UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended November 30, 20202021

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 0-28839

 

VOXX International 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.)

2351 J Lawson Blvd., Orlando, Florida

(Address of principal executive offices)

 

32824

(Zip Code)

 

 

 

(800) 645-7750

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:

Trading Symbol:

Name of Each Exchange on which Registered

Class A Common Stock $.01 par value

VOXX

The Nasdaq Stock Market LLC

 

 

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    No   

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

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

 

Class

 

As of January 8, 20217, 2022

Class A Common Stock

 

21,666,97621,614,629 Shares

Class B Common Stock

 

2,260,954 Shares

 

 

 


 

 

VOXX International Corporation and Subsidiaries

Table of Contents

 

 

 

 

 

Page

PART I

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1

 

FINANCIAL STATEMENTS

 

 

 

 

Consolidated Balance Sheets at November 30, 20202021 (unaudited) and February 29, 202028, 2021

 

3

 

 

Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended November 30, 20202021 and 20192020

 

4

 

 

Unaudited Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended November 30, 20202021 and 20192020

 

5

 

 

Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended November 30, 20202021 and 20192020

 

6

 

 

Notes to Unaudited Consolidated Financial Statements

 

7

Item 2

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

3233

Item 3

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

4647

Item 4

 

CONTROLS AND PROCEDURES

 

4647

 

 

 

 

 

PART II

 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1

 

LEGAL PROCEEDINGS

 

4748

Item 1A

 

RISK FACTORS

 

4748

Item 2

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

4748

Item 6

 

EXHIBITS

 

4849

SIGNATURES

 

4950

 

 

 

 


 

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

VOXX International Corporation and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

November 30,

2020

 

 

February 29,

2020

 

 

November 30,

2021

 

 

February 28,

2021

 

 

(unaudited)

 

 

 

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,337

 

 

$

37,425

 

 

$

21,162

 

 

$

59,404

 

Accounts receivable, net

 

 

155,322

 

 

 

69,714

 

 

 

131,811

 

 

 

106,165

 

Inventory

 

 

138,607

 

 

 

99,110

 

 

 

166,361

 

 

 

130,793

 

Receivables from vendors

 

 

251

 

 

 

230

 

 

 

398

 

 

 

277

 

Prepaid expenses and other current assets

 

 

17,880

 

 

 

10,885

 

 

 

24,935

 

 

 

22,266

 

Income tax receivable

 

 

454

 

 

 

456

 

 

 

431

 

 

 

434

 

Total current assets

 

 

333,851

 

 

 

217,820

 

 

 

345,098

 

 

 

319,339

 

Investment securities

 

 

1,827

 

 

 

2,282

 

 

 

1,440

 

 

 

1,777

 

Equity investment

 

 

22,182

 

 

 

21,924

 

 

 

22,628

 

 

 

23,267

 

Property, plant and equipment, net

 

 

52,124

 

 

 

51,424

 

 

 

50,692

 

 

 

52,026

 

Operating lease, right of use asset

 

 

4,811

 

 

 

3,143

 

 

 

4,010

 

 

 

4,572

 

Goodwill

 

 

58,928

 

 

 

55,000

 

 

 

66,913

 

 

 

58,311

 

Intangible assets, net

 

 

92,797

 

 

 

88,288

 

 

 

111,293

 

 

 

90,104

 

Deferred income tax assets

 

 

56

 

 

 

52

 

 

 

95

 

 

 

99

 

Other assets

 

 

1,413

 

 

 

1,638

 

 

 

946

 

 

 

1,323

 

Total assets

 

$

567,989

 

 

$

441,571

 

 

$

603,115

 

 

$

550,818

 

Liabilities, Redeemable Equity, and Stockholders' Equity

 

 

 

 

 

 

 

 

Liabilities, Redeemable Equity, Redeemable Non-Controlling Interest, and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

80,177

 

 

$

22,096

 

 

$

78,274

 

 

$

61,826

 

Accrued expenses and other current liabilities

 

 

55,695

 

 

 

34,046

 

 

 

64,782

 

 

 

53,392

 

Income taxes payable

 

 

3,166

 

 

 

1,523

 

 

 

1,172

 

 

 

1,587

 

Accrued sales incentives

 

 

27,883

 

 

 

12,250

 

 

 

31,450

 

 

 

25,313

 

Interim arbitration award payable (see Note 24)

 

 

39,444

 

 

 

0

 

Contract liabilities, current

 

 

3,396

 

 

 

0

 

 

 

3,713

 

 

 

4,178

 

Current portion of long-term debt

 

 

500

 

 

 

1,107

 

 

 

2,091

 

 

 

500

 

Total current liabilities

 

 

170,817

 

 

 

71,022

 

 

 

220,926

 

 

 

146,796

 

Long-term debt, net of debt issuance costs

 

 

5,973

 

 

 

6,099

 

 

 

9,925

 

 

 

5,962

 

Finance lease liabilities, less current portion

 

 

386

 

 

 

720

 

 

 

117

 

 

 

302

 

Operating lease liabilities, less current portion

 

 

3,813

 

 

 

2,391

 

 

 

3,073

 

 

 

3,582

 

Contract liabilities, less current portion

 

 

1,016

 

 

 

0

 

Deferred compensation

 

 

1,827

 

 

 

2,282

 

 

 

1,440

 

 

 

1,777

 

Contingent consideration, less current portion (see Note 2)

 

 

5,582

 

 

 

0

 

Deferred income tax liabilities

 

 

7,975

 

 

 

3,828

 

 

 

6,128

 

 

 

6,645

 

Other tax liabilities

 

 

1,123

 

 

 

1,225

 

 

 

1,002

 

 

 

1,170

 

Other long-term liabilities

 

 

5,570

 

 

 

3,294

 

 

 

5,790

 

 

 

5,255

 

Total liabilities

 

 

198,500

 

 

 

90,861

 

 

 

253,983

 

 

 

171,489

 

Commitments and contingencies (see Note 25)

 

 

 

 

 

 

 

 

Commitments and contingencies (see Note 24)

 

 

 

 

 

 

 

 

Redeemable equity (see Note 8)

 

 

2,959

 

 

 

2,481

 

 

 

3,448

 

 

 

3,260

 

Redeemable non-controlling interest (see Note 2)

 

 

1,355

 

 

 

0

 

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NaN shares issued or outstanding (see Note 21)

 

 

0

 

 

 

0

 

NaN shares issued or outstanding (see Note 20)

 

 

0

 

 

 

0

 

Common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A, $.01 par value, 60,000,000 shares authorized, 24,416,194 and 24,306,194 shares issued and 21,666,976 and 21,556,976 shares outstanding at November 30, 2020 and February 29, 2020, respectively

 

 

245

 

 

 

244

 

Class B Convertible, $.01 par value, 10,000,000 shares authorized, 2,260,954 shares issued and outstanding at both November 30, 2020 and February 29, 2020

 

 

22

 

 

 

22

 

Class A, $.01 par value, 60,000,000 shares authorized, 24,476,847 and 24,416,194 shares issued and 21,614,629 and 21,666,976 shares outstanding at November 30, 2021 and February 28, 2021, respectively

 

 

245

 

 

 

245

 

Class B Convertible, $.01 par value, 10,000,000 shares authorized, 2,260,954 shares issued and outstanding at both November 30, 2021 and February 28, 2021

 

 

22

 

 

 

22

 

Paid-in capital

 

 

300,107

 

 

 

299,228

 

 

 

300,240

 

 

 

300,402

 

Retained earnings

 

 

139,458

 

 

 

122,139

 

 

 

123,812

 

 

 

148,906

 

Accumulated other comprehensive loss

 

 

(16,046

)

 

 

(19,055

)

 

 

(17,249

)

 

 

(14,977

)

Less: Treasury stock, at cost, 2,749,218 shares of Class A Common Stock at both November 30, 2020 and February 29, 2020

 

 

(23,918

)

 

 

(23,918

)

Less: Treasury stock, at cost, 2,862,218 and 2,749,218 shares of Class A Common Stock at November 31, 2021 and February 28, 2021, respectively

 

 

(25,138

)

 

 

(23,918

)

Less: Redeemable equity

 

 

(2,959

)

 

 

(2,481

)

 

 

(3,448

)

 

 

(3,260

)

Total VOXX International Corporation stockholders' equity

 

 

396,909

 

 

 

376,179

 

 

 

378,484

 

 

 

407,420

 

Non-controlling interest

 

 

(30,379

)

 

 

(27,950

)

 

 

(34,155

)

 

 

(31,351

)

Total stockholders' equity

 

 

366,530

 

 

 

348,229

 

 

 

344,329

 

 

 

376,069

 

Total liabilities, redeemable equity, and stockholders' equity

 

$

567,989

 

 

$

441,571

 

Total liabilities, redeemable equity, redeemable non-controlling interest, and stockholders' equity

 

$

603,115

 

 

$

550,818

 

See accompanying notes to unaudited consolidated financial statements.

 


 

VOXX International Corporation and Subsidiaries

Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income (Loss)

(In thousands, except share and per share data)

 

 

Three months ended

November 30,

 

 

Nine months ended

November 30,

 

 

Three months ended

November 30,

 

 

Nine months ended

November 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net sales

 

$

201,065

 

 

$

110,112

 

 

$

401,084

 

 

$

293,812

 

 

$

191,871

 

 

$

201,065

 

 

$

472,040

 

 

$

401,084

 

Cost of sales

 

 

142,937

 

 

 

78,648

 

 

 

284,905

 

 

 

212,570

 

 

 

140,167

 

 

 

142,937

 

 

 

346,455

 

 

 

284,905

 

Gross profit

 

 

58,128

 

 

 

31,464

 

 

 

116,179

 

 

 

81,242

 

 

 

51,704

 

 

 

58,128

 

 

 

125,585

 

 

 

116,179

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling

 

 

12,761

 

 

 

9,580

 

 

 

30,190

 

 

 

28,162

 

 

 

13,864

 

 

 

13,176

 

 

 

37,169

 

 

 

30,976

 

General and administrative

 

 

21,128

 

 

 

16,689

 

 

 

51,668

 

 

 

51,896

 

 

 

20,049

 

 

 

21,104

 

 

 

56,609

 

 

 

51,398

 

Engineering and technical support

 

 

5,676

 

 

 

5,059

 

 

 

14,942

 

 

 

15,901

 

 

 

9,706

 

 

 

5,676

 

 

 

23,824

 

 

 

14,942

 

Acquisition costs

 

 

287

 

 

 

24

 

 

 

3,279

 

 

 

270

 

Total operating expenses

 

 

39,565

 

 

 

31,328

 

 

 

96,800

 

 

 

95,959

 

 

 

43,906

 

 

 

39,980

 

 

 

120,881

 

 

 

97,586

 

Operating income (loss)

 

 

18,563

 

 

 

136

 

 

 

19,379

 

 

 

(14,717

)

Operating income

 

 

7,798

 

 

 

18,148

 

 

 

4,704

 

 

 

18,593

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and bank charges

 

 

(471

)

 

 

(751

)

 

 

(2,334

)

 

 

(2,635

)

 

 

(730

)

 

 

(471

)

 

 

(1,840

)

 

 

(2,280

)

Equity in income of equity investee

 

 

1,761

 

 

 

967

 

 

 

4,506

 

 

 

3,672

 

 

 

2,206

 

 

 

1,761

 

 

 

6,964

 

 

 

4,506

 

Gain on sale of real property (see Note 19)

 

 

 

 

 

4,057

 

 

 

 

 

 

4,057

 

Interim arbitration award (see Note 24)

 

 

(39,444

)

 

 

 

 

 

(39,444

)

 

 

 

Investment gain (see Note 4)

 

 

42

 

 

 

 

 

 

42

 

 

 

775

 

 

 

 

 

 

42

 

 

 

 

 

 

42

 

Other, net

 

 

(121

)

 

 

(322

)

 

 

21

 

 

 

1,869

 

 

 

(143

)

 

 

294

 

 

 

675

 

 

 

753

 

Total other income, net

 

 

1,211

 

 

 

3,951

 

 

 

2,235

 

 

 

7,738

 

Income (loss) before income taxes

 

 

19,774

 

 

 

4,087

 

 

 

21,614

 

 

 

(6,979

)

Income tax expense

 

 

2,334

 

 

 

2,720

 

 

 

6,724

 

 

 

1,190

 

Net income (loss)

 

 

17,440

 

 

 

1,367

 

 

 

14,890

 

 

 

(8,169

)

Total other (expense) income, net

 

 

(38,111

)

 

 

1,626

 

 

 

(33,645

)

 

 

3,021

 

(Loss) income before income taxes

 

 

(30,313

)

 

 

19,774

 

 

 

(28,941

)

 

 

21,614

 

Income tax (benefit) expense

 

 

(641

)

 

 

2,334

 

 

 

(374

)

 

 

6,724

 

Net (loss) income

 

 

(29,672

)

 

 

17,440

 

 

 

(28,567

)

 

 

14,890

 

Less: net loss attributable to non-controlling interest

 

 

(811

)

 

 

(1,097

)

 

 

(2,429

)

 

 

(3,521

)

 

 

(1,551

)

 

 

(811

)

 

 

(3,473

)

 

 

(2,429

)

Net income (loss) attributable to VOXX International Corporation

 

$

18,251

 

 

$

2,464

 

 

$

17,319

 

 

$

(4,648

)

Net (loss) income attributable to VOXX International Corporation

 

$

(28,121

)

 

$

18,251

 

 

$

(25,094

)

 

$

17,319

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

79

 

 

 

(295

)

 

 

3,608

 

 

 

(1,321

)

 

 

(1,835

)

 

 

79

 

 

 

(2,797

)

 

 

3,608

 

Derivatives designated for hedging

 

 

(43

)

 

 

13

 

 

 

(514

)

 

 

(271

)

 

 

184

 

 

 

(43

)

 

 

466

 

 

 

(514

)

Pension plan adjustments

 

 

(6

)

 

 

2

 

 

 

(85

)

 

 

25

 

 

 

36

 

 

 

(6

)

 

 

59

 

 

 

(85

)

Other comprehensive income (loss), net of tax

 

 

30

 

 

 

(280

)

 

 

3,009

 

 

 

(1,567

)

Comprehensive income (loss) attributable to VOXX International Corporation

 

$

18,281

 

 

$

2,184

 

 

$

20,328

 

 

$

(6,215

)

Income (loss) per share - basic: Attributable to VOXX International Corporation

 

$

0.75

 

 

$

0.10

 

 

$

0.72

 

 

$

(0.19

)

Income (loss) per share - diluted: Attributable to VOXX International Corporation

 

$

0.74

 

 

$

0.10

 

 

$

0.71

 

 

$

(0.19

)

Other comprehensive (loss) income, net of tax

 

 

(1,615

)

 

 

30

 

 

 

(2,272

)

 

 

3,009

 

Comprehensive (loss) income attributable to VOXX International Corporation

 

$

(29,736

)

 

$

18,281

 

 

$

(27,366

)

 

$

20,328

 

(Loss) income per share - basic: Attributable to VOXX International Corporation

 

$

(1.16

)

 

$

0.75

 

 

$

(1.03

)

 

$

0.72

 

(Loss) income per share - diluted: Attributable to VOXX International Corporation

 

$

(1.16

)

 

$

0.74

 

 

$

(1.03

)

 

$

0.71

 

Weighted-average common shares outstanding (basic)

 

 

24,197,786

 

 

 

24,418,313

 

 

 

24,196,393

 

 

 

24,458,926

 

 

 

24,289,909

 

 

 

24,197,786

 

 

 

24,279,084

 

 

 

24,196,393

 

Weighted-average common shares outstanding (diluted)

 

 

24,677,525

 

 

 

24,625,410

 

 

 

24,532,329

 

 

 

24,458,926

 

 

 

24,289,909

 

 

 

24,677,525

 

 

 

24,279,084

 

 

 

24,532,329

 

 

See accompanying notes to unaudited consolidated financial statements.


VOXX International Corporation and Subsidiaries

Unaudited Consolidated Statements of Stockholders' Equity

For the three and nine months ended November 30, 20202021 and 20192020

(In thousands, except share and per share data)

 

 

Class A

and Class B

Common

Stock

 

 

Paid-in

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Non-

controlling

Interests

 

 

Treasury

Stock

 

 

Redeemable Equity

 

 

Total

Stock-

holders'

Equity

 

Balances at February 28, 2021

 

$

267

 

 

$

300,402

 

 

$

148,906

 

 

$

(14,977

)

 

$

(31,351

)

 

$

(23,918

)

 

$

(3,260

)

 

$

376,069

 

Net income (loss)

 

 

0

 

 

 

0

 

 

 

2,716

 

 

 

0

 

 

 

(919

)

 

 

0

 

 

 

0

 

 

 

1,797

 

Other comprehensive income, net of tax

 

 

0

 

 

 

0

 

 

 

0

 

 

 

492

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

492

 

Net settlement of 60,693 shares of common stock upon vesting of stock awards

 

 

0

 

 

 

(856

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(856

)

Stock-based compensation expense

 

 

0

 

 

 

236

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

34

 

 

 

270

 

Balances at May 31, 2021

 

 

267

 

 

 

299,782

 

 

 

151,622

 

 

 

(14,485

)

 

 

(32,270

)

 

 

(23,918

)

 

 

(3,226

)

 

 

377,772

 

Net income (loss)

 

 

0

 

 

 

0

 

 

 

311

 

 

 

0

 

 

 

(1,003

)

 

 

0

 

 

 

0

 

 

 

(692

)

Other comprehensive loss, net of tax

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(1,149

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(1,149

)

Repurchase of 113,000 shares of Class A common stock

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(1,220

)

 

 

0

 

 

 

(1,220

)

Stock-based compensation expense

 

 

0

 

 

 

237

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(119

)

 

 

118

 

Balances at August 31, 2021

 

 

267

 

 

 

300,019

 

 

 

151,933

 

 

 

(15,634

)

 

 

(33,273

)

 

 

(25,138

)

 

 

(3,345

)

 

 

374,829

 

Net loss

 

 

0

 

 

 

0

 

 

 

(28,121

)

 

 

0

 

 

 

(882

)

 

 

0

 

 

 

0

 

 

 

(29,003

)

Other comprehensive loss, net of tax

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(1,615

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(1,615

)

Stock-based compensation expense

 

 

0

 

 

 

221

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(103

)

 

 

118

 

Balances at November 30, 2021

 

$

267

 

 

$

300,240

 

 

$

123,812

 

 

$

(17,249

)

 

$

(34,155

)

 

$

(25,138

)

 

$

(3,448

)

 

$

344,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

and Class B

Common

Stock

 

 

Paid-in

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Non-

controlling

Interests

 

 

Treasury

Stock

 

 

Redeemable Equity

 

 

Total

Stock-

holders'

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at February 29, 2020

 

$

266

 

 

$

299,228

 

 

$

122,139

 

 

$

(19,055

)

 

$

(27,950

)

 

$

(23,918

)

 

$

(2,481

)

 

$

348,229

 

 

$

266

 

 

$

299,228

 

 

$

122,139

 

 

$

(19,055

)

 

$

(27,950

)

 

$

(23,918

)

 

$

(2,481

)

 

$

348,229

 

Net loss

 

 

0

 

 

 

0

 

 

 

(8,272

)

 

 

0

 

 

 

(833

)

 

 

0

 

 

 

0

 

 

 

(9,105

)

 

 

0

 

 

 

0

 

 

 

(8,272

)

 

 

0

 

 

 

(833

)

 

 

0

 

 

 

0

 

 

 

(9,105

)

Other comprehensive income, net of tax

 

 

0

 

 

 

0

 

 

 

0

 

 

 

313

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

313

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

313

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

313

 

Stock-based compensation expense

 

 

1

 

 

 

351

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(201

)

