment.

Income Tax Benefit/Provision

The effective tax rate for the three months ended May 31, 2011 was 39.4% compared to an income tax benefit of (132.6)% in the prior perio d. The effective tax rate for the three months ended May 31, 2011 is different than the statutory rate primarily related to the tax effect of non-deductible expenses and state and local taxes. The effective tax rate for the three months ended May 31, 2010 is different than the statutory rate primarily due to a discrete item related to the recognition of a tax receivable as a result of the favorable resolution of an income tax audit.

Net Income

The following table sets forth, for the periods indicated, selected statement of operations data beginning with net income and basic and diluted net income per common share.



	Three Months Ended May 31,
	2011		2010
Net income	$	2,487	$	1,119
Net income per common share:
Basic	$	0.11	$	0.05
Diluted	$	0.11	$	0.05

Net income for the three months ended May 31, 2011 was $2,487 compared to a net income of $1,119 in the three months ended May 31, 2010 . Net income per share for the three months ended May 31, 2011 was $0.11 (diluted) as compared to net income per share of $0.05 (diluted) for the prior year period.

Adjusted EBITDA

Adjusted EBITDA is not a financial measure recognized by GAAP. Adjusted EBITDA represents net income, computed in accordance with GAAP, before interest expense, taxes, depreciation and amortization, stock-based compensation expense and costs relating to the Klipsch acquisition. Depreciation, amortization, and stock-based compensation expense are non-cash items.

We present adjusted EBITDA in this Form 10-Q because we consider it to be a useful and appropriate supplemental measure of our performance. Adjusted EBITDA helps us to evaluate our performance without the effects of certain GAAP calculations that may not have a direct cash impact on our current operating performance. In addition, the exclusion of costs relating to the Klipsch acquisition allows for a more meaningful comparison of our results from period-to-period. This non-GAAP measure, as we define it, is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. Adjusted EBITDA should not be assessed in isolation from or construed as a substitute for EBITDA prepared in accordance with GAAP. Adjusted EBITDA is not intended to represent, and should not be considered to be a more meaningful measure than, or an alternative to, a measure of operating performance as determined in accordance with GAAP.

Reconciliation of GAAP Net Income to Adjusted EBITDA



	Three Months Ended May 31,
	2011		2010
Net income	$	2,487	$	1,119
Adjustments:
Interest expense, net	1,483		441
Depreciation and amortization	2,532		2,150
Taxes	1,617		(638		)
EBITDA	8,119		3,072
Stock-based compensation	250		428
Klipsch acquisition costs	1,343		—
Adjusted EBITDA	$	9,712	$	3,500

Liquidity and Capital Resources

Cash Flows, Commitments and Obligations

As of May 31, 2011 , we had working capital of $187,455 which includes cash and short-term investments of $16,237 , compared with working capital of $258,528 at February 28, 2011 , which included cash and short-term investments of $98,630 . The decrease in cash is primarily due to our recent Klipsch acquisition (a portion of which was partially funded by a new credit facility), partially offset by a decrease in accounts receivable and inventory. 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.

Operating activities provided cash of $28,748 for the three months ended May 31, 2011 principally due to decreased accounts receivables.


•	The Company experienced increased accounts receivable turnover of 5.6 during the three months ended May 31, 2011 compared to 5.3 during the three months ended May 31, 2010 .


•	Inventory turnover declined to 3.1 during the three months ended May 31, 2011 compared to 3.3 during the three months ended May 31, 2010 .

Investing activities used cash of $167,675 and $980 during the three months ended May 31, 2011 and 2010 , respectively, primarily due to the Company's acquisition of Klipsch.

Financing activities provided cash of $56,371 during the three months ended May 31, 2011 , primarily from borrowings on bank obligations used to finance the Klipsch acquisition.