 

 

151

 

 

 

1

 

 

 

351

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(201

)

 

 

151

 

Balances at May 31, 2020

 

 

267

 

 

 

299,579

 

 

 

113,867

 

 

 

(18,742

)

 

 

(28,783

)

 

 

(23,918

)

 

 

(2,682

)

 

 

339,588

 

 

 

267

 

 

 

299,579

 

 

 

113,867

 

 

 

(18,742

)

 

 

(28,783

)

 

 

(23,918

)

 

 

(2,682

)

 

 

339,588

 

Net income (loss)

 

 

0

 

 

 

0

 

 

 

7,340

 

 

 

0

 

 

 

(785

)

 

 

0

 

 

 

0

 

 

 

6,555

 

 

 

0

 

 

 

0

 

 

 

7,340

 

 

 

0

 

 

 

(785

)

 

 

0

 

 

 

0

 

 

 

6,555

 

Other comprehensive income, net of tax

 

 

0

 

 

 

0

 

 

 

0

 

 

 

2,666

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

2,666

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

2,666

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

2,666

 

Settlement of SERP restricted stock units

 

 

0

 

 

 

(575

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(575

)

 

 

0

 

 

 

(575

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(575

)

Stock-based compensation expense

 

 

0

 

 

 

335

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(85

)

 

 

250

 

 

 

0

 

 

 

335

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(85

)

 

 

250

 

Balances at August 31, 2020

 

 

267

 

 

 

299,339

 

 

 

121,207

 

 

 

(16,076

)

 

 

(29,568

)

 

 

(23,918

)

 

 

(2,767

)

 

 

348,484

 

 

 

267

 

 

 

299,339

 

 

 

121,207

 

 

 

(16,076

)

 

 

(29,568

)

 

 

(23,918

)

 

 

(2,767

)

 

 

348,484

 

Net income (loss)

 

 

0

 

 

 

0

 

 

 

18,251

 

 

 

0

 

 

 

(811

)

 

 

0

 

 

 

0

 

 

 

17,440

 

 

 

0

 

 

 

0

 

 

 

18,251

 

 

 

0

 

 

 

(811

)

 

 

0

 

 

 

0

 

 

 

17,440

 

Other comprehensive income, net of tax

 

 

0

 

 

 

0

 

 

 

0

 

 

 

30

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

30

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

30

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

30

 

Stock-based compensation expense

 

 

0

 

 

 

768

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(192

)

 

 

576

 

 

 

0

 

 

 

768

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(192

)

 

 

576

 

Balances at November 30, 2020

 

$

267

 

 

$

300,107

 

 

$

139,458

 

 

$

(16,046

)

 

$

(30,379

)

 

$

(23,918

)

 

$

(2,959

)

 

$

366,530

 

 

$

267

 

 

$

300,107

 

 

$

139,458

 

 

$

(16,046

)

 

$

(30,379

)

 

$

(23,918

)

 

$

(2,959

)

 

$

366,530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at February 28, 2019

 

$

264

 

 

$

296,946

 

 

$

148,582

 

 

$

(16,944

)

 

$

(12,571

)

 

$

(21,176

)

 

$

0

 

 

$

395,101

 

Net loss

 

 

0

 

 

 

0

 

 

 

(1,148

)

 

 

0

 

 

 

(1,224

)

 

 

0

 

 

 

0

 

 

 

(2,372

)

Other comprehensive loss, net of tax

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(904

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(904

)

Stock-based compensation expense

 

 

0

 

 

 

159

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

159

 

Balances at May 31, 2019

 

 

264

 

 

 

297,105

 

 

 

147,434

 

 

 

(17,848

)

 

 

(13,795

)

 

 

(21,176

)

 

 

0

 

 

 

391,984

 

Net loss

 

 

0

 

 

 

0

 

 

 

(5,964

)

 

 

0

 

 

 

(1,200

)

 

 

0

 

 

 

0

 

 

 

(7,164

)

Other comprehensive loss, net of tax

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(383

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(383

)

Stock-based compensation expense

 

 

2

 

 

 

1,184

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(1,025

)

 

 

161

 

Reclassifications of stockholders' equity to redeemable equity (see Note 8)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(745

)

 

 

(745

)

Repurchase of 208,312 shares of common stock

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(983

)

 

 

0

 

 

 

(983

)

Balances at August 31, 2019

 

 

266

 

 

 

298,289

 

 

 

141,470

 

 

 

(18,231

)

 

 

(14,995

)

 

 

(22,159

)

 

 

(1,770

)

 

 

382,870

 

Net income (loss)

 

 

0

 

 

 

0

 

 

 

2,464

 

 

 

0

 

 

 

(1,097

)

 

 

0

 

 

 

0

 

 

 

1,367

 

Other comprehensive loss, net of tax

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(280

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(280

)

Stock-based compensation expense

 

 

0

 

 

 

471

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(354

)

 

 

117

 

Repurchase of 218,453 shares of common stock

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(1,057

)

 

 

0

 

 

 

(1,057

)

Balances at November 30, 2019

 

$

266

 

 

$

298,760

 

 

$

143,934

 

 

$

(18,511

)

 

$

(16,092

)

 

$

(23,216

)

 

$

(2,124

)

 

$

383,017

 

 

See accompanying notes to unaudited consolidated financial statements.


VOXX International Corporation and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

 

 

 

Nine months ended

November 30,

 

 

 

Nine months ended

November 30,

 

 

 

2020

 

 

 

2019

 

 

 

2021

 

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

$

14,890

 

 

 

$

(8,169

)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

 

$

(28,567

)

 

 

$

14,890

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

8,224

 

 

 

 

9,229

 

 

 

 

8,978

 

 

 

 

8,224

 

Amortization of debt discount

 

 

 

508

 

 

 

 

617

 

 

 

 

208

 

 

 

 

508

 

Bad debt (recovery) expense

 

 

 

(385

)

 

 

 

303

 

Bad debt expense (recovery)

 

 

 

201

 

 

 

 

(385

)

Reduction in the carrying amount of the right of use asset

 

 

 

836

 

 

 

 

668

 

 

 

 

1,007

 

 

 

 

836

 

Loss (gain) on forward contracts

 

 

 

61

 

 

 

 

(347

)

Loss on forward contracts

 

 

 

232

 

 

 

 

61

 

Equity in income of equity investees

 

 

 

(4,506

)

 

 

 

(3,672

)

 

 

 

(6,964

)

 

 

 

(4,506

)

Distribution of income from equity investees

 

 

 

4,248

 

 

 

 

4,169

 

 

 

 

7,603

 

 

 

 

4,248

 

Deferred income tax expense (benefit)

 

 

 

4,187

 

 

 

 

(338

)

Deferred income tax (benefit) expense

 

 

 

(578

)

 

 

 

4,187

 

Non-cash compensation adjustment

 

 

 

(455

)

 

 

 

(51

)

 

 

 

(337

)

 

 

 

(455

)

Stock based compensation expense

 

 

 

1,454

 

 

 

 

1,816

 

 

 

 

694

 

 

 

 

1,454

 

Gain on sale of property, plant, and equipment

 

 

 

 

 

 

 

(3,788

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

(78,692

)

 

 

 

(20,880

)

 

 

 

(27,372

)

 

 

 

(78,692

)

Inventory

 

 

 

(31,406

)

 

 

 

(9,353

)

 

 

 

(36,344

)

 

 

 

(31,406

)

Receivables from vendors

 

 

 

(19

)

 

 

 

790

 

 

 

 

(122

)

 

 

 

(19

)

Prepaid expenses and other

 

 

 

(6,465

)

 

 

 

528

 

 

 

 

(2,486

)

 

 

 

(6,465

)

Investment securities-trading

 

 

 

455

 

 

 

 

304

 

 

 

 

337

 

 

 

 

455

 

Accounts payable, accrued expenses, accrued sales incentives, contract liabilities, and other liabilities

 

 

 

83,049

 

 

 

 

3,379

 

 

 

 

73,903

 

 

 

 

83,049

 

Income taxes payable

 

 

 

1,388

 

 

 

 

908

 

 

 

 

(401

)

 

 

 

1,388

 

Net cash used in operating activities

 

 

 

(2,628

)

 

 

 

(23,887

)

 

 

 

(10,008

)

 

 

 

(2,628

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property, plant, and equipment

 

 

 

(3,510

)

 

 

 

(2,192

)

 

 

 

(3,046

)

 

 

 

(3,510

)

Purchase of acquired business, less cash received

 

 

 

(11,000

)

 

 

 

 

Proceeds from sale of property, plant, and equipment

 

 

 

 

 

 

 

11,951

 

Net cash (used in) provided by investing activities

 

 

 

(14,510

)

 

 

 

9,759

 

Purchase of acquired business

 

 

 

(30,406

)

 

 

 

(11,000

)

Net cash used in investing activities

 

 

 

(33,452

)

 

 

 

(14,510

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal payments on finance lease obligation

 

 

 

(470

)

 

 

 

(477

)

 

 

 

(323

)

 

 

 

(470

)

Repayment of bank obligations

 

 

 

(20,375

)

 

 

 

(9,046

)

 

 

 

(375

)

 

 

 

(20,375

)

Borrowings on bank obligations

 

 

 

20,000

 

 

 

 

 

 

 

 

1,656

 

 

 

 

20,000

 

Deferred financing costs

 

 

 

(260

)

 

 

 

 

 

 

 

(667

)

 

 

 

(260

)

Withholding taxes paid on net issuance of stock award

 

 

 

(857

)

 

 

 

 

Settlement of restricted stock units

 

 

 

(575

)

 

 

 

 

 

 

 

 

 

 

 

(575

)

Purchase of treasury stock

 

 

 

 

 

 

 

(2,040

)

 

 

 

(1,220

)

 

 

 

 

Net cash used in financing activities

 

 

 

(1,680

)

 

 

 

(11,563

)

Proceeds from the issuance of subsidiary shares to non-controlling interest

 

 

 

2,069

 

 

 

 

 

Proceeds from the issuance of long-term debt to non-controlling interest

 

 

 

4,877

 

 

 

 

 

Net cash provided by (used in) financing activities

 

 

 

5,160

 

 

 

 

(1,680

)

Effect of exchange rate changes on cash

 

 

 

2,730

 

 

 

 

(389

)

 

 

 

58

 

 

 

 

2,730

 

Net decrease in cash and cash equivalents

 

 

 

(16,088

)

 

 

 

(26,080

)

 

 

 

(38,242

)

 

 

 

(16,088

)

Cash and cash equivalents at beginning of period

 

 

 

37,425

 

 

 

 

58,236

 

 

 

 

59,404

 

 

 

 

37,425

 

Cash and cash equivalents at end of period

 

 

$

21,337

 

 

 

$

32,156

 

 

 

$

21,162

 

 

 

$

21,337

 

 

See accompanying notes to unaudited consolidated financial statements.

 


 

VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

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

(1)

Basis of Presentation

The accompanying unaudited interim consolidated financial statements of VOXX International Corporation and Subsidiaries ("Voxx" or the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission as defined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 270 for interim financial information, and in accordance with accounting principles generally accepted in the United States of America (“GAAP”), 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, changes in stockholders’ equity, 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 unaudited consolidated financial statements do not include all disclosures associated with audited consolidated financial statements prepared in accordance with GAAP. 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 29, 2020.28, 2021. Certain amounts in the prior year have been reclassified to conform to the current year presentation.

We operate in 3 reportable segments: Automotive Electronics, Consumer Electronics, and Biometrics. See Note 2322 for the Company's segment reporting disclosures.

(2)

Acquisitions

Directed LLC and Directed Electronics Canada, Inc. Acquisition

On July 1, 2020, the Company completed the acquisition of certain assets and liabilities, which comprise the aftermarket vehicle remote start and security systems and connected car solutions (telematics) businesses of Directed LLC and Directed Electronics Canada Inc. (collectively, with Directed LLC, “Directed”) via an asset purchase agreement. The acquired assets includeincluded inventory, accounts receivable, certain fixed assets, IT systems, and intellectual property. The cash purchase price was $11,000. Net sales from the Company’s newly formed subsidiaries, VOXX DEI LLC and VOXX DEI Canada, Ltd. (collectively, with VOXX DEI LLC, “DEI”), included in our consolidated results for the three and nine months ended November 30, 20202021, represented approximately 11.8%11.9% and 7.1%, respectively,10.3% of our consolidated net sales.sales, respectively, as compared to 11.8% and 7.1% for the three and nine months ended November 30, 2020, respectively. DEI’s results of operations are included in the consolidated financial statements of Voxx in our Automotive Electronics segment. The purpose of this acquisition was to expand the Company’s market share within the automotive electronics industry.


The following summarizes the allocation of the purchase price based upon the fair value of the assets acquired and liabilities assumed at the date of acquisition:

 

 

July 1, 2020

 

 

Measurement

Period

Adjustments

 

 

July 1, 2020

(as adjusted)

 

 

July 1, 2020

 

 

Measurement

Period

Adjustments

 

 

July 1, 2020

(as adjusted)

 

Assets acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventory

 

$

7,054

 

 

 

-

 

 

 

7,054

 

 

$

7,054

 

 

 

956

 

 

 

8,010

 

Accounts receivable

 

 

5,173

 

 

 

67

 

 

 

5,240

 

 

 

5,173

 

 

 

357

 

 

 

5,530

 

Other current assets

 

 

160

 

 

 

-

 

 

 

160

 

 

 

160

 

 

 

-

 

 

 

160

 

Property and equipment

 

 

2,815

 

 

 

-

 

 

 

2,815

 

 

 

2,815

 

 

 

-

 

 

 

2,815

 

Operating lease, right of use asset

 

 

1,771

 

 

 

-

 

 

 

1,771

 

 

 

1,771

 

 

 

-

 

 

 

1,771

 

Customer relationships

 

 

2,600

 

 

 

(100

)

 

 

2,500

 

 

 

2,600

 

 

 

(100

)

 

 

2,500

 

Trademarks

 

 

4,500

 

 

 

-

 

 

 

4,500

 

 

 

4,500

 

 

 

-

 

 

 

4,500

 

Patented technology

 

 

1,030

 

 

 

-

 

 

 

1,030

 

 

 

1,030

 

 

 

-

 

 

 

1,030

 

Goodwill

 

 

3,290

 

 

 

55

 

 

 

3,345

 

 

 

3,290

 

 

 

(1,690

)

 

 

1,600

 

Total assets acquired

 

$

28,393

 

 

$

22

 

 

$

28,415

 

 

$

28,393

 

 

$

(477

)

 

$

27,916

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities assumed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

8,144

 

 

 

-

 

 

 

8,144

 

 

 

8,144

 

 

 

-

 

 

 

8,144

 

Accrued expenses

 

 

1,406

 

 

 

11

 

 

 

1,417

 

 

 

1,406

 

 

 

(136

)

 

 

1,270

 

Contract liabilities

 

 

4,872

 

 

 

11

 

 

 

4,883

 

 

 

4,872

 

 

 

11

 

 

 

4,883

 

Warranty accrual

 

 

1,200

 

 

 

-

 

 

 

1,200

 

 

 

1,200

 

 

 

(352

)

 

 

848

 

Operating lease liability

 

 

1,771

 

 

 

-

 

 

 

1,771

 

 

 

1,771

 

 

 

-

 

 

 

1,771

 

Total

 

$

17,393

 

 

$

22

 

 

$

17,415

 

 

$

17,393

 

 

$

(477

)

 

$

16,916

 

Total purchase price

 

$

11,000

 

 

$

-

 

 

$

11,000

 

 

$

11,000

 

 

$

-

 

 

$

11,000

 

 

The purchase allocation presented above is preliminary. We are inDuring Fiscal 2021 and during the process of refining the valuation of acquired assets and liabilities, including goodwill, and expect to finalize the purchase price allocation prior to June 30, 2021. During the three and nine months ended November 30, 2020,2021, the Company recorded a cumulative net measurement period adjustment that increaseddecreased goodwill by $55,$1,690, as presented in the table above. The measurement period adjustment would have resulted in an insignificant decrease in amortization expense related to the customer relationships in the previous quarter.prior year. The Company made these measurement period adjustments to reflect facts and circumstances that existed as of the acquisition date and did not result from intervening events subsequent to such date. Goodwill was determined as the excess of the purchase price over the fair value of the assets acquired (including the identifiable intangible assets) and represents synergies expected.

Vehicle Safety Holdings Corp.Onkyo

On January 31, 2020,April 29, 2021, the Company’s subsidiary, Premium Audio Company acquired certain assetsLLC (“PAC”), signed a Letter of Intent to acquire the home audio/video business of Onkyo Home Entertainment Corporation (“OHEC”), along with Sharp Corporation (“Sharp”) as PAC’s partner. On May 26, 2021, PAC and liabilities of Vehicle Safety Holdings Corp. (“VSHC”) viaSharp signed an asset purchase agreement (“APA”) to jointly acquire the home audio/video business of OHEC through a joint venture entity. The APA was approved by OHEC’s shareholders at its ordinary general meeting of shareholders on June 25, 2021 and on June 28, 2021, the Company announced that PAC had entered into a joint venture with Sharp in order to execute the transaction. PAC owns 77.2% of the joint venture and has 85.1% voting interest and Sharp owns approximately 22.8% of the joint venture and has 14.9% voting interest.

On September 8, 2021, PAC completed the transaction to acquire the home audio/video business of OHEC with its partner, Sharp, through the newly formed joint venture, Onkyo Technology KK (“Onkyo”). The acquired assets included intangible assets and minimal tangible assets.

The joint venture agreement between PAC and Sharp also contains a put/call arrangement, whereby Sharp has the right to put its interest in the joint venture back to Voxx and Voxx has the right to the call Sharp’s ownership interest in the joint venture at any time after the approval of Onkyo’s annual financial statements for the year ending February 28, 2025 at a preliminary purchase price of $16,610, which included $16,500 in cash and contingent consideration withbased on a fair value of $110. Contingent consideration of up to a maximum of $750 is payable based upon the achievement of specified operating results, or the occurrence of certain events over the twelve-month period following the completion of the acquisition. Net sales from the Company’s newly formed subsidiary, VSM-Rostra, LLC (“VSM”) included in our consolidated results for the three and nine months ended November 30, 2020 represented approximately 3.2% and 4.3% of our consolidated net sales, respectively. VSM’s results of operations are includedformula as defined in the consolidated financial statements of Voxx in our Automotive Electronics segment. The purpose of this acquisition was to expand the Company’s product offerings and market share, as VSM is a leading developer, manufacturer, and distributor of safety electronics.joint venture agreement.

The following summarizes the preliminary allocation of the purchase price based upon the fair value of the assets acquired and liabilities assumed at the date of acquisition:


 

 

January 31, 2020

 

 

Measurement

Period

Adjustments

 

 

January 31, 2020

(as adjusted)

 

Assets acquired:

 

 

 

 

 

 

 

 

 

 

 

 

Inventory

 

$

6,982

 

 

 

(489

)

 

 

6,493

 

Accounts receivable

 

 

3,415

 

 

 

-

 

 

 

3,415

 

Right of use assets

 

 

483

 

 

 

-

 

 

 

483

 

Other current assets

 

 

145

 

 

 

-

 

 

 

145

 

Property and equipment

 

 

714

 

 

 

-

 

 

 

714

 

Customer relationships

 

 

5,460

 

 

 

-

 

 

 

5,460

 

Trademarks

 

 

560

 

 

 

-

 

 

 

560

 

Patented technology

 

 

280

 

 

 

-

 

 

 

280

 

Goodwill

 

 

215

 

 

 

583

 

 

 

798

 

Other non-current assets

 

 

3

 

 

 

-

 

 

 

3

 

Total assets acquired

 

$

18,257

 

 

$

94

 

 

$

18,351

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities assumed:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

757

 

 

 

-

 

 

 

757

 

Accrued expenses

 

 

219

 

 

 

94

 

 

 

313

 

Lease liabilities

 

 

483

 

 

 

-

 

 

 

483

 

Warranty accrual

 

 

188

 

 

 

-

 

 

 

188

 

Total

 

$

1,647

 

 

$

94

 

 

$

1,741

 

Total purchase price

 

$

16,610

 

 

$

-

 

 

$

16,610

 

 

 

September 8, 2021

 

Purchase price:

 

 

 

 

Cash paid

 

$

21,989

 

Assignment of notes and interest receivable

 

 

8,417

 

Fair value of contingent consideration

 

 

6,710

 

Total transaction consideration

 

$

37,116

 

 

 

 

 

 

Allocation:

 

 

 

 

Intangible assets

 

$

26,929

 

Goodwill

 

 

10,187

 

Total assets acquired

 

$

37,116

 

 

The purchase price allocation presented above is preliminary.based upon preliminary estimates, including Level 3 inputs which were unobservable and subject to change. We are inconsider the process of refining the valuation of acquired assets and liabilities, including goodwill, and expect to finalize thepreliminary purchase price allocation priorincomplete. The information relevant to Januarydetermine an estimated fair value was not available at the time of acquisition close or as of November 30, 2021. DuringUnder these circumstances, the threepreliminary valuation was based upon initial internal estimates. The assets acquired include technology, trade names, in process research and nine months ended November 30, 2020,development, and goodwill. The tax effects of this transaction are still being evaluated. Contingent consideration is payable to OHEC based upon the Company recorded a cumulative net measurement period adjustment that increased goodwill by $583,calculation of 2% of the total price of future product purchases, as presenteddefined in the table above.APA, by PAC. The measurement period adjustment had no impact on the resultspreliminary fair value of the previous quarters.intangible assets and contingent consideration were estimated with the assistance of a third-party valuation expert. The Company made these measurement period adjustmentsfair value of the put and call options are still being evaluated. The amounts recognized will be finalized as the information necessary to reflect facts and circumstances that existed as ofcomplete the analysis is obtained, but no later than one year after the acquisition date, and did notwhich is September 8, 2022. Finalization of the valuation during the measurement period could result from intervening events subsequent to such date.in significant changes in the amounts recorded for the acquisition date fair value. Goodwill was determined as the excess of the purchase price over the fair value of the assets acquired, (including theincluding identifiable intangible assets)assets, and represents synergies expected.workforce and expected cash flow generation for the Onkyo business that does not qualify for separate recognition as intangible assets.

The Company consolidates the financial results of Onkyo since the acquisition date for financial reporting purposes. The non-controlling interest has been classified as redeemable non-controlling interest outside of equity on the accompanying Consolidated Balance Sheet as the exercise of the put option is not within the Company’s control. The carrying value of the redeemable non-controlling interest of Onkyo cannot be less than the redemption amount, which is the amount Sharp will settle the put option for if exercised. Adjustments to reconcile the carrying value to the redemption amount are recorded to retained earnings. No adjustment was made to the carrying amount of the redeemable non-controlling interest at November 30, 2021 as the carrying amount was in excess of the redemption amount.

The following table provides the rollforward of the redeemable non-controlling interest for the nine months ended November 30, 2021:

 

 

Redeemable Non-controlling Interest

 

Balance at February 28, 2021

 

$

0

 

Initial investment by Sharp

 

 

2,069

 

Net loss attributable to non-controlling interest

 

 

(714

)

Balance at November 30, 2021

 

$

1,355

 

The purpose of this acquisition was to expand the Company’s market share and product offerings within the premium audio industry. The joint venture owns the Onkyo and Integra brands and will market, and sell a variety of products under the Onkyo, Integra, and Pioneer brands. Onkyo’s results of operations are included in the consolidated financial statements of Voxx in our Consumer Electronics segment from September 8, 2021, and represent approximately 1.0% and 0.4% of the Company’s net sales for the three and nine months ended November 30, 2021, respectively. Prior to the acquisition, PAC operated under a distribution agreement with OHEC through its 11 Trading Company subsidiary, selling Onkyo and Pioneer products to Voxx customers. No additional customer contracts were acquired in conjunction with the acquisition and 11TC continues to sell these products to the same pre-acquisition customer base.


The acquisition would not have had a material impact on the Company’s revenue or net (loss) income had it been included in the consolidated results of the Company for the nine months ended November 30, 2021 or the three and nine months ended November 30, 2020.

(3)

Net (Loss) Income (Loss) Per Common Share

Basic net (loss) income (loss) per common share, net of non-controlling interest, is based upon the weighted-average common shares outstanding during the period. Diluted net (loss) income (loss) per common share, net of non-controlling interest, 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 0 reconciling items which impact the numerator of basic and diluted net (loss) income (loss) per common share.  A reconciliation between the denominator of basic and diluted net (loss) income (loss) per common share is as follows:

 

 

 

Three months ended

November 30,

 

 

Nine months ended

November 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Weighted-average common shares outstanding (basic)

 

 

24,197,786

 

 

 

24,418,313

 

 

 

24,196,393

 

 

 

24,458,926

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock and stock grants

 

 

479,739

 

 

 

207,097

 

 

 

335,936

 

 

 

0

 

Weighted-average common shares and potential common shares outstanding (diluted)

 

 

24,677,525

 

 

 

24,625,410

 

 

 

24,532,329

 

 

 

24,458,926

 


 

 

Three months ended

November 30,

 

 

Nine months ended

November 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Weighted-average common shares outstanding (basic)

 

 

24,289,909

 

 

 

24,197,786

 

 

 

24,279,084

 

 

 

24,196,393

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock units, stock grants, and market stock units

 

 

0

 

 

 

479,739

 

 

 

0

 

 

 

335,936

 

Weighted-average common shares and potential common shares outstanding (diluted)

 

 

24,289,909

 

 

 

24,677,525

 

 

 

24,279,084

 

 

 

24,532,329

 

 

Restricted stock andunits, stock grants, totalingand market stock units of 650,325 and 0 and 43,374 for the three months ended November 30, 20202021 and 2019,2020, respectively, and 17,009695,589 and 672,53117,009 for the nine months ended November 30, 20202021 and 2019,2020, respectively, were not included in the net (loss) income (loss) per diluted share calculation because the grant price of the restricted stock andunits, stock grants, and market stock units was greater than the average market price of the Company’s common stock during these periods, or the inclusion of these components would have been anti-dilutive.

 

 

(4)

Investment Securities

As of November 30, 2020,2021, and February 29, 2020,28, 2021, the Company had the following investments:

 

 

November 30, 2020

 

 

November 30, 2021

 

 

Fair Value

 

 

Fair Value

 

Investment Securities

 

 

 

 

 

 

 

 

Marketable Equity Securities

 

 

 

 

 

 

 

 

Mutual funds

 

$

1,827

 

 

$

1,440

 

Total Marketable Equity Securities

 

 

1,827

 

 

 

1,440

 

Total Investment Securities

 

$

1,827

 

 

$

1,440

 

 

 

February 29, 2020

 

 

February 28, 2021

 

 

Fair Value

 

 

Fair Value

 

Investment Securities

 

 

 

 

 

 

 

 

Marketable Equity Securities

 

 

 

 

 

 

 

 

Mutual funds

 

$

2,282

 

 

$

1,777

 

Total Marketable Securities

 

 

2,282

 

 

 

1,777

 

Total Investment Securities

 

$

2,282

 

 

$

1,777

 

10


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

Equity Securities

Mutual Funds

The Company’s mutual funds are held in connection with its deferred compensation plan. Changes in the carrying value of these securities are offset by changes in the corresponding deferred compensation liability.

Other Long-Term Investments

In July 2017, the Company sold its investment in RxNetworks, a non-controlled corporation, consisting of shares of the investee’s preferred stock. Voxx recognized a gain of $1,416 during Fiscal 2018 for the sale of this investment. A portion of the cash proceeds for the sale was subject to a hold-back provision, which was not included in the calculation of the gain recognized in Fiscal 2018, as it was considered a gain contingency. During the second quarter of Fiscal 2020, the hold-back provision expired, and the Company received additional proceeds from the sale in August 2019, recording an investment gain of $775 for the nine months ended November 30, 2019. In November 2020, a final disbursement of all remaining proceeds from the sale of RxNetworks attributable to Voxx was received in the amount of $42, which was recorded as an investment gain for the three and nine months ended November 30, 2020.

 

(5)

Fair Value Measurements and Derivatives

The Company applies the authoritative guidance on “Fair Value Measurements," which among other things, requires enhanced disclosures about assets and liabilities 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.

10


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

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.

At November 30, 2020 and February 29, 2020,28, 2021, the Company did not0t have any assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

The following table presents financial assets and liabilities measured at fair value on a recurring basis at November 30, 2020:2021:

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

21,337

 

 

$

21,337

 

 

$

0

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Designated for hedging

 

$

(1,026

)

 

$

0

 

 

$

(1,026

)

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

Mutual funds

 

$

1,827

 

 

$

1,827

 

 

$

0

 

Total investment securities

 

$

1,827

 

 

$

1,827

 

 

$

0

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

21,162

 

 

$

21,162

 

 

$

0

 

 

$

0

 

Mutual funds

 

 

1,440

 

 

 

1,440

 

 

 

0

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated for hedging

 

$

200

 

 

$

0

 

 

$

200

 

 

$

0

 

Contingent consideration

 

 

6,403

 

 

 

0

 

 

 

0

 

 

 

6,403

 

11


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

The following table presents financial assets and liabilities measured at fair value on a recurring basis at February 29, 2020:28, 2021:

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

37,425

 

 

$

37,425

 

 

$

0

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Designated for hedging

 

$

(476

)

 

$

0

 

 

$

(476

)

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

Mutual funds

 

$

2,282

 

 

$

2,282

 

 

$

0

 

Total investment securities

 

$

2,282

 

 

$

2,282

 

 

$

0

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

59,404

 

 

$

59,404

 

 

$

0

 

 

$

0

 

Mutual funds

 

 

1,777

 

 

 

1,777

 

 

 

0

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated for hedging

 

$

765

 

 

$

0

 

 

$

765

 

 

$

0

 

 

At November 30, 2020,2021, the carrying value of the Company's accounts receivable, short-term debt, accounts payable, accrued expenses, bank obligations, and long-term debt approximates fair value because of either (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; or (iii) the stated or implicit interest rate approximates the current market rates or are not materially different from market rates.

Contingent consideration is related to the Company’s Onkyo acquisition (see Note 2). The estimated fair value of the contingent consideration is classified within Level 3 and was determined using an income approach. Under this method, potential future purchases applicable to the contingent consideration were determined using internal estimates for growth. The potential future purchases applicable to the contingent consideration were multiplied by the appropriate percentage of payments due to OHEC, and the resulting contingent consideration amounts were adjusted for risk at the appropriate discount rate. The value of the contingent consideration was further discounted to reflect the credit risk of the Company. Changes in either the revenue growth rate assumptions or the discount rate could result in a material change to the amount of contingent consideration accrued and such changes will be recorded in the Company's Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income.

Derivative Instruments

The Company’s derivative instruments include forward foreign currency contracts and an interest rate swap agreement. The forward foreign currency contracts are utilized to hedge a portion of the Company’s foreign currency inventory purchases. The forward foreign currency derivatives qualifying for hedge accounting are designated as cash flow hedges and valued using observable forward rates for the same or similar instruments (Level 2). The duration of open forward foreign currency contracts ranges from 1 month to 153 months and are classified in the balance sheet according to their terms. The Company’s interest rate swap agreement hedges interest rate exposure related to the outstanding balance of its Florida Mortgage, with monthly payments due through March 2026. The swap agreement locks the interest rate on the debt at 3.48% (inclusive of credit spread) through the maturity date of the loan. Interest rate swap agreements qualifying for hedge accounting are designated as cash flow hedges and valued based on a

11


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

comparison of the change in fair value of the actual swap contracts designated as the hedging instruments and the change in fair value of a hypothetical swap contract (Level 2). We calculate the fair value of our interest rate swap agreement quarterly based on the quoted market price for the same or similar financial instruments. Interest rate swaps are classified in the balance sheet as either assets or liabilities based on the fair value of the instruments at the end of the period.

12


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

Financial Statement Classification

The following table discloses the fair value as of November 30, 20202021 and February 29, 202028, 2021 of the Company’s derivative instruments:

 

 

Derivative Assets and Liabilities

 

 

Derivative Assets and Liabilities

 

 

 

 

Fair Value

 

 

 

 

Fair Value

 

 

Account

 

November 30, 2020

 

 

February 29, 2020

 

 

Account

 

November 30, 2021

 

 

February 28, 2021

 

Designated derivative instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

Prepaid expenses and other current assets

 

$

236

 

 

$

0

 

 

Prepaid expenses and other current assets

 

$

561

 

 

$

412

 

 

Accrued expenses and other current liabilities

 

 

(710

)

 

 

0

 

 

Accrued expenses and other current liabilities

 

 

(456

)

 

 

(731

)

Interest rate swap agreement

 

Other long-term liabilities

 

 

(552

)

 

 

(476

)

 

Other long-term liabilities

 

 

(305

)

 

 

(446

)

Total derivatives

 

 

 

$

(1,026

)

 

$

(476

)

 

 

 

$

(200

)

 

$

(765

)

 

Cash Flow Hedges

The Company's policy is 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. For derivative instruments that are designated and qualify as cash flow hedges, the entire change in fair value of the hedging instrument included in the assessment of the hedge ineffectiveness is recorded to Other comprehensive income (loss). income. When the amounts recorded in Other comprehensive (loss) income (loss) are reclassified to earnings, they are presented in the same income statement line item as the effect of the hedged item.

During the first quarter of Fiscal 2021, the Company entered into forward foreign currency contracts, which have a current outstanding notional value of $13,160$2,700 and are designated as cash flow hedges at November 30, 2020. During Fiscal 2020, the Company did not enter into any forward foreign currency contracts and all previous contracts were settled through February 29, 2020.2021. The current outstanding notional value of the Company's interest rate swap at November 30, 20202021 is $7,239.$6,739. For cash flow hedges, the gain or loss is reported as a component of Other comprehensive (loss) income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The net (loss) income recognized in Other comprehensive (loss) income (loss) for foreign currency contracts is expected to be recognized in Cost of sales during the next eighteensix months. NaN amounts were excluded from the assessment of hedge effectiveness during the respective periods. The gain or loss on the Company’s interest rate swap is recorded in Other comprehensive (loss) income (loss) and subsequently reclassified into Interest and bank charges in the period in which the hedged transaction affects earnings. As of November 30, 2020,2021, 0 interest rate swaps originally designated for hedge accounting were de-designated or terminated.

Activity related to cash flow hedges recorded during the three and nine months ended November 30, 20202021 and 20192020 was as follows:

 

 

Three months ended

 

 

Nine months ended

 

 

Three months ended

 

 

Nine months ended

 

 

November 30, 2020

 

 

November 30, 2020

 

 

November 30, 2021

 

 

November 30, 2021

 

 

Pretax Gain

(Loss)

Recognized in

Other

Comprehensive

Income

 

 

Pretax Loss

Reclassified from

Accumulated Other

Comprehensive

Income

 

 

Pretax Loss

Recognized in

Other

Comprehensive

Income

 

 

Pretax Loss

Reclassified from

Accumulated Other

Comprehensive

Income

 

 

Pretax Gain

Recognized in

Other

Comprehensive

Income

 

 

Pretax Loss

Reclassified from

Accumulated Other

Comprehensive

Income

 

 

Pretax Gain

Recognized in

Other

Comprehensive

Income

 

 

Pretax Loss

Reclassified from

Accumulated Other

Comprehensive

Income

 

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

$

(242

)

 

$

(121

)

 

$

(707

)

 

$

(69

)

 

$

89

 

 

$

(30

)

 

$

233

 

 

$

(235

)

Interest rate swaps

 

 

39

 

 

 

0

 

 

 

(76

)

 

 

0

 

 

 

104

 

 

 

0

 

 

 

141

 

 

 

0

 

1213


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

 

 

 

Three months ended

 

 

Nine months ended

 

 

Three months ended

 

 

Nine months ended

 

 

November 30, 2019

 

 

November 30, 2019

 

 

November 30, 2020

 

 

November 30, 2020

 

 

Pretax Gain

Recognized in

Other

Comprehensive

Income

 

 

Pretax Gain

Reclassified

from

Accumulated Other

Comprehensive

Income

 

 

Pretax Gain (Loss)

Recognized in

Other

Comprehensive

Income

 

 

Pretax Gain

Reclassified

from

Accumulated Other

Comprehensive

Income

 

 

Pretax (Loss) Gain

Recognized in

Other

Comprehensive

Income

 

 

Pretax Loss

Reclassified

from

Accumulated Other

Comprehensive

Income

 

 

Pretax Loss

Recognized in

Other

Comprehensive

Income

 

 

Pretax Loss

Reclassified

from

Accumulated Other

Comprehensive

Income

 

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

$

41

 

 

$

134

 

 

$

357

 

 

$

362

 

 

$

(242

)

 

$

(121

)

 

$

(707

)

 

$

(69

)

Interest rate swaps

 

 

79

 

 

 

0

 

 

 

(260

)

 

 

0

 

 

 

39

 

 

 

0

 

 

 

(76

)

 

 

0

 

 

(6)

Accumulated Other Comprehensive Income (Loss)Loss

The Company’s accumulated other comprehensive income (loss)loss consists of the following:

 

 

 

Foreign

Currency

Translation

Losses

 

 

Pension plan

adjustments,

net of tax

 

 

Derivatives

designated

in a hedging

relationship,

net of tax

 

 

Total

 

Balance at February 29, 2020

 

$

(17,739

)

 

$

(887

)

 

$

(429

)

 

$

(19,055

)

Other comprehensive income (loss) before reclassifications

 

 

3,608

 

 

 

(85

)

 

 

(609

)

 

 

2,914

 

Reclassified from accumulated other comprehensive loss

 

 

0

 

 

 

0

 

 

 

95

 

 

 

95

 

Net current-period other comprehensive income (loss)

 

 

3,608

 

 

 

(85

)

 

 

(514

)

 

 

3,009

 

Balance at November 30, 2020

 

$

(14,131

)

 

$

(972

)

 

$

(943

)

 

$

(16,046

)

 

 

Foreign

Currency

Translation

Losses

 

 

Pension plan

adjustments,

net of tax

 

 

Derivatives

designated

in a hedging

relationship,

net of tax

 

 

Total

 

Balance at February 28, 2021

 

$

(13,374

)

 

$

(869

)

 

$

(734

)

 

$

(14,977

)

Other comprehensive (loss) income before reclassifications

 

 

(2,797

)

 

 

59

 

 

 

306

 

 

 

(2,432

)

Reclassified from accumulated other comprehensive loss

 

 

0

 

 

 

0

 

 

 

160

 

 

 

160

 

Net current-period other comprehensive income

 

 

(2,797

)

 

 

59

 

 

 

466

 

 

 

(2,272

)

Balance at November 30, 2021

 

$

(16,171

)

 

$

(810

)

 

$

(268

)

 

$

(17,249

)

 

During the three and nine months ended November 30, 2020,2021, the Company recorded other comprehensive income (loss), net of the associated tax impact of $38$37 and $200,$141, respectively, related to derivatives designated in a hedging relationship, and $0 in both periods related to pension plan adjustments.

The other comprehensive income (loss) before reclassification of $3,608$(2,797) includes the remeasurement of intercompany transactions of a long-term investment nature of $(983)$222 with certain subsidiaries whose functional currency is not the U.S. dollar, and $4,591$(3,019) from translating the financial statements of the Company's non-U.S. dollar functional currency subsidiaries into our reporting currency, which is the U.S. dollar.