As of March 1, 2011, the Company has a revolving credit facility (the “Credit Facility”) with an aggregated committed availability of up to $175 million (the “Maximum Credit”). This amount may be increased at the option of the Company up to a maximum of $200 million. The Credit Facility includes a $25 million sublimit for issuances of letters of credit and a $20 million sublimit for Swing Loans. The Company may borrow under the Credit Facility as needed, provided the aggregate amounts outstanding will not exceed 85% of certain eligible accounts receivable, plus 65% of certain eligible inventory balances less the outstanding amounts for Letters of Credit Usage, if applicable. This amount may be further reduced by the aggregated amounts of reserves that may be required at the reasonable discretion of Wells Fargo in its role as the Administrative Agent. The Company may designate specific borrowings under the Credit Facility as either Base Rate or LIBOR Rate loans, based on certain restrictions, with interest rates of the base rate plus a margin from 1.25 - 1.75%, or LIBOR plus a margin from 2.25 - 2.75%, on the respective categories. On March 1, 2011, the Company borrowed approximately $89 million under this credit facility as a result of its stock purchase agreement related to Klipsch Group, Inc. All amounts outstanding under the Credit Facility will mature and become due on March 1, 2016. The Company may prepay any amounts outstanding at any time, subject to payment of certain breakage and redeployment costs relating to LIBOR Rate Loans. Further details regarding the facility are outlined in Note 15(a) of this report. At May 31, 2011, the Company had $2,717 outstanding in standby letters of credit. No commercial letters of credit were outstanding as of May 31, 2011.

Certain contractual cash obligations and other commercial commitments will impact our short and long-term liquidity. At May 31, 2011 , such obligations and commitments are as follows:



	Payments Due by Period
			Less than		1-3		4-5		After
Contractual Cash Obligations	Total		1 Year		Years		Years		5 Years
Capital lease obligation (1)	$	9,755	$	548	$	1,147	$	1,147	$	6,913
Operating leases (2)	32,060		7,134		10,623		8,102		6,201
Total contractual cash obligations	$	41,815	$	7,682	$	11,770	$	9,249	$	13,114
	Amount of Commitment Expiration per period
	Total
	Amounts		Less than		1-3		4-5		After
Other Commercial Commitments	Committed		1 Year		Years		Years		5 years
Bank obligations (3)	$	61,242	$	1,812	$	—	$	59,430	$	—
Stand-by letters of credit (4)	2,717		2,717		—		—		—
Debt (5)	8,702		2,405		5,759		315		223
Contingent earn-out payments (6)	5,298		2,090		2,703		505		—
Unconditional purchase obligations (7)	81,597		81,597		—		—		—
Total commercial commitments	$	159,556	$	90,621	$	8,462	$	60,250	$	223


1.	Represents total payments (interest and principal) due under a capital lease obligation which has a current (included in other current liabilities) and long term principal balance of $117 and $5,311, respectively at May 31, 2011 .


2.	We enter into operating leases in the normal course of business.


3.	Represents amounts outstanding under the Company's Credit Facility and the Audiovox Germany Euro asset-based lending facility at May 31, 2011 .


4.	We issue standby and commercial letters of credit to secure certain bank obligations and insurance requirements.


5.	This amount includes amounts due under a call-put option with certain employees of Audiovox Germany; amounts outstanding under a loan agreement for Audiovox Germany; a note payable to a vendor in connection with our Invision acquisition; and

an assumed mortgage on a facility in connection with our Klipsch acquisition.


6.	Represents contingent payments in connection with the Thomson Accessory, Thomson Audio/Video and Invision acquisitions.


7.	Open purchase obligations represent inventory commitments. These obligations are not recorded in the consolidated financial statements until commitments are fulfilled and such obligations are subject to change based on negotiations with manufacturers.

We regularly review our cash funding requirements and attempt to meet those requirements through a combination of cash on hand, cash provided by operations, available borrowings under bank lines of credit and possible future public or private debt and/or equity offerings. At times, we evaluate possible acquisitions of, or investments in, businesses that are complementary to ours, which transactions may require the use of cash. We believe that our cash, other liquid assets, operating cash flows, credit arrangements, and access to equity capital markets, taken together, provide adequate resources to fund ongoing operating expenditures. In the event that they do not, we may require additional funds in the future to support our working capital requirements or for other purposes and may seek to raise such additional funds through the sale of public or private equity and/or debt financings as well as from other sources. No assurance can be given that additional financing will be available in the future or that if available, such financing will be obtainable on terms favorable when required.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.

Acquisitions

On March 1, 2011, the Company, through its wholly-owned subsidiary, Soundtech LLC, acquired all of the issued and outstanding shares of Klipsch Group, Inc. and its worldwide subsidiaries ("Klipsch") for a total purchase price of $167.3 million, plus related transaction fees and expenses. Klipsch is a global provider of high-end speakers for audio, multi-media and home theater applications. The acquisition of Klipsch adds world-class brand names to Audiovox's offerings, increases its distribution network, both domestically and abroad, and provides the Company with entry into the high-end residential and commercial installation market.