1314


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

(7)

Supplemental Cash Flow Information

The following is supplemental information relating to the Unaudited Consolidated Statements of Cash Flows:

 

 

Nine months ended

November 30,

 

 

Nine months ended

November 30,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of redeemable equity

 

$

-

 

 

$

1,379

 

Reclassification of stockholders' equity to redeemable equity

 

 

478

 

 

 

745

 

Increase in goodwill due to measurement period adjustments, net

 

 

638

 

 

 

-

 

Change in redeemable equity

 

$

188

 

 

$

478

 

Change in goodwill due to measurement period adjustments, net

 

 

(1,353

)

 

 

638

 

Settlement of debt with receivables

 

 

607

 

 

 

-

 

 

 

-

 

 

 

607

 

Additional goodwill from the recognition of the fair value of non-controlling interest in connection with business acquisition

 

 

8,463

 

 

 

-

 

Contingent purchase price consideration in connection with business acquisition

 

 

6,710

 

 

 

-

 

Right of use assets obtained in exchange for operating lease obligations

 

 

735

 

 

 

1,214

 

 

 

419

 

 

 

735

 

Right of use assets obtained in exchange for finance lease obligations

 

 

-

 

 

 

1,024

 

Right of use assets recorded in exchange for operating lease obligations upon the adoption of ASC 842

 

 

-

 

 

 

2,227

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

836

 

 

$

668

 

 

$

1,018

 

 

$

836

 

Operating cash flows from finance leases

 

 

23

 

 

 

36

 

 

 

9

 

 

 

23

 

Finance cash flows from finance leases

 

 

470

 

 

 

477

 

 

 

323

 

 

 

470

 

Cash paid during the period:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest (excluding bank charges)

 

$

831

 

 

$

726

 

 

$

492

 

 

$

831

 

Income taxes (net of refunds)

 

 

1,139

 

 

 

565

 

 

 

625

 

 

 

1,139

 

 

(8)

Accounting for Stock-Based Compensation

The Company has various stock-based compensation plans, which are more fully described in Note 1 of the Notes to the Consolidated Financial Statements contained in the Company’s Form 10-K for the fiscal year ended February 29, 2020.28, 2021.

Restricted stock awards are granted pursuant to the Company's 2012 Equity Incentive Plan (the "2012 Plan"). 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 for a reason other than death, disability, or retirement prior to the release of the restrictions.

The Company's Omnibus Equity Incentive Plan was established in 2014 (the "2014 Plan"). Pursuant to the 2014 Plan, Restricted Stock Units ("RSUs") may be awarded by the Company to any individual who is employed by, provides services to, or serves as a director of the Company or its affiliates. RSUs vest on the later of three years from the date of grant, or the grantee reaching the age of 65 years. The RSU awards will also vest upon the sale of all of the Company's issued and outstanding stock, the sale of all, or substantially all, of the assets of a subsidiary of which the grantee serves as CEO and/or President, or the termination of the grantee's employment without cause, provided that the grantee, at the time of termination, has been employed for at least 10 years. When vested, RSU awards may be settled in shares of common stockClass A Common Stock or in cash, at the Company's sole option. There are no market conditions inherent in an RSU award, only the employee performance requirement for performance awards, and the service requirement that the respective employee continues employment with the Company through the vesting date. In July 2020,2021, the Company granted 48,26948,527 RSU awards to employees under the 2014 Plan. The Company expenses the cost of RSU awards on a straight-line basis over the requisite service period of each grantee. For these purposes, the fair market value of each RSU is determined based on the mean of the high and low price of the Company's common stock on the grant date. The fair market value of each RSU granted in July 20202021 was $5.76. In October 2020, the Company granted 40,000 fully vested RSU awards to its non-employee directors. The fair market value of each of these RSU’s was $8.89.$13.59.

Grant of Shares to Chief Executive Officer

On July 8, 2019, the Board of Directors approved a five-year Employment Agreement (the “Employment Agreement”), effective March 1, 2019, by and between the Company and Patrick M. Lavelle, the Company’s President and Chief Executive Officer. Under the terms of the Employment Agreement, in addition to a $1,000 annual salary and a cash bonus based on the Company’s Adjusted EBITDA, Mr. Lavelle agreedwas granted the right to receive certain stock-based compensation as discussed below:

1415


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

 

-

An initial stock grant of 200,000 fully vested shares of Class A Common Stock issued in July 2019 under the 2012 Plan.

 

 

-

Additional stock grants of 100,000 shares of Class A Common Stock to be issued on each of March 1, 2020, March 1, 2021, and March 1, 2022. Compensation expense of $40 and $118 was recognized during the three and nine months ended November 30, 2021, respectively, compared to $102 and $308 was recognized duringfor the three and nine months ended November 30, 2020, respectively, based upon the grant fair value of $4.15 per share using the graded vesting attribution method. On March 1, 2020, 100,000 of these stock grants vested, resulting in 100,000 shares of the Company’s Class A Common Stock being issued to Mr. Lavelle. On March 1, 2021, an additional 100,000 of these stock grants vested, resulting in 60,653 shares of Class A Common Stock being issued to Mr. Lavelle and 39,347 shares being withheld for taxes.

 

-

Grant of market stock units (“MSU’s”) up to a maximum value of $5,000, based upon the achievement of a 90-calendar day average stock price of no less than $5.49 over the performance period ending on the third and fifth anniversary of the effective date of the Employment Agreement. The value of the MSU award increases based upon predetermined targeted 90-calendar day average stock prices with a maximum of $5,000 if the 90-calendar day average high stock price equals or exceeds $15.00. The number of shares to be issued related to the MSUs based upon achievement of the maximum award value of $5,000, and if issued at $15.00 per share, is estimated at 333,333 shares. Actual results may differ based upon when the high average stock price is achieved and settled.  We recognized stock-based compensation expense of $60 and $182, during both the three and nine months ended November 30, 2021 and November 30, 2020, respectively, related to these MSU’s using the graded vesting attribution method over the performance period. As of November 30, 2020,2021, all of the MSU’s remain outstanding.

 

All stock grants under the Employment Agreement are subject to a hold requirement as specified in the Employment Agreement. The Employment Agreement gave Mr. Lavelle, in certain limited change of control situations, the right to require the Company to purchase the shares issued in connection with the Employment Agreement, shares personally acquired by Mr. Lavelle, and shares issued to him under other incentive compensation arrangements.  Accordingly, the stock awards issued in connection with the Employment Agreement are presented as redeemable equity on the Consolidated Balance SheetSheets at grant-date fair value. RSUs previously held by Mr. Lavelle under the 2014 Plan and shares personally purchased by Mr. Lavelle have been reclassified from permanent equity to redeemable equity. As the contingent events that would allow Mr. Lavelle to redeem the shares are not probable at this time, remeasurement of the amounts in redeemable equity have not been recorded. The Employment Agreement contains certain restrictive and non-solicitation covenants.

The following table presents a summary of the activity related to the initial stock grant, additional stock grants under the Employment Agreement, and RSU grants under the 2014 Plan for the nine months ended November 30, 2020:2021:

 

 

Number

of Shares

 

 

Weighted

Average

Grant Date

Fair Value

 

 

Number

of Shares

 

 

Weighted

Average

Grant Date

Fair Value

 

Unvested award balance at February 29, 2020

 

 

715,152

 

 

$

5.07

 

Unvested award balance at February 28, 2021

 

 

603,724

 

 

$

5.18

 

Granted

 

 

88,269

 

 

 

7.18

 

 

 

48,527

 

 

 

13.59

 

Vested

 

 

99,697

 

 

 

7.21

 

 

 

(136,008

)

 

 

5.50

 

Vested and settled

 

 

100,000

 

 

 

4.15

 

 

 

(100,000

)

 

 

4.15

 

Unvested award balance at November 30, 2020

 

 

603,724

 

 

$

5.18

 

Unvested award balance at November 30, 2021

 

 

416,243

 

 

$

6.30

 

 

At November 30, 2020,2021, there were 278,318414,326 vested and unsettled stock grants and RSU awards under the Company’s 2014 Plan with a weighted average fair value of $7.71. In July 2020, the vested RSU awards for two of the Company’s former employees, totaling 105,123 award units, were settled in cash in an amount totaling $575.$6.98.

 

During the three and nine months ended November 30, 2021 and November 30, 2020, the Company recorded $221 and $694, respectively, compared to $768 and $1,454, respectively, in total stock-based compensation related to the 2014 Plan, as well as additional stock grants and MSU’s under the Employment Agreement. As of November 30, 2020,2021, there was approximately $1,760$1,435 of unrecognized stock-based compensation expense related to unvested RSU awards, stock grants, and MSU’s.

(9)

Supply Chain Financing

The Company has supply chain financing agreements and factoring agreements that were entered into for the purpose of accelerating receivable collection and better managing cash flow. The balances under the agreements are sold without recourse and are accounted for as sales of accounts receivable. Total receivable balances sold for the three and nine months ended November 30, 2020,2021, net of discounts, were $20,876$20,681 and $60,039,$62,136, respectively, compared to $14,062$20,876 and $50,897, respectively,$60,039 for the three and nine months ended November 30, 2019.2020, respectively.

1516


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

(10)

Research and Development

Expenditures for research and development are charged to expense as incurred. Such expenditures amounted to $3,986 and $9,931 for the three and nine months ended November 30, 2021, respectively, compared to $1,892 and $5,413 for the three and nine months ended November 30, 2020, respectively, compared to $1,672 and $5,434, respectively, for the three and nine months ended November 30, 2019.respectively. All amounts are net of customer reimbursements and are included within Engineering and technical support expenses on the Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss). Income.

(11)

Goodwill and Intangible Assets

The change in goodwill by segment is as follows:

 

Automotive Electronics:

 

Amount

 

Beginning balance at March 1, 2020

 

$

8,467

 

Activity during the period

 

 

3,928

 

Balance at November 30, 2020

 

$

12,395

 

Gross carrying value at November 30, 2020

 

$

12,395

 

Accumulated impairment charge

 

 

0

 

Net carrying value at November 30, 2020

 

$

12,395

 

Consumer Electronics:

 

 

 

 

Beginning balance at March 1, 2020

 

$

46,533

 

Activity during the period

 

 

0

 

Balance at November 30, 2020

 

$

46,533

 

Gross carrying value at November 30, 2020

 

$

78,696

 

Accumulated impairment charge

 

 

(32,163

)

Net carrying value at November 30, 2020

 

$

46,533

 

Total Goodwill, net

 

$

58,928

 

Automotive Electronics:

 

Amount

 

Beginning balance at March 1, 2021

 

$

11,778

 

Activity during the period

 

 

(1,353

)

Balance at November 30, 2021

 

$

10,425

 

Gross carrying value at November 30, 2021

 

$

10,425

 

Accumulated impairment charge

 

 

0

 

Net carrying value at November 30, 2021

 

$

10,425

 

Consumer Electronics:

 

 

 

 

Beginning balance at March 1, 2021

 

$

46,533

 

Goodwill acquired during the period

 

 

10,187

 

Foreign currency adjustments

 

 

(232

)

Balance at November 30, 2021

 

$

56,488

 

Gross carrying value at November 30, 2021

 

$

88,651

 

Accumulated impairment charge

 

 

(32,163

)

Net carrying value at November 30, 2021

 

$

56,488

 

Total Goodwill, net

 

$

66,913

 

 

The Company's Biometrics segment did 0t carry a goodwill balance at November 30, 20202021 or February 29, 2020.28, 2021.

At November 30, 2020,2021, intangible assets consisted of the following:

 

 

Gross

Carrying

Value

 

 

Accumulated

Amortization

 

 

Total Net

Book

Value

 

 

Gross

Carrying

Value

 

 

Accumulated

Amortization

 

 

Total Net

Book

Value

 

Finite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

54,604

 

 

$

35,312

 

 

$

19,292

 

 

$

54,227

 

 

$

38,828

 

 

$

15,399

 

Trademarks/Tradenames

 

 

5,545

 

 

 

681

 

 

 

4,864

 

 

 

24,504

 

 

 

1,674

 

 

 

22,830

 

Developed technology

 

 

14,144

 

 

 

12,448

 

 

 

1,696

 

 

 

21,498

 

 

 

12,902

 

 

 

8,596

 

Patents

 

 

6,729

 

 

 

4,389

 

 

 

2,340

 

 

 

6,736

 

 

 

5,329

 

 

 

1,407

 

License

 

 

1,400

 

 

 

1,400

 

 

 

0

 

 

 

1,400

 

 

 

1,400

 

 

 

0

 

Contracts

 

 

1,556

 

 

 

1,556

 

 

 

0

 

 

 

1,556

 

 

 

1,556

 

 

 

0

 

Total finite-lived intangible assets

 

$

83,978

 

 

$

55,786

 

 

 

28,192

 

 

$

109,921

 

 

$

61,689

 

 

 

48,232

 

Indefinite-lived intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks

 

 

 

 

 

 

 

 

 

 

64,605

 

 

 

 

 

 

 

 

 

 

 

63,061

 

Total intangible assets, net

 

 

 

 

 

 

 

 

 

$

92,797

 

 

 

 

 

 

 

 

 

 

$

111,293

 

 

1617


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

 

At February 29, 2020,28, 2021, intangible assets consisted of the following:

 

 

Gross

Carrying

Value

 

 

Accumulated

Amortization

 

 

Total Net

Book

Value

 

 

Gross

Carrying

Value

 

 

Accumulated

Amortization

 

 

Total Net

Book

Value

 

Finite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

51,491

 

 

$

31,880

 

 

$

19,611

 

 

$

54,688

 

 

$

36,412

 

 

$

18,276

 

Trademarks/Tradenames

 

 

1,045

 

 

 

437

 

 

 

608

 

 

 

5,545

 

 

 

811

 

 

 

4,734

 

Developed technology

 

 

14,144

 

 

 

12,244

 

 

 

1,900

 

 

 

14,144

 

 

 

12,516

 

 

 

1,628

 

Patents

 

 

5,651

 

 

 

3,691

 

 

 

1,960

 

 

 

6,736

 

 

 

4,629

 

 

 

2,107

 

License

 

 

1,400

 

 

 

1,400

 

 

 

0

 

 

 

1,400

 

 

 

1,400

 

 

 

0

 

Contracts

 

 

1,556

 

 

 

1,556

 

 

 

0

 

 

 

1,556

 

 

 

1,556

 

 

 

0

 

Total finite-lived intangible assets

 

$

75,287

 

 

$

51,208

 

 

 

24,079

 

 

$

84,069

 

 

$

57,324

 

 

 

26,745

 

Indefinite-lived intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks

 

 

 

 

 

 

 

 

 

 

64,209

 

 

 

 

 

 

 

 

 

 

 

63,359

 

Total intangible assets, net

 

 

 

 

 

 

 

 

 

$

88,288

 

 

 

 

 

 

 

 

 

 

$

90,104

 

 

The Company recorded amortization expense of $1,477$2,017 and $3,973, respectively,$4,803 for the three and nine months ended November 30, 20202021, respectively, compared to $1,477 and $1,748 and $5,243$3,973 for the three and nine months ended November 30, 2019,2020, respectively. The estimated aggregate amortization expense for all amortizable intangibles for November 30 of each of the succeeding years is as follows:

 

Year

 

Amount

 

 

Amount

 

2021

 

$

5,741

 

2022

 

 

4,933

 

 

$

7,549

 

2023

 

 

4,336

 

 

 

6,956

 

2024

 

 

4,115

 

 

 

6,738

 

2025

 

 

3,991

 

 

 

6,614

 

2026

 

 

4,767

 

 

(12)

Equity Investment

As of November 30, 20202021 and February 29, 2020,28, 2021, the Company hashad a 50% non-controlling ownership interest in ASA Electronics, LLC and Subsidiary (“ASA") which acts as a distributor of mobile electronics specifically designed for niche markets within the automotive industry, including RV's; buses; and commercial, heavy duty, agricultural, construction, powersport, and marine vehicles.

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.

 

 

November 30, 2020

 

 

February 29, 2020

 

 

November 30, 2021

 

 

February 28, 2021

 

Current assets

 

$

49,755

 

 

$

47,738

 

 

$

50,885

 

 

$

49,956

 

Non-current assets

 

 

4,755

 

 

 

5,453

 

 

 

4,932

 

 

 

4,757

 

Liabilities

 

 

10,146

 

 

 

9,343

 

 

 

10,561

 

 

 

8,179

 

Members' equity

 

 

44,364

 

 

 

43,848

 

 

 

45,256

 

 

 

46,534

 

 

 

Nine months ended

November 30,

 

 

Nine months ended

November 30,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

Net sales

 

$

67,940

 

 

$

75,962

 

 

$

91,153

 

 

$

67,940

 

Gross profit

 

 

21,514

 

 

 

23,345

 

 

 

22,976

 

 

 

16,749

 

Operating income

 

 

8,761

 

 

 

7,083

 

 

 

13,867

 

 

 

8,761

 

Net income

 

 

9,012

 

 

 

7,344

 

 

 

13,928

 

 

 

9,012

 

 

1718


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

 

The Company's share of income from ASA was $2,206 and $6,964 for the three and nine months ended November 30, 2021, respectively, compared to $1,761 and $4,506 for the three and nine months ended November 30, 2020, respectively, and $967 and $3,672 for the three and nine months ended November 30, 2019, respectively.

(13)

Income Taxes

 

The Company’s provision for income taxes consists of federal, foreign, and state taxes necessary to align the Company’s year-to-date tax provision with the annual effective rate that it expects to achieve for the full year.  At each interim period, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments, as necessary.

On March 27, 2020,For the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act made various tax law changes, including among other things (i) increased the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest (ii) enacted technical corrections so that qualified improvement property can be immediately expensed under IRC Section 168(k) and net operating losses arising in tax years beginning in 2017 and ending in 2018 can be carried back two years and carried forward twenty years without a taxable income limitation as opposed to carried forward indefinitely, and (iii) made modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years. With respect to the technical correction to net operating losses,three months ended November 30, 2021, the Company recorded an income tax benefit of $641, which includes a discrete income tax provision of $4,275 during$175 related primarily to finalization of the nine months ended November 30, 2020, as its valuation allowance related to net operating losses with limited carryforward periods increased.

federal and certain state tax return filings. For the three months ended November 30, 2020, the Company recorded an income tax provision of $2,334, which includes a discrete income tax benefit of $542 related primarily to finalization of the federal and certain state tax return filings. For the three months ended November 30, 2019, the Company recorded an income tax provision of $2,720, which includes a discrete income tax provision of $1,035. The Company recorded a discrete tax provision of $1,153 in connection with excluding the U.S. tax jurisdiction from the estimated annual effective tax rate and a discrete tax benefit of $118 primarily related to the reversal of uncertain tax provision liabilities as a result of the lapse of the applicable statute of limitations, the remeasurement of deferred tax assets and liabilities for enacted state law changes, offset by an income tax provision related to the finalization of federal and state tax filings during the quarter ended November 30, 2019.