The Company entered into a $175 million credit agreement with Wells Fargo Capital Finance, LLC to fund a portion of the acquisition and future working capital needs, as applicable. A portion of the acquisition and all related transaction costs were funded with approximately $78.2 million in cash on hand, with $89.1 million borrowed under the Credit Agreement to fund the balance.

The Company acquired approximately $38.7 million in net assets. Intangible assets acquired were estimated at $81 million with the remaining purchase price allocated to goodwill. Management is in the process of determining the final purchase price. Details of the preliminary tangible and intangible assets acquired are outlined in Note 2 of this report.

Subsequent Events

Related Party Transactions

During 1998, we entered into a 30-year capital lease for a building with our principal stockholder and chairman, which was the headquarters of the discontinued Cellular operation. Payments on the capital lease were based upon the construction costs of the building and the then-current interest rates. This capital lease was refinanced in December 2006 and the lease expires on November 30, 2026. The effective interest rate on the capital lease obligation is 8%. On November 1, 2004, we entered into an agreement to sublease the building to Personal Communication Devices, LLC (Formerly UTStarcom) for monthly payments of $46 until November 1, 2009. The sublease lease agreement has been renewed and requires, for a term of three years, monthly payments of $50 until November 1, 2012. We also lease another facility from our principal stockholder which expires on November 30, 2016.

current market rates, as determined by independent valuation, and continue until the lease expiration on May 31, 2021.

Total lease payments required under all related party leases for the five-year period ending May 31, 2016 are $ $13,035 .

New Accounting Pronouncements

We are required to adopt certain new accounting pronouncements (see Note 19) to our consolidated financial statements included herein.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no significant change in our market risk sensitive instruments since February 28, 2011 with the exception of our Venezuelan operation. The Company’s sales for the first fiscal quarter of 2011 were impacted by the economic and political situation in Venezuela, which has resulted in work stoppages at the car manufacturers due to parts shortages and issues with foreign exchange. Venezuela represented 2% of sales for the quarter. The majority of assets invested in Venezuela are cash related and are subject to government foreign exchange controls including its investment in Venezuelan government bonds. The Company will continue to monitor the situation.

The Company also continues to monitor the circumstances related to its equity investment in Bliss-tel (Thailand) as discussed in Note 4.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, these disclosure controls and procedures are effective at a “reasonable assurance” level.

There were no material changes in our internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the three month period ended May 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 17 of the Notes to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and Note 14 of the Form 10-K for the fiscal year ended February 28, 2011 for information regarding legal proceedings.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors previously disclosed in the Company’s Form 10-K for the fiscal year ended February 28, 2011 .

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no shares of common stock repurchased during the three months ended May 31, 2011 .

ITEM 6. EXHIBITS



Exhibit Number		Description

31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith).

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith).

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

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

July 11, 2011

By: /s/ Patrick M. Lavelle

Patrick M. Lavelle,

President and Chief Executive Officer

By: /s/ Charles M. Stoehr

Charles M. Stoehr,

Senior Vice President and Chief Financial Officer

TABLE OF CONTENTS

Part I - Financial Informationprint Item 1. Financial Statementsprint Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operationsprint Item 3. Quantitative and Qualitative Disclosures About Market Riskprint Item 4. Controls and Proceduresprint Part II - Other Informationprint Item 1. Legal Proceedingsprint Item 1A. Risk Factorsprint Item 2. Unregistered Sales Of Equity Securities and Use Of Proceedsprint Item 6. Exhibitsprint