The effective tax rates for the three months ended November 30, 2021 and 2020 were an income tax benefit of 2.1% on a pre-tax loss of $30,313 and 2019 were an income tax provision of 11.8% on pre-tax income of $19,774, and an income tax provision of 66.6% on pre-tax income of $4,087, respectively. The effective tax rate for the three months ended November 30, 20202021 differs from the U.S. statutory rate of 21% primarily as a result of an increase in valuation allowance as the Company recorded a limited tax benefit with respect to the Arbitration Settlement as it could not conclude that all of its US deferred tax assets were realizable on a more-likely-than-not basis. The effective tax rate for the three months ended November 30, 2020 differed from the statutory rate of 21% primarily due to the anticipated reversal of a portion of the U.S. valuation allowance based on projected current year earnings, immediate U.S. taxation of foreign earnings, non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, and income taxed in foreign jurisdictions at varying tax rates. The effective tax rate for

For the threenine months ended November 30, 2019 differed from2021, the statutory rateCompany recorded an income tax benefit of 21% primarily due$374, which includes a discrete income tax provision of $31 related to the calculationfinalization of federal and state tax filings during the quarter ended November 30, 2021 and the accrual of interest for unrecognized tax benefits, offset with the reversal of uncertain tax provision liabilities as a result of the U.S. tax provision on a discrete basis,lapse of the U.S. taxationapplicable statute of foreign earnings, nondeductible permanent differences, non-controlling interest related to EyeLock LLC, an increase in the valuation allowance, state and local income taxes, and income taxed in foreign jurisdictions at varying tax rates.

limitations. For the nine months ended November 30, 2020, the Company recorded an income tax provision of $6,724, which includes a discrete income tax provision of $3,609. The Company recorded a discrete tax provision of $4,275 related to an increase in valuation allowance as a result of the technical correction to net operating losses as provided in the CARES Act and a discrete income tax benefit of $697 related to the finalization of federal and state filings during the quarter ended November 30, 2020, and the reversal of uncertain tax provision liabilities as a result of the lapse of the applicable statute of limitations, offset with a discrete tax provision of $31 related to the accrual forof interest for unrecognized tax benefits. For the nine months ended November 30, 2019, the Company recorded an income tax provision of $1,190, which includes a discrete income tax benefit of $345. The Company recorded a discrete tax benefit of $50 in connection with excluding the U.S. tax jurisdiction from the estimated annual effective tax rate, and a discrete income tax benefit of $295 primarily related to the reversal of uncertain tax provision liabilities as a result of the lapse of the applicable statute of limitations, the remeasurement of deferred tax assets and liabilities for enacted state law changes, offset by an income tax provision related to the finalization of federal and state tax filings during the quarter ended November 30, 2019.

The effective tax rates for the nine months ended November 30, 2021 and 2020 were an income tax benefit of 1.3% on pre-tax loss of $28,941 and 2019 were an income tax provision of 31.1% on pre-tax income of $21,614, and an income tax provision of 17.1% on a pre-tax loss of $6,979, respectively. The effective tax rate for the nine months ended November 30, 20202021 differs from the U.S. statutory rate of 21% as a result of a number of factors, including the non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, income taxed in foreign jurisdictions at varying tax rates, and an increase in valuation allowance as the Company recorded a limited tax benefit with respect to the Arbitration Settlement as it could not conclude that all of its US deferred tax assets were realizable on a more-likely-than-not basis. The effective tax rate for the nine months ended November 30, 2020 differed from the statutory rate of 21% primarily due to the anticipated reversal of a portion of the U.S. valuation allowance based on projected current year earnings, immediate U.S. taxation of foreign earnings, non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, and income taxed in foreign jurisdictions at varying tax rates.

18At November 30, 2021, the Company had an uncertain tax position liability of $1,002, including interest and penalties. The unrecognized tax benefits include amounts related to various U.S. federal, state, and local, and foreign tax issues.

19


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

varying tax rates. The effective tax rate for the nine months ended November 30, 2019 differed from the statutory rate of 21% primarily due to the calculation of the U.S. taxation provision on a discrete basis, the U.S. taxation of foreign earnings, non-deductible permanent differences, non-controlling interest related to EyeLock LLC, an increase in the valuation allowance, state and local income taxes, and income taxed in foreign jurisdictions at varying tax rates.

At November 30, 2020, the Company had an uncertain tax position liability of $1,123, including interest and penalties. The unrecognized tax benefits include amounts related to various U.S. federal, state and local, and foreign tax issues.

(14)

Inventory

Inventories by major category are as follows:

 

 

November 30,

2020

 

 

February 29,

2020

 

 

November 30,

2021

 

 

February 28,

2021

 

Raw materials

 

$

25,124

 

 

$

29,115

 

 

$

23,683

 

 

$

21,228

 

Work in process

 

 

2,080

 

 

 

2,366

 

 

 

1,264

 

 

 

1,732

 

Finished goods

 

 

111,403

 

 

 

67,629

 

 

 

141,414

 

 

 

107,833

 

Inventory

 

$

138,607

 

 

$

99,110

 

 

$

166,361

 

 

$

130,793

 

 

(15)

Product Warranties and Product Repair Costs

The following table provides a summary of the activity with respect to product warranties and product repair costs. The liability for product warranties is included within Accrued expenses and other current liabilities and the reserve for product repair costs is recorded as a reduction of Inventory on the Consolidated Balance Sheets.

 

 

Three months ended

November 30,

 

 

Nine months ended

November 30,

 

 

Three months ended

November 30,

 

 

Nine months ended

November 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Opening balance

 

$

5,520

 

 

$

4,062

 

 

$

4,748

 

 

$

4,469

 

 

$

4,495

 

 

$

5,520

 

 

$

5,290

 

 

$

4,748

 

Liabilities for warranties accrued during the period

 

 

864

 

 

 

1,445

 

 

 

2,339

 

 

 

3,879

 

 

 

1,978

 

 

 

864

 

 

 

3,215

 

 

 

2,339

 

Liabilities acquired during acquisition

 

 

0

 

 

 

0

 

 

 

1,200

 

 

 

0

 

Liabilities (adjusted) acquired during acquisition

 

 

0

 

 

 

0

 

 

 

(352

)

 

 

1,200

 

Warranty claims settled during the period

 

 

(884

)

 

 

(1,076

)

 

 

(2,787

)

 

 

(3,917

)

 

 

(1,016

)

 

 

(884

)

 

 

(2,696

)

 

 

(2,787

)

Ending balance

 

$

5,500

 

 

$

4,431

 

 

$

5,500

 

 

$

4,431

 

 

$

5,457

 

 

$

5,500

 

 

$

5,457

 

 

$

5,500

 

 

(16)

Accrued Restructuring Expense

At February 29, 2020, the Company had accrued restructuring charges of $637 included in Accrued expenses and other current liabilities, representing charges incurred in Fiscal 2019 for the realignment of certain businesses within the organization. During the three and nine months ended November 30, 2020, an additional $63 and $532 of the accrual was settled and 0 additional restructuring expenses were incurred. At November 30, 2020, the remaining restructuring accrual in Accrued expenses and other current liabilities is $105.

19


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

(17)

Financing Arrangements

The Company has the following financing arrangements:

 

 

November 30,

2020

 

 

February 29,

2020

 

 

November 30,

2021

 

 

February 28,

2021

 

Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic credit facility (a)

 

$

 

 

$

 

 

$

 

 

$

 

Florida mortgage (b)

 

 

7,239

 

 

 

7,614

 

 

 

6,739

 

 

 

7,114

 

Euro asset-based lending obligation - VOXX Germany (c)

 

 

 

 

 

 

 

 

1,591

 

 

 

 

Euro asset-based lending obligation - Magnat (d)

 

 

 

 

 

607

 

Shareholder loan payable to Sharp (d)

 

 

4,795

 

 

 

 

Total debt

 

 

7,239

 

 

 

8,221

 

 

 

13,125

 

 

 

7,114

 

Less: current portion of long-term debt

 

 

500

 

 

 

1,107

 

 

 

2,091

 

 

 

500

 

Long-term debt

 

 

6,739

 

 

 

7,114

 

 

 

11,034

 

 

 

6,614

 

Less: debt issuance costs

 

 

766

 

 

 

1,015

 

 

 

1,109

 

 

 

652

 

Total long-term debt, net of debt issuance costs

 

$

5,973

 

 

$

6,099

 

 

$

9,925

 

 

$

5,962

 

 

20


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

(a)

Domestic Credit Facility

The Company has a senior secured credit facility (the "Credit Facility"), which was amended in June 2020 and provideson April 19, 2021 to provide for a revolving credit facility with committed availability of up to $127,500.$140,000. The Credit Facility also includes a $30,000 sublimit for letters of credit and a $15,000 sublimit for swingline loans. The availability under the revolving credit line within the Credit Facility is subject to a borrowing base, which is based on eligible accounts receivable, eligible inventory and certain real estate, subject to reserves as determined by the lender, and is also limited by amounts outstanding under the Florida Mortgage (see Note 17(b)16(b)). In April 2020, as a precautionary measure to ensure financial flexibility and maintain maximum liquidity in response to the COVID-19 pandemic, the Company borrowed $20,000 from the Credit Facility. This $20,000 precautionary borrowing was repaid in November 2020. The availability under the revolving credit line of the Credit Facility was $107,033$128,517 as of November 30, 2020.2021.

 

All amounts outstanding under the Credit Facility will mature and become due on April 26, 2022;19, 2026; however, it is subject to acceleration upon the occurrence of an Event of Default (asas defined in the Second Amended and Restated Credit Agreement)Agreement (“the Agreement”). 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 as set forth in the agreement.Agreement.

 

Generally, the Company may designate specific borrowings under the Credit Facility as either Base Rate Loans or LIBOR Rate Loans, except that swingline loans may only be designated as Base Rate Loans.  Loans designated as LIBOR Rate Loans bear interest at a rate equal to the then applicable LIBOR rate plus a range of 2.00 - 2.50% (3.0%1.75 – 2.25% (2.00% at November 30, 2020)2021).  Loans designated as Base Rate loans bear interest at a rate equal to the applicable margin for Base Rate Loans plus a range of 1.000.75 - 1.50%1.25% as defined in the agreementAgreement and shall not be lower than 2.00% (4.50%1.75% (4.00% at November 30, 2020)2021). The amendment to the Credit Facility in April 2021 provided for a Benchmark Replacement that will replace the LIBOR rate for all revolver usage. The Benchmark Replacement is subject to the occurrence of a Benchmark Transition Event, as defined in the Second Amended and Restated Credit Agreement and becomes effective after a five-day transition period following the event.

 

Provided that the Company is in a Compliance Period (the period commencing on that day in which Excess Availability is less than 20%15% of the Maximum Revolver Amount and ending on a day in which Excess Availability is equal to or greater than 20%15% for any consecutive 30-day period thereafter), the Credit Facility requires compliance with a financial covenant calculated as of the last day of each month, consisting of a Fixed Charge Coverage Ratio. The Credit Facility also contains covenants, subject to defined carveouts, that limit the ability of the loan parties and certain of their subsidiaries which are not loan parties to, among other things: (i) incur additional indebtedness; (ii) incur liens; (iii) merge, consolidate or dispose of a substantial portion of their business; (iv) transfer or dispose of assets; (v) change their name, 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 transaction with an affiliate of any borrower or any of their subsidiaries; (xiii) use proceeds for certain items; (xiv) issue or sell any of their stock; or (xv) consign or sell any of their inventory on certain terms. In addition, if excess availability under the Credit Facility were to fall below certain specified levels, as defined in the agreement,Agreement, the lenders would have the right to assume dominion and control over the Company's cash. As of November 30, 2020,2021, the Company was not in a Compliance Period.

 

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

 

Charges incurred on the unused portion of the Credit Facility during the three and nine months ended November 30, 20202021 totaled $208 and $531, respectively, compared to $130 and $371 respectively, compared to $125 and $378 during the three and nine months ended November 30, 2019,2020, respectively. These charges are included within Interest and bank charges on the Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss). Income.

 

The Company has deferred financing costs related to the Credit Facility and previous amendments and modificationmodifications of the Credit Facility. In conjunction with the amendment to its Credit Facility in June 2020,on April 19, 2021, the Company incurred additional financing fees of $260$667 that will be amortized over the remaining term of the facility. The Company accounted for the June 2020April 2021 amendment to the Credit Facility as a modification of debt; however, as there were certain changes to the syndicate bank participation, unamortized deferred financing costs of $53 were written off and charged to Interest and bank charges in the Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the nine months ended November 30, 2020.debt. Deferred financing costs are included in Long-term debt on the accompanying Consolidated Balance Sheets as a contra-liability balance and are amortized through Interest and bank charges in the Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income (Loss) over the term of the Credit Facility, which expires inon April 2022.19, 2026. During the three and nine months ended November 30, 2020,2021, the Company amortized $106$55 and $432$185 of these costs, respectively, as compared to $198$106 and $593$432 during the three and nine months ended November 30, 2019.2020, respectively. The net unamortized balance of these deferred financing costs as of November 30, 2020 is $603.2021 was $977.

 

21


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

(b)

Florida Mortgage

On July 6, 2015, VOXX HQ LLC, the Company’s wholly owned subsidiary, closed on a $9,995 industrial development revenue tax exempt bond under a loan agreement in favor of the Orange County Industrial Development Authority (the “Authority”) to finance the construction of the Company's manufacturing facility and executive offices in Lake Nona, Florida. Wells Fargo Bank, N.A. ("Wells Fargo") was the purchaser of the bond and U.S. Bank National Association is the trustee under an Indenture of Trust with the Authority. Voxx borrowed the proceeds of the bond purchase from the Authority during construction as a revolving loan, which converted to a permanent mortgage upon completion of the facility in January 2016 (the "Florida Mortgage"). The Company makes principal and interest payments to Wells Fargo, which began March 1, 2016 and will continue through March of 2026. The Florida Mortgage bears interest at 70% of 1-month LIBOR plus 1.54% (1.69%(1.63% at November 30, 2020)2021) and is secured by a first mortgage on the property, a collateral assignment of leases and rents and a guaranty by the Company. The financial covenants of the Florida Mortgage are as defined in the Company’s Credit Facility with Wells Fargo dated April 26, 2016.

 

The Company incurred debt financing costs totaling approximately $332 as a result of obtaining the Florida Mortgage, which are recorded as deferred financing costs and included in Long-term debt as a contra-liability balance on the accompanying Consolidated Balance Sheets and are being amortized through Interest and bank charges in the Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income (Loss) over the ten-year term of the Florida Mortgage. The Company amortized $8 and $23 of these costs during both the three and nine months ended November 30, 2021 and 2020, and 2019.respectively. The net unamortized balance of these deferred financing costs as of November 30, 20202021 is $163.$132.

 

On July 20, 2015, the Company entered into an interest rate swap agreement in order to hedge interest rate exposure related to the Florida Mortgage and pays a fixed rate of 3.48% under the swap agreement (See Note 5).

21


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

(c)

Euro Asset-Based Lending Obligation – VOXX Germany

Foreign bank obligations include a Euro Asset-Based Lending ("ABL") credit facility, which has a credit limit of €8,000 for the Company's subsidiary, VOXX Germany, which expires on July 31, 2023. The rate of interest for the ABL is the three-month Euribor plus 2.30% (2.30% at November 30, 2020)2021). As of November 30, 2020, there is 0 balance outstanding under this credit facility.

(d)Shareholder Loan Payable to Sharp

(d)

Euro Asset-Based Lending Obligation - Magnat

In conjunction with the capitalization and funding of the Company’s Onkyo joint venture with its partner Sharp, which was created in order to execute the acquisition of the home audio/video business of OHEC on September 8, 2021 (see Note 2), Onkyo entered into a loan agreement with the shareholders of the joint venture, PAC and Sharp. The loan balance outstanding at November 30, 2021 represents the portion of the loan payable to Sharp. The loan balance due to PAC eliminates in consolidation. All amounts outstanding under the loan will mature and become payable ten years from the execution date of the acquisition, which is September 8, 2031. The loan may be prepaid subject the approval of the board of directors of the joint venture and must be repaid if either the put or call option is exercised in accordance with the joint venture agreement. The rate of interest for the shareholder loan is 2.5% and the loan is secured by a second priority lien on and secured interest in all assets of Onkyo.

(17)Other Income (Expense)

At February 29, 2020, foreign bank obligations also included an ABL credit facility for the Company's subsidiary, Magnat. The rate of interest for the ABL was the three-month Euribor plus 2.10%. The facility expired on November 30, 2020 and was not renewed. 

(18)

Other (Expense) Income

Other income (expense) income is comprised of the following:

 

 

Three months ended

November 30,

 

 

Nine months ended

November 30,

 

 

Three months ended

November 30,

 

 

Nine months ended

November 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Foreign currency gain (loss)

 

$

34

 

 

$

61

 

 

$

(445

)

 

$

297

 

Foreign currency (loss) gain

 

$

(382

)

 

$

34

 

 

$

(268

)

 

$

(445

)

Interest income

 

 

6

 

 

 

199

 

 

 

77

 

 

 

814

 

 

 

55

 

 

 

6

 

 

 

67

 

 

 

77

 

Rental income

 

 

188

 

 

 

176

 

 

 

556

 

 

 

460

 

 

 

186

 

 

 

188

 

 

 

547

 

 

 

556

 

Miscellaneous

 

 

(349

)

 

 

(758

)

 

 

(167

)

 

 

298

 

 

 

(2

)

 

 

66

 

 

 

329

 

 

 

565

 

Total other, net

 

$

(121

)

 

$

(322

)

 

$

21

 

 

$

1,869

 

 

$

(143

)

 

$

294

 

 

$

675

 

 

$

753

 

 

The decrease22


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

(Amounts in interest income for the threethousands, except share and nine months ended November 30, 2020 as compared to the prior year periods primarily relates to the decrease in interest rates applicable to the Company’s short-term money market investments. For the nine months ended November 30, 2019, miscellaneous included proceeds from a key man life insurance policy in the amount of $1,000 related to a former employee of Klipsch Group, Inc. that Voxx became the beneficiary of in conjunction with the acquisition of Klipsch in Fiscal 2012, offset by a payment of $804 in settlement of the final working capital calculation related to the sale of the Company’s former Hirschmann subsidiary in Fiscal 2018. The final working capital settlement impacted both the three and nine months ended November 30, 2019.per share data)

 

(19)(18)

Foreign Currency

The Company has a subsidiary in Venezuela. Venezuela has experienced significant political and civil unrest, as well as economic instability for several years, and has implemented various foreign currency and price controls. The Company accounts for its Venezuela subsidiary as hyper-inflationary in accordance with the guidelines in ASC 830, "Foreign Currency." 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. As of November 30, 2020, the DICOM rate for the Sovereign Bolivar was approximately 1,033,000 bolivars to the U.S. dollar compared to 38,109 at November 30, 2019. The Company’s operations in Venezuela are suspended and net currency exchange gains and losses for the three and nine months ended November 30, 20202021 were not significant.

The Company has certain long-lived assets in Venezuela, which are held for investment purposes. These properties had 0 value at November 30, 20202021.

(20)(19)

Lease Obligations

We account for leases in accordance with ASC 842 “Leases” (“ASC 842”). We determine whether an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys the right to control the use of an identified fixed asset explicitly or implicitly for a period of time in exchange for consideration.

We have operating leases for office equipment, as well as offices, warehouses, and other facilities used for our operations. We also have finance leases comprised primarily of computer hardware and machinery and equipment. Our leases have remaining lease terms of less than 1 year to 109 years, some of which include renewal options. We consider these renewal options in determining the lease term used to establish our right-of-use assets and lease

22


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

liabilities when it is determined that it is reasonably certain that the renewal option will be exercised. The Company had 0 short-term leases during the three and nine months ended November 30, 2020.2021.

Refer to Note 7 for supplemental cash flow information related to leases.

On September 30, 2019, the Company, through its subsidiary Voxx German Holdings GmbH, executed a sale leaseback transaction, selling its real property in Pulheim, Germany to CLM S.A. RL (“the Purchaser”) for €10,920. Net proceeds received from the transaction were approximately $9,500. The transaction qualified for sale leaseback accounting in accordance with ASC 842. Concurrently with the sale, the Company entered into an operating lease arrangement (“lease”) with the Purchaser for a small portion of the real property to continue to operate the combined Magnat/Klipsch sales office in Germany. The Company recognized a gain related to the execution of the sale transaction of $4,057 for the three and nine months ended November 30, 2019, which is recorded in Other income (expense) on the Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss).