DIRECTORS	AGE	BIO	OTHER DIRECTOR MEMBERSHIPS
Susan R Salka		There are 11 director nominees for election to the Board. The directors elected at the Annual Meeting will hold office until the 2025 Annual Meeting of Shareholders and until their successors have been elected and qualified, or until their earlier resignation, removal or death. Linda P. Mantia, who is no longer an independent director, and Susan R. Salka, who has served on the Board for almost ten years, will not be standing for re-election. Both of their terms will end effective at the Annual Meeting. The Governance and Sustainability Committee has recommended, and the Board has approved, the re-election of the eleven director nominees listed in Item 1 for the Annual Meeting. Each director nominee has informed the Board that he or she is willing to serve as a director. If any director nominee should decline or become unable or unavailable to serve as a director for any reason, your proxy authorizes the individuals named in the proxy to vote for a replacement nominee, or the Board may reduce its size.
Roy Dunbar		PROFESSIONAL EXPERIENCE AND BACKGROUND • Mr. Dunbar most recently served as chief executive officer and chairman at Network Solutions, LLC, an IT service management company, from 2008 to 2010. • From 2004 to 2008, he served as president of global technology and operations for MasterCard where he was responsible for its global payments platform and operations. • Prior to that, he spent over a decade at Eli Lilly and Company where he served as president for the intercontinental region, vice president of information technology and chief information officer. • Mr. Dunbar graduated from Manchester University in the United Kingdom with a pharmacy degree and a master’s degree in business administration from Manchester Business School.
Richard H Carmona		PROFESSIONAL EXPERIENCE AND BACKGROUND • Dr. Carmona has served as chief of health innovations of Canyon Ranch Inc., a life-enhancement company, since 2017. • He has also served in several other executive roles since joining Canyon Ranch in 2006, including vice chairman, chief executive officer of the Canyon Ranch health division and president of the nonprofit Canyon Ranch Institute. • Prior to Canyon Ranch, Dr. Carmona served as the 17th Surgeon General of the United States from 2002 through 2006, achieving the rank of Vice Admiral. Prior to serving as the Surgeon General, he was chairman of the State of Arizona Southern Regional Emergency Medical System and chief executive officer of the County Hospital and Healthcare System. • Dr. Carmona is a Laureate Professor of Public Health Policy and Administration at the University of Arizona. • Dr. Carmona also was a professor of surgery, public health, and family and community medicine at the University of Arizona, and surgeon and deputy sheriff of the Pima County, Arizona Sheriff’s Department.
Maria N Martinez		• Ms. Martinez has received several distinctions for her leadership, including the No. 2 ranking on the ALPFA (Association for Latino Professionals for America) list of the 50 Most Powerful Latinas. • Ms. Martinez holds a bachelor’s degree in electrical engineering from the University of Puerto Rico and a master’s degree in computer engineering from Ohio State University. SKILLS AND QUALIFICATIONS Ms. Martinez brings to our Board leadership experience at leading technology companies, which enhances the Board’s depth of experience in business and digital transformation. She also brings a global leadership perspective, as well as a focus on customer success and customer experience. OTHER PUBLIC COMPANY BOARDS Current: Tyson Foods, Inc. Past Five Years: Cue Health Inc. (2021 - 2024)
Linda P Mantia		There are 11 director nominees for election to the Board. The directors elected at the Annual Meeting will hold office until the 2025 Annual Meeting of Shareholders and until their successors have been elected and qualified, or until their earlier resignation, removal or death. Linda P. Mantia, who is no longer an independent director, and Susan R. Salka, who has served on the Board for almost ten years, will not be standing for re-election. Both of their terms will end effective at the Annual Meeting. The Governance and Sustainability Committee has recommended, and the Board has approved, the re-election of the eleven director nominees listed in Item 1 for the Annual Meeting. Each director nominee has informed the Board that he or she is willing to serve as a director. If any director nominee should decline or become unable or unavailable to serve as a director for any reason, your proxy authorizes the individuals named in the proxy to vote for a replacement nominee, or the Board may reduce its size.
Kevin M Ozan		• Mr. Ozan has a bachelor’s degree in accounting from the University of Michigan and a master’s degree in business from the Kellogg School of Management at Northwestern University. SKILLS AND QUALIFICATIONS Mr. Ozan brings to the Board considerable experience in the areas of finance, mergers and acquisitions, risk management and international operations having served as a former senior financial executive at a global company. OTHER PUBLIC COMPANY BOARDS Current: The Hershey Company Past Five Years: None
Kathleen Wilson-Thompson		PROFESSIONAL EXPERIENCE AND BACKGROUND • Ms. Wilson-Thompson most recently served as executive vice president and global chief human resources officer of Walgreens Boots Alliance, Inc., a healthcare and retail pharmacy company, from December 2014 to January 2021, after serving as senior vice president and chief human resources officer from January 2010 to December 2014. • Previously, she served as senior vice president, global human resources and chief labor and employment counsel at Kellanova (formerly Kellogg Company). • Ms. Wilson-Thompson earned an A.B. degree from the University of Michigan, and J.D. and LL.M. (Corporate and Finance Law) degrees from Wayne State University. • Ms. Wilson-Thompson is also the immediate past chair of the board of directors of the University of Michigan Alumni Association.