The components of lease cost for the three and nine months ended November 30, 20202021 and 20192020 were as follows:

 

 

Three months ended

November 30,

 

 

Nine months ended

November 30,

 

 

Three months ended

November 30,

 

 

Nine months ended

November 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating lease cost (a) (c)

 

$

328

 

 

$

209

 

 

$

836

 

 

$

668

 

 

$

324

 

 

$

328

 

 

$

1,007

 

 

$

836

 

Finance lease cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of right of use assets (a)

 

 

139

 

 

 

167

 

 

 

465

 

 

 

516

 

 

 

102

 

 

 

139

 

 

 

324

 

 

 

465

 

Interest on lease liabilities (b)

 

 

6

 

 

 

12

 

 

 

23

 

 

 

36

 

 

 

2

 

 

 

6

 

 

 

9

 

 

 

23

 

Total finance lease cost

 

$

145

 

 

$

179

 

 

$

488

 

 

$

552

 

 

$

104

 

 

$

145

 

 

$

333

 

 

$

488

 

 

 

(a)

Recorded within Selling, General and administrative, Engineering and technical support, and Cost of sales on the Unaudited Consolidated Statement of Operations and Comprehensive (Loss) Income.

 

(b)

Recorded within Interest and bank charges on the Unaudited Consolidated StatementStatements of Operations and Comprehensive Income (Loss). Income.

 

(c)

Includes immaterial amounts related to variable rent expense.

 

Supplemental balance sheet information related to leases is as follows:

 

 

November 30, 2020

 

 

February 29, 2020

 

Operating Leases

 

 

 

 

 

 

 

 

Operating lease, right of use assets

 

$

4,811

 

 

$

3,143

 

Total operating lease right of use assets

 

$

4,811

 

 

$

3,143

 

Accrued expenses and other current liabilities

 

$

1,111

 

 

$

784

 

Operating lease liabilities, less current portion

 

 

3,813

 

 

 

2,391

 

Total operating lease liabilities

 

$

4,924

 

 

$

3,175

 

Finance Leases

 

 

 

 

 

 

 

 

Property, plant, and equipment, gross

 

$

2,503

 

 

$

2,503

 

Accumulated depreciation

 

 

(1,674

)

 

 

(1,209

)

Total finance lease right of use assets

 

$

829

 

 

$

1,294

 

Accrued expenses and other current liabilities

 

$

469

 

 

$

613

 

Finance lease liabilities, less current portion

 

 

386

 

 

 

720

 

Total finance lease liabilities

 

$

855

 

 

$

1,333

 

Weighted Average Remaining Lease Term

 

 

 

 

 

 

 

 

Operating leases

 

6.1 years

 

 

4.4 years

 

Finance leases

 

2.1 years

 

 

3.9 years

 

Weighted Average Discount Rate

 

 

 

 

 

 

 

 

Operating leases

 

 

4.54

%

 

 

5.98

%

Finance leases

 

 

3.87

%

 

 

3.87

%

 

23


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

 

Supplemental balance sheet information related to leases is as follows:

 

 

November 30, 2021

 

 

February 28, 2021

 

Operating Leases

 

 

 

 

 

 

 

 

Operating lease, right of use assets

 

$

4,010

 

 

$

4,572

 

Total operating lease right of use assets

 

$

4,010

 

 

$

4,572

 

Accrued expenses and other current liabilities

 

$

1,029

 

 

$

1,119

 

Operating lease liabilities, less current portion

 

 

3,073

 

 

 

3,582

 

Total operating lease liabilities

 

$

4,102

 

 

$

4,701

 

Finance Leases

 

 

 

 

 

 

 

 

Property, plant, and equipment, gross

 

$

2,503

 

 

$

2,503

 

Accumulated depreciation

 

 

(2,129

)

 

 

(1,805

)

Total finance lease right of use assets

 

$

374

 

 

$

698

 

Accrued expenses and other current liabilities

 

$

269

 

 

$

418

 

Finance lease liabilities, less current portion

 

 

117

 

 

 

302

 

Total finance lease liabilities

 

$

386

 

 

$

720

 

Weighted Average Remaining Lease Term

 

 

 

 

 

 

 

 

Operating leases

 

6.0 years

 

 

6.0 years

 

Finance leases

 

1.4 years

 

 

1.8 years

 

Weighted Average Discount Rate

 

 

 

 

 

 

 

 

Operating leases

 

 

4.18

%

 

 

4.49

%

Finance leases

 

 

3.87

%

 

 

3.87

%

Maturities of lease liabilities on November 30 of each of the succeeding years are as follows:

 

 

Operating Leases

 

 

Finance Leases

 

 

Operating Leases

 

 

Finance Leases

 

2021

 

$

1,303

 

 

 

483

 

 

$

1,156

 

 

 

274

 

2022

 

 

1,119

 

 

 

274

 

 

 

844

 

 

 

118

 

2023

 

 

807

 

 

 

118

 

 

 

640

 

 

 

 

2024

 

 

632

 

 

 

 

 

 

462

 

 

 

 

2025

 

 

456

 

 

 

 

 

 

312

 

 

 

 

Thereafter

 

 

1,228

 

 

 

 

 

 

1,150

 

 

 

 

Total lease payments

 

 

5,545

 

 

 

875

 

 

 

4,564

 

 

 

392

 

Less imputed interest

 

 

621

 

 

 

20

 

 

 

462

 

 

 

6

 

Total

 

$

4,924

 

 

 

855

 

 

$

4,102

 

 

 

386

 

 

As of November 30, 2020,2021, the Company has not entered into any lease agreements that have not yet commenced.

24


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

The Company owns and occupies buildings as part of its operations. Certain space within these buildings may, from time to time, be leased to third parties from which the Company earns rental income as lessor. This leased space is recorded within property, plant, and equipment and was not material to the Company's Consolidated Balance Sheets at November 30, 20202021 and February 29, 2020.28, 2021. Rental income earned by the Company for the three and nine months ended November 30, 2021 and 2020 was $186 and 2019 was$547, respectively, compared to $188 and $556, respectively, and $176 and $460, respectively, which is recorded within Other income (expense).

(21)(20)

Capital Structure

The Company's capital structure is as follows:

 

 

 

 

 

 

Shares Authorized

 

 

Shares Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares Authorized

 

 

Shares Outstanding

 

 

 

 

 

 

 

 

 

Security

 

Par

Value

 

 

November 30, 2020

 

 

February 29, 2020

 

 

November 30, 2020

 

 

February 29, 2020

 

 

Voting

Rights per

Share

 

 

Liquidation

Rights

 

 

Par

Value

 

 

November 30, 2021

 

 

February 28, 2021

 

 

November 30, 2021

 

 

February 28, 2021

 

 

Voting

Rights per

Share

 

 

Liquidation

Rights

 

Preferred Stock

 

$

50.00

 

 

 

50,000

 

 

 

50,000

 

 

 

0

 

 

 

0

 

 

 

0

 

 

$50 per share

 

 

$

50.00

 

 

 

0

 

 

 

50,000

 

 

 

0

 

 

 

0

 

 

 

 

 

$50 per share

 

Series Preferred Stock

 

$

0.01

 

 

 

1,500,000

 

 

 

1,500,000

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

 

 

$

0.01

 

 

 

0

 

 

 

1,500,000

 

 

 

0

 

 

 

0

 

 

 

 

 

 

 

Class A Common Stock

 

$

0.01

 

 

 

60,000,000

 

 

 

60,000,000

 

 

 

21,666,976

 

 

 

21,556,976

 

 

 

1

 

 

Ratably with

Class B

 

 

$

0.01

 

 

 

60,000,000

 

 

 

60,000,000

 

 

 

21,614,629

 

 

 

21,666,976

 

 

 

1

 

 

Ratably with

Class B

 

Class B Common Stock

 

$

0.01

 

 

 

10,000,000

 

 

 

10,000,000

 

 

 

2,260,954

 

 

 

2,260,954

 

 

 

10

 

 

Ratably with

Class A

 

 

$

0.01

 

 

 

10,000,000

 

 

 

10,000,000

 

 

 

2,260,954

 

 

 

2,260,954

 

 

 

10

 

 

Ratably with

Class A

 

Treasury Stock at cost

 

at cost

 

 

 

2,749,218

 

 

 

2,749,218

 

 

N/A

 

 

N/A

 

 

N/A

 

 

 

 

 

 

at cost

 

 

 

2,862,218

 

 

 

2,749,218

 

 

N/A

 

 

N/A

 

 

N/A

 

 

 

 

 

 

During the nine months ended November 30, 2021, the Company repurchased 113,000 shares of common stock for an aggregate cost of $1,220. As of November 30, 2021, 2,305,876 shares of the Company’s Class A common stock are authorized to be repurchased in the open market.

(22)(21)

Variable Interest Entity

A variable interest entity ("VIE") is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. Under ASC 810 - Consolidation,– “Consolidation,” an entity that holds a variable interest in a VIE and meets certain requirements would be considered to be the primary beneficiary of the VIE and required to consolidate the VIE in its consolidated financial statements. In order to be considered the primary beneficiary of a VIE, an entity must hold a variable interest in the VIE and have both:

 

the power to direct the activities that most significantly impact the economic performance of the VIE; and

 

the right to receive benefits from, or the obligation to absorb losses of, the VIE that could be potentially significant to the VIE.

On September 1, 2015, Voxx acquired a majority voting interest in substantially all of the assets and certain specified liabilities of EyeLock, Inc. and EyeLock Corporation, a market leader of iris-based identity authentication solutions, through a newly-formednewly formed entity, EyeLock LLC. The Company issued EyeLock LLC a promissory note for the purposes of repaying protective advances and funding working capital requirements of the entity. On October 9, 2020,August 29, 2021, this

24


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

promissory note was amended and restated to allow EyeLock LLC to borrow up to $60,600.$68,200. Through March 1, 2019, interest on the outstanding principal of the loan accrued at 10%. From March 1, 2019 forward, interest accrues at 2.5%. The amended and restated promissory note is due on June 30, 2021.December 31, 2022. The outstanding principal balance of this promissory note is convertible at the sole option of Voxx into units of EyeLock LLC. If Voxx chooses not to convert into equity, the outstanding loan principal of the amended and restated promissory note will be repaid at a multiple of 1.50 based on the repayment date. The agreement includes customary events of default and is collateralized by all of the property of EyeLock LLC.

We determined that we hold a variable interest in EyeLock LLC as a result of:

 

our majority voting interest and ownership of substantially all of the assets and certain liabilities of the entity; and

25


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

the loan agreement with EyeLock LLC, which has a total outstanding balance of $59,033$67,053 as of November 30, 2020.2021.

We concluded that we became the primary beneficiary of EyeLock LLC on September 1, 2015 in conjunction with the acquisition. This was the first date on which we had the power to direct the activities that most significantly impact the economic performance of the entity because we acquired a majority interest in substantially all of the assets and certain liabilities of EyeLock, Inc. and EyeLock Corporation on this date, as well as obtained a majority voting interest as a result of this transaction.  Although we are considered to have control over EyeLock LLC under ASC 810, due to our majority ownership interest, the assets of EyeLock LLC can only be used to satisfy the obligations of EyeLock LLC. As a result of our majority ownership interest in the entity and our primary beneficiary conclusion, we consolidated EyeLock LLC within our consolidated financial statements beginning on September 1, 2015.

25On April 29, 2021, EyeLock LLC entered into a three-year exclusive distribution agreement (the “Agreement”) with GalvanEyes LLC (“GalvanEyes”), a Florida LLC managed by Beat Kahli, Voxx’s largest shareholder. The Agreement provides that GalvanEyes will become the exclusive distributor of EyeLock products in the European Union, Switzerland, Puerto Rico, Malaysia, and Singapore, with the exception of any existing customer relationships. GalvanEyes was also granted exclusive distribution rights in the United States for the residential real estate market and specific U.S. Government agencies, and non-exclusive distribution rights in all other territories and verticals with the Company’s consent. The Agreement also includes a put/call arrangement, whereby GalvanEyes has the right to put the exclusivity back to EyeLock after the initial two-year period for a 20.0% interest in EyeLock. In turn, EyeLock has the ability to call the exclusivity during the term of the Agreement, based on the occurrence of certain events, which would result in a 20.0% equity interest given to GalvanEyes. Under the Agreement, in addition to paying for any products purchased, GalvanEyes has agreed to pay EyeLock $10,000 in the form of an annual fee, over a two-year period, of up to $5,000 per year, with payments on a quarterly basis beginning on September 1, 2021. Any gross profit generated on the sale of EyeLock LLC products by GalvanEyes will be deducted from the annual fee. The value of the put/call arrangement was not significant at November 30, 2021. As of November 30, 2021, the Company has recorded a receivable in the amount of $1,201 for the quarterly installment payment due from GalvanEyes for the three months ended November 30, 2021, which is included within Prepaid expenses and other current assets on the accompanying Consolidated Balance Sheet. The Company has also recorded a corresponding liability within Other long-term liabilities on the accompanying Consolidated Balance Sheet, representing a prepayment made by GalvanEyes of a 20% interest in EyeLock upon exercise of the put option. The balance of the liability at November 30, 2021 is $1,201. The balance receivable from GalvanEyes was paid on December 20, 2021.

26


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

Assets and Liabilities of EyeLock LLC

The following table sets forth the carrying values of assets and liabilities of EyeLock LLC that were included on our Consolidated Balance Sheets as of November 30, 20202021 and February 29, 2020:28, 2021:

 

 

November 30,

2020

 

 

February 29,

2020

 

 

November 30,

2021

 

 

February 28,

2021

 

Assets

 

(unaudited)

 

 

 

 

 

 

(unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

 

$

 

 

$

 

 

$

 

Accounts receivable, net

 

 

210

 

 

 

147

 

 

 

235

 

 

 

167

 

Inventory, net

 

 

2,212

 

 

 

2,052

 

 

 

2,027

 

 

 

2,245

 

Prepaid expenses and other current assets

 

 

253

 

 

 

313

 

 

 

1,271

 

 

 

30

 

Total current assets

 

 

2,675

 

 

 

2,512

 

 

 

3,533

 

 

 

2,442

 

Property, plant and equipment, net

 

 

27

 

 

 

69

 

 

 

40

 

 

 

39

 

Intangible assets, net

 

 

2,397

 

 

 

2,600

 

 

 

2,125

 

 

 

2,329

 

Other assets

 

 

60

 

 

 

76

 

 

 

59

 

 

 

60

 

Total assets

 

$

5,159

 

 

$

5,257

 

 

$

5,757

 

 

$

4,870

 

Liabilities and Partners' Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,427

 

 

$

2,086

 

 

$

1,400

 

 

$

1,396

 

Interest payable to VOXX

 

 

11,077

 

 

 

9,994

 

 

 

12,680

 

 

 

11,453

 

Accrued expenses and other current liabilities

 

 

1,000

 

 

 

252

 

 

 

430

 

 

 

824

 

Due to VOXX

 

 

59,033

 

 

 

54,074

 

 

 

67,053

 

 

 

61,072

 

Total current liabilities

 

 

72,537

 

 

 

66,406

 

 

 

81,563

 

 

 

74,745

 

Other long-term liabilities

 

 

1,200

 

 

 

1,200

 

 

 

2,459

 

 

 

1,200

 

Total liabilities

 

 

73,737

 

 

 

67,606

 

 

 

84,022

 

 

 

75,945

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners' deficit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

41,416

 

 

 

41,416

 

 

 

41,416

 

 

 

41,416

 

Retained losses

 

 

(109,994

)

 

 

(103,765

)

 

 

(119,681

)

 

 

(112,491

)

Total partners' deficit

 

 

(68,578

)

 

 

(62,349

)

 

 

(78,265

)

 

 

(71,075

)

Total liabilities and partners' deficit

 

$

5,159

 

 

$

5,257

 

 

$

5,757

 

 

$

4,870

 

 

2627


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

 

RevenueRevenues and Expenses of EyeLock LLC

The following table sets forth the revenues and expenses of EyeLock LLC that were included in our Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income (Loss) for the three and nine months ended November 30, 2020, respectively:2021 and 2020:

 

 

For the three months

ended November 30,

 

 

For the nine months

ended November 30,

 

 

For the three months

ended November 30,

 

 

For the nine months

ended November 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net sales

 

$

343

 

 

$

138

 

 

$

703

 

 

$

412

 

 

$

355

 

 

$

343

 

 

$

813

 

 

$

703

 

Cost of sales

 

 

293

 

 

 

178

 

 

 

674

 

 

 

592

 

 

 

240

 

 

 

293

 

 

 

580

 

 

 

674

 

Gross profit

 

 

50

 

 

 

(40

)

 

 

29

 

 

 

(180

)

 

 

115

 

 

 

50

 

 

 

233

 

 

 

29

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling

 

 

132

 

 

 

173

 

 

 

434

 

 

 

535

 

 

 

167

 

 

 

132

 

 

 

493

 

 

 

434

 

General and administrative

 

 

446

 

 

 

1,123

 

 

 

1,303

 

 

 

3,500

 

 

 

261

 

 

 

446

 

 

 

1,037

 

 

 

1,303

 

Engineering and technical support

 

 

1,178

 

 

 

1,232

 

 

 

3,427

 

 

 

3,951

 

 

 

1,526

 

 

 

1,178

 

 

 

4,654

 

 

 

3,427

 

Total operating expenses

 

 

1,756

 

 

 

2,528

 

 

 

5,164

 

 

 

7,986

 

 

 

1,954

 

 

 

1,756

 

 

 

6,184

 

 

 

5,164

 

Operating loss

 

 

(1,706

)

 

 

(2,568

)

 

 

(5,135

)

 

 

(8,166

)

 

 

(1,839

)

 

 

(1,706

)

 

 

(5,951

)

 

 

(5,135

)

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and bank charges

 

 

(372

)

 

 

(324

)

 

 

(1,094

)

 

 

(939

)

 

 

(423

)

 

 

(372

)

 

 

(1,239

)

 

 

(1,094

)

Other, net

 

 

 

 

 

79

 

 

 

 

 

 

79

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other expense, net

 

 

(372

)

 

 

(245

)

 

 

(1,094

)

 

 

(860

)

 

 

(423

)

 

 

(372

)

 

 

(1,239

)

 

 

(1,094

)

Loss before income taxes

 

 

(2,078

)

 

 

(2,813

)

 

 

(6,229

)

 

 

(9,026

)

 

 

(2,262

)

 

 

(2,078

)

 

 

(7,190

)

 

 

(6,229

)

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(2,078

)

 

$

(2,813

)

 

$

(6,229

)

 

$

(9,026

)

 

$

(2,262

)

 

$

(2,078

)

 

$

(7,190

)

 

$

(6,229

)

 

(23)(22)

Segment Reporting

The Company operates in 3 distinct segments based on our products and our internal organizational structure. The 3 operating segments, which are also the Company’s reportable segments, are Automotive Electronics, Consumer Electronics, and Biometrics.

Our Automotive Electronics segment designs, manufactures, markets and distributes rear-seat entertainment devices, remote start systems, automotive security, vehicle access systems, mobile interface modules, mobile multimedia devices, aftermarket/OE-styled radios, car link-smartphone telematics applications, driver distraction products, collision avoidance systems, location-based services, turn signal switches, automotive lighting products, automotive sensing and camera systems, USB ports, cruise control systems, heated seats, and satellite radio products.

Our Consumer Electronics segment designs, manufactures, markets and distributes home theater systems, receivers, high-end loudspeakers, outdoor speakers, business music systems, cinema speakers, flat panel speakers, wireless and Bluetooth speakers, soundbars, wired and wireless headphones and ear buds, DLNA (Digital Living Network Alliance) compatible devices, remote controls, karaoke products, personal sound amplifiers, infant/nursery products, activity tracking bands, healthcare wearables, smart-home security and safety products, as well as A/V connectivity, portable/home charging, reception, and digital consumer products.