James H Hinton		PROFESSIONAL EXPERIENCE AND BACKGROUND • Mr. Hinton currently serves as an operating partner for the private equity firm Welsh, Carson, Anderson & Stowe. • From 2017 to 2021, he served as the CEO of Baylor Scott & White Health, the largest not-for-profit health system in Texas and one of the largest in the U.S. • Mr. Hinton joined Presbyterian Healthcare Services, New Mexico’s largest not-for-profit healthcare provider, in 1983 and he served as their CEO from 1995 to 2016. • During that time, he was a member of the American Hospital Association Board of Trustees and served as its Chair in 2014. • Mr. Hinton holds a master’s degree in healthcare administration from Arizona State University and a bachelor’s degree in economics from the University of New Mexico.
Donald R Knauss		COMPANY STATEMENT IN OPPOSITION Your Board recommends a vote “AGAINST” this proposal for the following reasons: • The Board recognizes the value of strong independent Board leadership; currently, Don Knauss serves as independent Board Chair. • McKesson and its shareholders are best served when leadership choices are made by the Board on a case-by-case basis. • The Board regularly evaluates and reviews the Board’s leadership structure, a process which incorporates feedback from the Company’s shareholders. The Board recognizes the value of strong independent Board leadership; currently Don Knauss serves as independent Board Chair. An independent Board Chair has led our Board since 2019, when Brian Tyler became our CEO. Our Board elected Mr. Knauss as independent Board Chair in April 2022, succeeding the prior independent Board Chair, Edward Mueller, in a planned transition. McKesson and its shareholders are best served when leadership choices are made by the Board on a case-by-case basis. The Board believes continued flexibility to appoint the necessary Board leadership on a case-by-case basis is in the best interest of the Company and its shareholders. While the Board’s current practice is to elect an independent Board Chair, its directors have a fiduciary duty to regularly evaluate and determine the most appropriate Board leadership structure for McKesson and its shareholders in light of the Company’s evolving needs, circumstances and opportunities. Our current directors have deep knowledge of the strategic goals of the Company, the opportunities and challenges it faces, and the various capabilities of our directors and management. Therefore, the Board is best positioned to determine the most effective Board leadership structure, on a case-by-case basis, to protect and enhance long-term shareholder value. In situations where the Board Chair is not independent, McKesson’s Corporate Governance Guidelines require the appointment of a Lead Independent Director with clearly defined responsibilities to ensure strong independent governance functions and effective oversight of management. The Board opposes a prescriptive policy that would unnecessarily restrict its ability in structuring McKesson’s Board leadership as appropriate when faced with new or different circumstances. This proposal, if implemented, does not consider individual qualifications or if such a structure is the most suitable for the specific circumstances that the Board would need to consider. The rigid standard imposed by this proposal would deprive the Board of the flexibility to use its business judgment to select the most effective Board leadership structure to meet the needs of the Company and prioritize the interests of its shareholders based on the circumstances confronting the Board and the Company at any given time. The Board regularly evaluates and reviews the Board’s leadership structure, a process which incorporates feedback from the Company’s shareholders. The Board and the Governance and Sustainability Committee evaluate the Board’s leadership structure at least annually, and more frequently as appropriate. This process includes evaluating the performance of the current Board Chair and Board leadership structure generally to ensure strong independent governance and effective oversight of management. In addition, we regularly discuss our Board leadership structure with our shareholders as part of our year-round shareholder engagement program. Through these conversations, shareholders have not expressed concerns about our Board’s current ability to determine the appropriate Board leadership structure for the Company at any given time. The Board maintains effective independent oversight on behalf of our shareholders by ensuring that the Audit, Compensation and Talent, and Governance and Sustainability Committees are led by and composed entirely of independent directors. McKesson follows strong corporate governance practices as described in more detail beginning on page 11 of this proxy statement.
Dominic J Caruso		PROFESSIONAL EXPERIENCE AND BACKGROUND • Mr. Caruso retired as executive vice president and chief financial officer of Johnson & Johnson, a manufacturer of medical devices and pharmaceutical products, in August 2018, having served in the role since 2007. • He led the company’s financial and investor relations activities, as well as the procurement organization. • Mr. Caruso joined Johnson & Johnson in October 1999 as chief financial officer for Centocor, Inc., upon the completion of the merger of Centocor and Johnson & Johnson. • Prior to joining Centocor, he had varied industry experiences with KPMG. • Mr. Caruso was actively involved in government relations activities globally, including having served as co-chair of the U.S. Chamber of Commerce Global Initiative on Health and the Economy.
Bradley E Lerman		PROFESSIONAL EXPERIENCE AND BACKGROUND • Mr. Lerman currently serves as the executive vice president and chief legal officer of Starbucks Corporation, a company with a multinational chain of coffeehouses and roastery reserves. • Previously, Mr. Lerman served as the senior vice president, general counsel and corporate secretary of Medtronic plc, an American medical device company, from 2014 to January 2022. • At Medtronic, he led the company’s global legal, government affairs and ethics and compliance functions. Prior to Medtronic, Mr. Lerman served as executive vice president, general counsel and corporate secretary for the Federal National Mortgage Association (Fannie Mae). • Previous to Fannie Mae, he served as senior vice president, associate general counsel and chief litigation counsel for Pfizer. • Mr. Lerman also served as a litigation partner at Winston & Strawn LLP in Chicago and as an assistant U.S. attorney in the Northern District of Illinois.