Our Biometrics segment designs, manufactures, markets, and distributes iris identification and biometric security related products.

The accounting principles applied at the consolidated financial statement level are generally the same as those applied at the operating segment level and there are no material intersegment sales. The segments are allocated interest expense, based upon a pre-determined formula, which utilizes a percentage of each operating segment's intercompany balance, which is offset in Corporate/Eliminations.

2728


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

Segment data for each of the Company's segments is presented below:

 

 

Automotive

Electronics

 

 

Consumer

Electronics

 

 

Biometrics

 

 

Corporate/

Eliminations

 

 

Total

 

Three Months Ended November 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

61,589

 

 

$

129,733

 

 

$

355

 

 

$

194

 

 

$

191,871

 

Equity in income of equity investees

 

 

2,206

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

2,206

 

Interest expense and bank charges

 

 

417

 

 

 

2,076

 

 

 

423

 

 

 

(2,186

)

 

 

730

 

Depreciation and amortization expense

 

 

749

 

 

 

1,647

 

 

 

73

 

 

 

937

 

 

 

3,406

 

Income (loss) before income taxes (a)

 

 

4,818

 

 

 

9,998

 

 

 

(2,263

)

 

 

(42,866

)

 

 

(30,313

)

 

Automotive

Electronics

 

 

Consumer

Electronics

 

 

Biometrics

 

 

Corporate/

Eliminations

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended November 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

61,488

 

 

$

139,039

 

 

$

343

 

 

$

195

 

 

$

201,065

 

 

$

61,488

 

 

$

139,039

 

 

$

343

 

 

$

195

 

 

$

201,065

 

Equity in income of equity investees

 

 

1,761

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,761

 

 

 

1,761

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,761

 

Interest expense and bank charges

 

 

537

 

 

 

2,290

 

 

 

372

 

 

 

(2,728

)

 

 

471

 

 

 

537

 

 

 

2,290

 

 

 

372

 

 

 

(2,728

)

 

 

471

 

Depreciation and amortization expense

 

 

876

 

 

 

1,002

 

 

 

75

 

 

 

981

 

 

 

2,934

 

 

 

876

 

 

 

1,002

 

 

 

75

 

 

 

981

 

 

 

2,934

 

Income (loss) before income taxes

 

 

6,601

 

 

 

20,351

 

 

 

(2,078

)

 

 

(5,100

)

 

 

19,774

 

 

 

6,601

 

 

 

20,351

 

 

 

(2,078

)

 

 

(5,100

)

 

 

19,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended November 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended November 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

29,985

 

 

$

79,914

 

 

$

138

 

 

$

75

 

 

$

110,112

 

 

$

150,007

 

 

$

320,805

 

 

$

813

 

 

$

415

 

 

$

472,040

 

Equity in income of equity investees

 

 

967

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

967

 

 

 

6,964

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

6,964

 

Interest expense and bank charges

 

 

137

 

 

 

2,560

 

 

 

324

 

 

 

(2,270

)

 

 

751

 

 

 

1,099

 

 

 

5,962

 

 

 

1,239

 

 

 

(6,460

)

 

 

1,840

 

Depreciation and amortization expense

 

 

187

 

 

 

1,093

 

 

 

783

 

 

 

1,038

 

 

 

3,101

 

 

 

2,287

 

 

 

3,651

 

 

 

224

 

 

 

2,816

 

 

 

8,978

 

Income (loss) before income taxes

 

 

92

 

 

 

9,583

 

 

 

(2,813

)

 

 

(2,775

)

 

 

4,087

 

Income (loss) before income taxes (a)

 

 

8,974

 

 

 

17,905

 

 

 

(7,191

)

 

 

(48,629

)

 

 

(28,941

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended November 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

111,397

 

 

$

288,545

 

 

$

703

 

 

$

439

 

 

$

401,084

 

 

$

111,397

 

 

$

288,545

 

 

$

703

 

 

$

439

 

 

$

401,084

 

Equity in income of equity investees

 

 

4,506

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

4,506

 

 

 

4,506

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

4,506

 

Interest expense and bank charges

 

 

1,058

 

 

 

6,584

 

 

 

1,094

 

 

 

(6,402

)

 

 

2,334

 

 

 

1,058

 

 

 

6,530

 

 

 

1,094

 

 

 

(6,402

)

 

 

2,280

 

Depreciation and amortization expense

 

 

2,050

 

 

 

2,921

 

 

 

247

 

 

 

3,006

 

 

 

8,224

 

 

 

2,050

 

 

 

2,921

 

 

 

247

 

 

 

3,006

 

 

 

8,224

 

Income (loss) before income taxes

 

 

3,730

 

 

 

33,087

 

 

 

(6,229

)

 

 

(8,974

)

 

 

21,614

 

 

 

3,730

 

 

 

33,087

 

 

 

(6,229

)

 

 

(8,974

)

 

 

21,614

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended November 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

86,472

 

 

$

206,601

 

 

$

398

 

 

$

341

 

 

$

293,812

 

Equity in income of equity investees

 

 

3,672

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

3,672

 

Interest expense and bank charges

 

 

354

 

 

 

7,427

 

 

 

939

 

 

 

(6,085

)

 

 

2,635

 

Depreciation and amortization expense

 

 

567

 

 

 

3,356

 

 

 

2,352

 

 

 

2,954

 

 

 

9,229

 

Income (loss) before income taxes

 

 

869

 

 

 

8,976

 

 

 

(8,835

)

 

 

(7,989

)

 

 

(6,979

)

(a)

Included within Corporate/Eliminations for the three and nine months ended November 30, 2021 is a charge of $39,444 recorded for an interim arbitration award unfavorable to the Company (see Note 24).

 

(24)(23)

Revenue from Contracts with Customers

The Company recognizes revenue in accordance with ASC Topic 606, Revenue“Revenue from Contracts with CustomersCustomers” (“ASC 606”). The core principle of ASC 606 is that an entity recognizes revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. We apply the FASB’s guidance on revenue recognition, which requires us to recognize the amount of revenue and consideration that we expect to receive in exchange for goods and services transferred to our customers. To do this, the Company applies the five-step model prescribed by the FASB, which requires us to: (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, we satisfy a performance obligation.

Within our Automotive Electronics segment, while the majority of the contracts we enter into with Original Equipment Manufacturers (“OEM”OEMs”) are long-term supply arrangements, the performance obligations are established by the enforceable contract, which is generally considered to be the purchase order. The purchase orders are of durations less than one year. As such, the Company applies the practical expedient in ASC paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less for which work has not yet been performed.

29


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

Performance Obligations

The Company’s primary source of revenue is derived from the manufacture and distribution of consumer electronic, automotive electronic, and biometric products. Our consumer electronic products primarily consist of finished goods sold to retail and commercial customers, consisting of premium audio products and other consumer electronic products. Our automotive electronic products, some of which are manufactured by the Company, are sold both to

28


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

OEM and aftermarket customers. Our biometricsbiometric products, primarily consisting of finished goods, are sold to retail and commercial customers. We recognize revenue for sales to our customers when transfer of control of the related good or service has occurred. The majority of our revenue was recognized under the point in time approach for the three and nine months ended November 30, 2020.2021. Certain telematic subscription revenues generated by our Automotive Electronics segment are recognized over time. Contract terms with certain of our OEM customers could result in additional products and services being transferred over time as a result of the customized nature of some of our products, together with contractual provisions in the customer contracts that provide us with an enforceable right to payment for performance completed to date; however, under typical terms, we do not have the right to consideration until the time of shipment from our manufacturing facilities or distribution centers, or until the time of delivery to our customers. If certain contracts in the future provide the Company with this enforceable right of payment, the timing of revenue recognition from products transferred to customers over time may be slightly accelerated compared to our right to consideration at the time of shipment or delivery.

Under ASC 606, we are required to present a refund liability and a return asset within the Consolidated Balance Sheets. The changes in the refund liability are reported in Net sales, and the changes in the return asset are reported in Cost of sales in the Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss). Income. As of November 30, 20202021 and February 29, 2020,28, 2021, the balance of the return asset was $1,822$2,554 and $1,544,$2,404, respectively, and the balance of the refund liability was $4,185$5,277 and $3,779,$5,145, respectively, and are presented within Prepaid expenses and other current assets and Accrued expenses and other current liabilities, respectively, on the Consolidated Balance Sheets.

We warrant our products against certain defects in material and workmanship when used as designed, which primarily range from 30 days to 3 years. We offer limited lifetime warranties on certain products, which limit the customer’s remedy to the repair or replacement of the defective product or part for the designated lifetime of the product, or for the life of the vehicle for the original owner, if it is an automotive product. We do not sell extended warranties.

Contract Balances

Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date on contracts with customers. Contract assets are transferred to receivables when the rights become unconditional. Contract liabilities primarily relate to contracts where advance payments or deposits have been received, but performance obligations have not yet been met, and therefore, revenue has not been recognized. The Company had current and non-current contract liability balances totaling $4,412$4,658 at November 30, 20202021 related to telematic subscription services of the Company’s DEI subsidiary established in connection with the Company’s acquisition of DEI in July 2020 (see Note 2). Revenue recognized forThe following table provides a reconciliation of the three months endedCompany’s contract liabilities as of November 30, 2020 that was included in the contract liability balance for the Company’s August 31, 2020 quarter-end date was $2,767. There were 0 contract liability balances at February 29, 2020. 2021:

 

 

 

 

 

Balance at February 28, 2021

 

$

5,265

 

Subscription payments received

 

 

5,053

 

Revenue recognized

 

 

(5,660

)

Balance at November 30, 2021

 

$

4,658

 

The Company had 0no contract asset balances at November 30, 20202021 or February 29, 2020.28, 2021.

2930


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

Disaggregation of Revenue

The Company operates in 3 reportable segments: Automotive Electronics, Consumer Electronics, and Biometrics. ASC 606 requires further disaggregation of an entity’s revenue. In the following table, the Company's net sales are disaggregated by segment and product type for the three and nine months ended November 30, 20202021 and 2019:2020:

 

 

Three months ended

November 30,

 

 

Nine months ended

November 30,

 

 

Three months ended

November 30,

 

 

Nine months ended

November 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Automotive Electronics Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OEM Products

 

$

14,089

 

 

$

10,628

 

 

$

32,462

 

 

$

37,391

 

 

$

18,536

 

 

$

14,089

 

 

$

49,853

 

 

$

32,462

 

Aftermarket Products

 

 

47,399

 

 

 

19,357

 

 

 

78,935

 

 

 

49,081

 

 

 

43,053

 

 

 

47,399

 

 

 

100,154

 

 

 

78,935

 

Total Automotive Segment

 

 

61,488

 

 

 

29,985

 

 

 

111,397

 

 

 

86,472

 

 

 

61,589

 

 

 

61,488

 

 

 

150,007

 

 

 

111,397

 

Consumer Electronics Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium Audio Products

 

 

112,681

 

 

 

53,250

 

 

 

216,501

 

 

 

128,056

 

 

 

104,877

 

 

 

112,681

 

 

 

252,610

 

 

 

216,501

 

Other Consumer Electronic Products

 

 

26,358

 

 

 

26,664

 

 

 

72,044

 

 

 

78,545

 

 

 

24,856

 

 

 

26,358

 

 

 

68,195

 

 

 

72,044

 

Total Consumer Electronics Segment

 

 

139,039

 

 

 

79,914

 

 

 

288,545

 

 

 

206,601

 

 

 

129,733

 

 

 

139,039

 

 

 

320,805

 

 

 

288,545

 

Biometrics Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Biometric Products

 

 

343

 

 

 

138

 

 

 

703

 

 

 

398

 

 

 

355

 

 

 

343

 

 

 

813

 

 

 

703

 

Total Biometrics Segment

 

 

343

 

 

 

138

 

 

 

703

 

 

 

398

 

 

 

355

 

 

 

343

 

 

 

813

 

 

 

703

 

Corporate/Eliminations

 

 

195

 

 

 

75

 

 

 

439

 

 

 

341

 

 

 

194

 

 

 

195

 

 

 

415

 

 

 

439

 

Total Net Sales

 

$

201,065

 

 

$

110,112

 

 

$

401,084

 

 

$

293,812

 

 

$

191,871

 

 

$

201,065

 

 

$

472,040

 

 

$

401,084

 

 

(25)(24)

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 of each matter, 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 does not believe that any current outstanding litigation matters will have a material adverse effect on the Company's financial statements, individually, or in the aggregate.

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 patent, trademark, or other intellectual property owners.  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 that are not advantageous to the Company, or pay material amounts of damages.damages

 

(26)

New Accounting Pronouncements

In March 2007, the Company entered into a contract with Seaguard Electronics, LLC (“Seaguard”) relating to the Company’s purchase from Seaguard of a stolen vehicle recovery product and back-end services. In August 2018, Seaguard filed a demand for arbitration against the FASBCompany with the American Arbitration Association (“AAA”) alleging claims for breach of contract and patent infringement. Seaguard originally sought damages of approximately $10,000 and on the seventh day of an eight-day fact witness portion of the arbitration in June 2021, amended its damages demand to $40,000, which was effected by the service of Claimant’s notice dated July 14, 2021.  

On November 29, 2021, the Arbitrator issued ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changesan interim award (the “Interim Award”) with Seaguard prevailing on its breach of contract claim. The Company’s affirmative defenses relating to those claims, however, were denied in their entirety. Seaguard was awarded damages in the amount of $39,444 against the Company. Seaguard is seeking reimbursement of its attorneys’ fees and expenses. The Arbitrator has deferred scheduling, until late February 2022, the balance of the bifurcated arbitration which principally relates to patent infringement claims against the Company; however, the Company has an indemnification from its supplier with respect to the Disclosure Requirementsalleged infringing products. A schedule has not been established for Defined Benefit Plans."  ASU 2018-14 removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and added additional disclosures. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2020.  The amendments in ASU 2018-14 must be applied onthe issuance of a retrospective basis.final arbitration award. The Company is currently assessingreviewing its legal options, and has moved in the effect,arbitration proceeding to modify the interim award and if any,unsuccessful, the Company will seek to have a court vacate, modify, or correct the interim award. At November 30, 2021, the Company has recorded a charge of $39,444 within Other (expense) income in the accompanying Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income. No accrual or reserve was included in the Company’s previously issued financial statements based on an assessment that ASU 2018-14 will have onan award of damages in the disclosures in its consolidated financial statements.

In December 2019,arbitration proceeding would not be material and that the FASB issued ASU No. 2019-12, “Simplifyingamount as determined by the Accounting for Income Taxes.” This guidance removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. This guidance is effective for fiscal years beginning after December 15, 2020. The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted.Arbitrator’s award was not probable. The Company is currently evaluatingmade its accrual determination in accordance with reports and evaluations from its damages expert, as well as from the effect of this ASU onguidance and opinion letters received from the Company’s consolidated financial statements and related disclosures.trial attorneys.

3031


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

(25)

New Accounting Pronouncements

In March 2020 and January 2020,2021, the FASB issued ASU No. 2020-01, “Investments – Equity Securities2020-04, “Reference Rate Reform (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus848): Facilitation of the Emerging Issues Task ForceEffects of Reference Rate Reform on Financial Reporting” and isASU No. 2021-01, “Reference Rate Reform: Scope,” respectively. Together, these ASU’s provide optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to increase comparabilitybe discontinued because of reference rate reform. ASU 2020-04 provides, among other things, guidance that modifications of contracts within the scope of Topic 470, Debt, should be accounted for by prospectively adjusting the effective interest rate; modifications of contracts within the scope of Topic 840, Leases, should be accounted for as a continuation of the existing contract; and, changes in the critical terms of hedging relationships caused by reference rate reform should not result in the de-designation of the instrument, provided certain criteria are met. ASU 2021-01 clarifies the scope and application of ASU 2020-04 and among other things, permits entities to elect certain optional expedients and exceptions when accounting for these transactionsderivative contracts and certain hedging relationships affected by clarifyingchanges in the interactioninterest rates used for discounting cash flows. The Company’s exposure to LIBOR rates includes its Credit Facility, as well as its Florida Mortgage and related interest swap agreement. These optional expedients and exceptions are effective as of March 12, 2020 through December 31, 2022. Adoption is permitted at any time. The Company is currently evaluating the impact this update may have on its consolidated financial statements.

In October 2021, the FASB issued ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts With Customers,” which amends the accounting for equity securities under Topic 321contract assets acquired and investments accounted for undercontract liabilities assumed from contracts with customers in business combinations (“acquired contract balances”). The update requires contract assets and contract liabilities from contracts with customers that are acquired in a business combination to be recognized and measured as if the equity method of accounting under Topic 323,acquirer had originated the original contract. Previously, acquired contract assets and the accounting for certain forward contracts and purchased options accounted for under Topic 815. Thisliabilities were measured at fair value. The ASU is effective for fiscal years beginningending after December 15, 2020, and interim periods within those fiscal years.2022. Early adoption is permitted. The Company does not expectis currently evaluating the adoption of ASU 2020-01 toimpact this update may have a material impact on its consolidated financial statements.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 impact of the COVID-19 pandemic on our results of operations, 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 and could be exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result.

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 and nine months ended November 30, 20202021 compared to the three and nine months ended November 30, 2019.2020. Next, we present EBITDA and Adjusted EBITDA and Diluted Adjusted EBITDA per common share attributable to Voxx for the three and nine months ended November 30, 20202021 compared to the three and nine months ended November 30, 2019,2020, in order to provide a useful and appropriate supplemental measure of our performance. 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 presented in our MD&A below are in thousands, except share and per share data.

Business Overview

VOXX International Corporation ("Voxx," "We," "Our," "Us" or the "Company") is a leading international manufacturer and distributor operating in the Automotive Electronics, Consumer Electronics, and Biometrics industries. The Company has widely diversified interests, with more than 30 global brands that it has acquired and grown throughout the years, achieving a powerful international corporate image, and creating a vehicle for each of these respective brands to emerge with its own identity. We conduct our business through nineteen wholly-owned subsidiaries: Audiovox Atlanta Corp., VOXX Electronics Corporation, VOXX Accessories Corp., VOXX German Holdings GmbH ("Voxx Germany"), Audiovox Canada Limited, Voxx Hong Kong Ltd., Audiovox International Corp., Audiovox Mexico, S. de R.L. de C.V. ("Voxx Mexico"), Code Systems, Inc., Oehlbach Kabel GmbH ("Oehlbach"), Schwaiger GmbH ("Schwaiger"), Invision Automotive Systems, Inc. ("Invision"), Premium Audio Company LLC ("Klipsch"), Omega Research and Development, LLC ("Omega"), Voxx Automotive Corp., Audiovox Websales LLC, VSM-Rostra LLC (“VSM”), VOXX DEI LLC, and VOXX DEI Canada, Ltd. (collectively, with VOXX DEI, LLC, “DEI”), as well as a majority owned subsidiary, EyeLock LLC ("EyeLock"). We market our products under the Audiovox® brand name and other brand names and licensed brands, such as 808®, Acoustic Research®, Advent®, Avital®, Car Link®, Chapman®, Clifford®, Code-Alarm®, Crimestopper™, Directed®, Discwasher®, Energy®, Heco®, Integra®, Invision®, Jamo®, Klipsch®, Mac Audio, Magnat®, Mirage®, myris®, Oehlbach®, Omega®, Onkyo®, Pioneer®, Prestige®, Project Nursery®, Python®, RCA®, RCA Accessories, Rosen®, Rostra®, Schwaiger®, Smart Start®, Terk®, Vehicle Safety Automotive, Viper®, and Voxx Automotive, 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, as well as market a number of products under exclusive distribution agreements, such as SiriusXM satellite radio products and Onkyo & Pioneer Corp. products in North America.products.