Name and Principal Position	Fiscal Year	Salary ($)	Bonus ($)	Stock Awards ($)	Non-Equity Incentive Plan Compensation ($)	All Other Compensation ($)	Total ($)
Brian S. Tyler Chief Executive Officer	2024	1,490,000	-0-	13,500,408	3,142,410	864,725	18,997,543
	2023	1,433,333	-0-	13,000,596	5,016,667	770,729	20,221,325
	2022	1,375,000	-0-	12,250,438	4,210,938	315,706	18,152,082
Britt J. Vitalone Executive Vice President and Chief Financial Officer	2024	937,500	-0-	4,350,396	1,335,938	158,827	6,782,661
	2023	870,834	-0-	4,000,708	2,002,917	163,254	7,037,713
	2022	845,001	-0-	3,500,404	1,700,564	87,763	6,133,732
Michele Lau Executive Vice President and Chief Legal Officer	2024	175,000	1,500,000	6,851,529	199,500	80,225	8,806,254
LeAnn B. Smith Executive Vice President and Chief Human Resources Officer	2024	635,418	100,000	2,000,379	724,377	80,941	3,541,115
	2023	515,083	100,000	2,050,834	676,177	33,435	3,375,529
	Thomas L. Rodgers Executive Vice President and Chief Strategy and Business Development Officer	2024	611,750	-0-	1,750,716	697,395	119,115	3,178,976
2023		589,167	-0-	1,450,503	1,178,334	82,201	3,300,205
2022		570,834	-0-	1,300,339	998,960	58,564	2,928,697
Lori A. Schechter Former Executive Vice President, Chief Legal Officer and General Counsel	2024	843,833	-0-	2,900,395	961,970	134,765	4,840,963
	2023	827,500	-0-	2,605,652	1,655,000	122,406	5,210,558
	2022	812,500	-0-	2,605,261	1,421,875	429,141	5,268,777
Nancy Avila Former Executive Vice President, Chief Information Officer and Chief Technology Officer	2024	505,250	-0-	2,050,646	575,985	942,043	4,073,924
	2023	645,833	-0-	2,000,904	1,291,667	29,829	3,968,233
	2022	570,834	-0-	1,450,112	998,960	35,100	3,055,006

Supplier name	Ticker
Texas Instruments Incorporated	TXN
Air Products and Chemicals, Inc.	APD
ABB Ltd	ABB
Kyocera Corporation	KYOCY
Emerson Electric Co.	EMR
Dow Inc.	DOW
Ecopetrol S.A.	EC
Eastman Chemical Company	EMN
FMC Corporation	FMC

Owner	Position	Direct Shares	Indirect Shares
TYLER BRIAN S.	-	43,445	214
TYLER BRIAN S.	-	42,741	215
Vitalone Britt J.	-	27,358	547
Vitalone Britt J.	-	26,780	548
Avila Nancy	-	4,631	0
Smith LeAnn B	-	3,547	0
Lau Michele	-	2,808	139
Rodgers Thomas L	-	2,544	0
Rutledge Napoleon B JR	-	1,972	0
Smith LeAnn B	-	1,325	0
KNAUSS DONALD R	-	773	1,296
Rutledge Napoleon B JR	-	536	0

VOXX 10-Q Quarter ended May 31, 2011