COVID-19

During March 2020, a global pandemic was declared by the World Health Organization and a National Emergency was declared by the President of the United States related to the rapidly growing outbreak of COVID-19. The pandemic has significantly impacted economic conditions in the United States, as federal, state, and local governments have reacted to the public health crisis, creating significant uncertainties in the United States, as well as the global economy. In the interest of public health and safety, U.S. jurisdictions (national, state, and local) where our primary operations and those of many of our customers are located required mandatory business closures, capacity limitations, or other restrictions for those permitted to continue to operate or allowed to reopen since the initial shut-downs in March 2020. As of the date of this filing, all of our operating locations are open, with certain locations operating at reduced capacity.open.

As a result of these developments, theThe Company’s business has been impactedrevenues have decreased for the three andmonths ended November 30, 2021, but have increased for the nine months ended November 30, 2020.  Although the Company’s revenues have increased for the three and nine months ended November 30, 2020,2021 as compared to the respective prior year periods, sales within certain product lines acrossperiods. The impact of COVID-19 on the Company’s segments have been negatively affected. The situationmarket is still rapidly changing and additional impacts to the business may arise that we are not


aware of currently, which could have an adverse impact on revenues, results of operations, and cash flows for the 20212022 fiscal year. We cannot predict whether, when, or


the manner in which the conditions surrounding COVID-19 will change, including the timingultimate duration and scope of lifting any restrictions and/the pandemic; the severity of the virus, including the emergence of new variants; the impact of the COVID-19 vaccines, including the speed at which they are disseminated and their effectiveness; the actions taken by governments to contain the virus or any subsequent re-impositions.treat its impact; and how quickly and to what extent normal economic and operating conditions can resume. Due to the evolving situation, future results of the Company could be impacted in ways we are not able to predict today, including, but not limited to, non-cash write-downs and impairments; foreign currency fluctuations; potential adjustments to the carrying value of inventory; and the delayed collections of, or inability to collect accounts receivables.

During April 2020, as a precautionary measure to ensure financial flexibility and maintain maximum liquidity in response to the COVID-19 pandemic, the Company borrowed $20,000 from its Credit Facility in the U.S. This $20,000 precautionary borrowing was repaid in November 2020. As of the date of this report, theThe Company continues to focus on cash flow and anticipates having sufficient resources to operate for the coming twelve-month period.

In addition,April 2021, the Company implemented a number of other measuresamended its Credit Facility in Fiscal 2021the U.S. in order to help mitigateincrease the operatingmaximum borrowing base thereunder and financial impactextend the maturity date of the pandemic, including: (i) furloughing approximately 20% of its employees globally; (ii) implementing temporary salary and hour reductions for both management and non-management level employees Company-wide, including its executive officers, and the Company’s board of directors; (iii) executing substantial reductions in expenses, service provider costs, occupancy costs, capital expenditures and overall costs; and (iv) working globally with management teamsCredit Facility to actively explore and identify all eligible government and other initiatives available to businesses or employees impacted by the COVID-19 pandemic. As of our filing date, less than 1% of our employees worldwide remain on furlough. The above-referenced temporary salary and hour reductions were eliminated by the Company during the three months ended November 30, 2020.April 2026 (see Note 16(a)).

Reportable Segments

The Company operates in three reportable segments based on our products and internal organizational structure. The operating segments consist of Automotive Electronics, Consumer Electronics, and Biometrics. See Note 2322 to the Company's Consolidated Financial Statements for segment information.

Products included in these segments are as follows:

Automotive Electronics products include:

 

mobile multi-media videoinfotainment products, including in-dash, overhead, seat-back, and headrest systems,systems;

 

automotive security, vehicle access, and remote start systems,

autosound products including radios and amplifiers,systems;

 

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

 

smart phone telematics applications,applications;

 

mobile interface modules,modules;

 

automotive power accessories,accessories;

 

rear observation and collision avoidance systems,systems;

 

driver distraction products,products;

 

power lift gates,gates;

 

turn signal switches,switches;

 

automotive lighting products,products;

 

automotive sensing and camera systems,systems;

 

USB ports,ports;

 

cruise control systems,systems; and

 

heated seats.


Consumer Electronics products include:

 

premium loudspeakers,loudspeakers;

 

architectural speakers,speakers;

 

commercial speakers,speakers;

 

outdoor speakers,

flat panel speakers,speakers;

 

wireless and Bluetooth speakers,speakers;

 

home theater systems,systems;

 

business music systems,systems;

 

streaming music systems,systems;

receivers;

 

on-ear and in-ear headphones,headphones;

 

wired and wireless Bluetooth headphones and ear buds,buds;

 

soundbarsBluetooth headphones and sound bases,ear buds;

Soundbars;

 

DLNA (Digital Living Network Alliance) compatible devices,devices;

 

High-Definition Television ("HDTV") antennas,antennas;

 

Wireless Fidelity ("WiFi") antennas,antennas;

 

High-Definition Multimedia Interface ("HDMI") accessories,accessories;

 

home electronic accessories such as cabling, power cords, and other connectivity products,products;

 

performance enhancing electronics,electronics;

 

TV universal remotes,remotes;

 

flat panel TV mounting systems,systems;

 

karaoke products,products;

 

infant/nursery products,products;


 

activity tracking bands,

healthcare wearables,

 

power supply systems and charging products,products;

 

electronic equipment cleaning products,products;

 

personal sound amplifiers,amplifiers;

 

set-top boxes,boxes; and

 

home and portable stereos, and

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

Biometrics products include:

 

iris identification products, and


 

biometric security related products.

We believe our segments 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. All of our products are subject to price fluctuations which could affect the carrying value of inventories and gross margins in the future. Macroeconomic factors, such as increases in the unemployment rate, have been pressured as a result of the COVID-19 stay at home orderspandemic and have created a challenging demand environment in some of our markets, the duration and severity of which we are still unable to predict.

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. Notwithstanding the above, if the appropriate opportunity arises, the Company will explore the potential divestiture of a product line or business.

 

Acquisitions and Dispositions

On July 1, 2020, the Company completed the acquisition of certain assets and liabilities, which comprise the aftermarket vehicle remote start and security systems and connected car solutions (telematics) business from Directed LLC and Directed Electronics Canada Inc. (collectively, with Directed LLC, “Directed”) (see Note 2).

On January 31, 2020,September 8, 2021, the Company’s subsidiary, Premium Audio Company acquired certain assets and liabilitiesLLC (“PAC”), completed the transaction to acquire the home audio/video business of Vehicle Safety Holdings Corp. (“VSHC”)Onkyo Home Entertainment Corporation with its partner Sharp through the newly formed joint venture, Onkyo Technology KK (see Note 2).

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; accrued sales incentives; expected credit losses on accounts receivable; inventory valuation; valuation of long-lived assets; valuation and impairment assessment of goodwill, trademarks, and other intangible assets; warranties; stock-based compensation; recoverability of deferred tax assets; and the reserve for uncertain tax positions at the date of the consolidated financial statements.  A summary of the Company's critical accounting policies is identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company's Form 10-K for the fiscal year ended February 29, 2020.28, 2021. During the fourth quarter of the Company’s 2020 fiscal year, as well as subsequent to February 29, 2020,Fiscal 2021, there have beenwere significant changes to the global economic situation as a consequence of the COVID-19 pandemic.pandemic that could continue during Fiscal 2022. It is possible that this could cause changes to estimates in the future as a result of the financial circumstances of the markets in which the Company operates, the price of the Company’s publicly traded equity in comparison to the Company’s carrying value, and the health of the global economy. Such changes to estimates could potentially result in impacts that would be material to the Company’s consolidated financial statements, particularly with respect to the fair value of the Company’s reporting units in relation to potential goodwill impairment and the fair value of long-lived assets in relation to potential impairment. Since February 29, 2020,28, 2021, there have been no changes in our critical accounting policies, with the exception of the Company’s adoption of ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” on March 1, 2020.policies.

Results of Operations

As you read this discussion and analysis, refer to the accompanying Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income, (Loss), which present the results of our operations for the three and nine months ended November 30, 20202021 and 2019.2020.

The following tables set forth, for the periods indicated, certain statements of operations data for the three and nine months ended November 30, 20202021 and 2019.2020.


Net Sales

 

 

November 30,

 

 

 

 

 

 

 

 

 

 

November 30,

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

$ Change

 

 

% Change

 

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

��

 

 

 

 

 

 

 

 

 

 

 

 

Automotive Electronics

 

$

61,488

 

 

$

29,985

 

 

$

31,503

 

 

 

105.1

%

 

$

61,589

 

 

$

61,488

 

 

$

101

 

 

 

0.2

%

Consumer Electronics

 

 

139,039

 

 

 

79,914

 

 

 

59,125

 

 

 

74.0

%

 

 

129,733

 

 

 

139,039

 

 

 

(9,306

)

 

 

(6.7

)%

Biometrics

 

 

343

 

 

 

138

 

 

 

205

 

 

 

148.6

%

 

 

355

 

 

 

343

 

 

 

12

 

 

 

3.5

%

Corporate

 

 

195

 

 

 

75

 

 

 

120

 

 

 

160.0

%

 

 

194

 

 

 

195

 

 

 

(1

)

 

 

(0.5

)%

Total net sales

 

$

201,065

 

 

$

110,112

 

 

$

90,953

 

 

 

82.6

%

 

$

191,871

 

 

$

201,065

 

 

$

(9,194

)

 

 

(4.6

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Automotive Electronics

 

$

111,397

 

 

$

86,472

 

 

$

24,925

 

 

 

28.8

%

 

$

150,007

 

 

$

111,397

 

 

$

38,610

 

 

 

34.7

%

Consumer Electronics

 

 

288,545

 

 

 

206,601

 

 

 

81,944

 

 

 

39.7

%

 

 

320,805

 

 

 

288,545

 

 

 

32,260

 

 

 

11.2

%

Biometrics

 

 

703

 

 

 

398

 

 

 

305

 

 

 

76.6

%

 

 

813

 

 

 

703

 

 

 

110

 

 

 

15.6

%

Corporate

 

 

439

 

 

 

341

 

 

 

98

 

 

 

28.7

%

 

 

415

 

 

 

439

 

 

 

(24

)

 

 

(5.5

)%

Total net sales

 

$

401,084

 

 

$

293,812

 

 

$

107,272

 

 

 

36.5

%

 

$

472,040

 

 

$

401,084

 

 

$

70,956

 

 

 

17.7

%

 

Automotive Electronics sales represented 30.6% and 27.8%32.1% of the net sales for the three months ended November 30, 2021, compared to 30.6% in the prior year period and remained relatively flat with an increase of $101 for the three months ended November 30, 2021, as compared to three months ended November 30, 2020. The Company’s OEM rear seat entertainment sales experienced a net increase of approximately $3,700 for the three months ended November 30, 2021, primarily as a result of the start of new rear seat entertainment programs with Ford and Stellantis that were not present in the prior year. This was offset by a decline in sales for one of the Company’s rear-seat entertainment programs that ended during the quarter. Sales of OEM automotive safety electronics products also increased approximately $1,400 as a result of rebounding sales following the COVID-19 shut-downs of automotive manufacturers in the prior year. As an offset to these increases, the Company experienced decreases in sales of both aftermarket security and safety electronics products, as well as satellite radios of approximately $1,900, $1,300 and $1,200, respectively, for the three months ended November 30, 2021, as a result of inventory shortages that have negatively affected the Company’s ability to fulfill orders, as well as due to the fact that some customers purchased product earlier in the year to avoid future stock outages in light of worldwide issues with shipping container shortages and chip shortages. Additionally, sales of aftermarket rear seat entertainment products decreased approximately $400 due to product delays.

Automotive Electronics sales represented 31.8% of the net sales for the nine months ended November 30, 2020, respectively,2021, compared to 27.2% and 29.4%27.8% in the respective prior year periods. Sales in this segmentperiod and increased during both$38,610 for the  three and nine months ended November 30, 2020,2021, as compared to the prior year periods.nine months ended November 30, 2020. The primary driver of the sales increasesincrease in this segment for both periods werewas sales of OEM and aftermarket security products related to the Company’s VSM and DEI subsidiaries,subsidiary, established in connection with the Company’s acquisitionsacquisition in the fourth quarter of Fiscal 2020 and the second quarter of Fiscal 2021, respectively. Sales from these two new subsidiaries comprisedJuly 2020. These sales increased approximately 49% and 41% of the segment’s sales$20,100 for the three and nine months ended November 30, 2020, respectively, neither2021 to a total of which was present in the prior year periods. The Company also saw an increase inapproximately $48,400, as a result of nine full months of sales of its aftermarket security and remote start productsincluded for Fiscal 2022 as compared to five months during the three andcomparable Fiscal 2021 year-to-date period. The Company’s OEM rear seat entertainment sales experienced a net increase of approximately $12,700 during the nine months ended November 30, 2020, respectively, partly due to2021, as a boostresult of the start of new rear seat entertainment programs with Nissan, Ford, and Stellantis that were not present in demandthe prior year. This was offset by a decline in sales for one of the Company’s rear-seat entertainment programs that ended during Fiscal 2022. Sales of OEM automotive safety electronics also increased approximately $6,900 for the nine months ended November 30, 2021, as a result of rebounding sales following business re-openings after the COVID-19 shut-downs of automotive manufacturers. In addition, the Company’s aftermarket security products, which include aftermarket remote starts, and aftermarket rear seat entertainment products increased by approximately $1,600 and $1,200, respectively, for the nine months ended November 30, 2021, due to rebounding sales following the prior year COVID-19 shut-downs, as purchases could not be made bywell as due to current year component shortages that caused some customers to purchase product earlier in order to avoid future stock outages. Finally, aftermarket accessory products increased approximately $800 for the nine months ended November 30, 2021 due to the successful launch of new soundbars for club cars during the shut-downs. Duringsecond quarter of the fiscal year.  As an offset to these increases, the Company experienced net decreases in both aftermarket safety electronics and satellite radio sales during the nine months ended November 30, 2021 of approximately $3,000 and $1,600, respectively, as a result of inventory shortages which have negatively affected the Company’s ability to fulfill orders.

Consumer Electronics sales represented 67.6% of our net sales for the three months ended November 30, 2020, there was an increase2021, compared to 69.2% in sales of the Company’s OEM rear seat entertainment products due to a pick-up in sales following the shut-downs, as well as due to the successful launch of a new program with one of its customers in October 2020.  Offsetting these increases, the segment experienced sales declines in certain product lines duringcomparable prior year period and decreased $9,306 for the three and nine months ended November 30, 2020 related2021, as compared to the COVID-19 pandemic, as well as certain other factors. The Company’s OEM remote start sales decreased during both the three and nine months ended November 30, 2020 as2020. The Company experienced a result of an increasedecrease in the use of Tier 1 factory installed remote start products by many automotive manufacturers (which the Company does not sell) over accessory level remote starts. This has negatively impacted the Company’s sales to certain of its OEM remote start customers. Sales of aftermarket headrest products also decreasedpremium wireless speakers and home separate speakers, totaling approximately $12,600 during the three and nine months ended November 30, 20202021 due to vessel delays and shortages, as well as chip shortages, that have caused product backorders. Additionally, in the COVID-19 related shut-downsprior year period,


there were high load in sales for the launch of car dealershipsthe Company’s premium wireless computer speakers at warehouse club channels that did not repeat in the current year. The Company also saw declines in sales of hook-up products, reception products, and other brick and mortar businessesremotes totaling approximately $2,700 during the first quarter of the year, followed by stock-outages of several products in the third quarter, which continued to negatively impact sales. For the ninethree months ended November 30, 2020,2021 which occurred due to the fact that these product sales increased significantly during the prior year COVID-19 shutdowns, as many people were working from home during this period. During the third quarter of Fiscal 2022, sales of these products have returned to normal levels. Additionally, the Company experienced a decrease in sales of OEM rear seat entertainmentits premium mobility products due to several automotive manufacturing plant shut-downs beginning in March 2020of approximately $1,500 as a result of COVID-19, including Ford, GM, FCA,stronger prior year sales of new product and Subaru. Many plantscurrent year production delays by certain vendors. Offsetting these sales decreases was an increase in sales of Onkyo and Pioneer products of approximately $7,800 within the Company’s 11 Trading Company LLC subsidiary (“11TC”). 11TC began to gradually re-openselling these products through distribution agreements during the secondthird quarter of our fiscal year, and while someFiscal 2021. In the third quarter of Fiscal 2022, the Company completed an acquisition of certain assets of the programs have begun to ramp upOnkyo Home Entertainment business with its joint venture partner, resulting in the establishment of the Company’s Onkyo subsidiary and an increase in factory production again, others have yet to return to pre-COVID levels, thus negatively impactingand sales of Onkyo and Pioneer products during the three months ended November 30, 2021.

Consumer Electronics sales represented 68.0% of our net sales for the year-to-datenine months ended November 30, 2021, compared to 71.9% in the comparable prior year period and increased $32,260 for the nine months ended November 30, 2021, as compared to the nine months ended November 30, 2020. The Company’s 11TC subsidiary contributed to an increase in sales of approximately $25,500 for the nine months ended November 30, 2021 to a total of approximately $32,000. 11TC began selling Onkyo and Pioneer products through distribution agreements during the third quarter of Fiscal 2021 and during the third quarter of Fiscal 2022, the Company completed an acquisition of certain assets of the Onkyo Home Entertainment business with its joint venture partner, resulting in the establishment of the Company’s Onkyo subsidiary. Sales of Onkyo and Pioneer products under the distribution agreements were only present for three months during the prior year to date period. The Company also experienced an increase in sales of its premium home theater speakers during the nine months ended November 30, 2021 of approximately $15,100, as the Company continues to see high consumer demand and has achieved market share growth and began selling many of its products through warehouse club channels during Fiscal 2021. Additionally, OEM rear seat entertainment salesthe lifting of many of the COVID-19 restrictions that were negatively impactedin place during the nine months ended November 30, 2020 byhas contributed positively to the cancellationsales of a program with onethese products in Fiscal 2022. The Company also experienced improvements of the Company’s larger customers that had been in productionapproximately $2,100 related to wireless accessory speakers during the prior year period.

Consumer Electronics sales represented 69.2% and 71.9% of our net sales for the three and nine months ended November 30, 2020, respectively, compared to 72.6% and 70.3% in the comparable prior year periods. Sales increased for the three and nine months ended November 30, 2020 as compared to the prior year due primarily to the positive sales and promotion of several of the Company’s premium audio products. During both the three and nine months ended November 30, 2020, the Company experienced greater consumer demand and achieved market share growth in its premium home theater and subwoofer categories, and launched a new premium wireless computer speaker system, which has contributed positively to sales in both periods and was not available in the prior fiscal year. The Company also experienced increased sales of premium mobility products2021, due to the discounting of older wireless ear buds in preparation for the launch of new product. Sales of hookup products increased during the three and nine months ended November 30, 2020 due to the large number of individuals working from home as a result of the COVID-19 pandemic, which caused an increase in demand for cabling and other hookup related products. Within Europe, the Company experienced stronger online sales during the three and nine months ended November 30, 2020 due to many consumers shopping from home during the pandemic, as well as an increaserebound in sales in its Do It Yourself (“DIY”) line of products, a new sales channel of discount retailers, and a shift in focus of premium audio products


in Europe from low margin to traditional home theater products, which has contributed positively to sales. Additionally, during the three and nine months ended November 30, 2020, the Company’s newly formed subsidiary, 11 Trading Company LLC, began selling Onkyo and Pioneer products through new distribution agreements. Offsetting these sales increases were decreases in sales related to thefollowing nationwide COVID-19 pandemic, as well as other factors. The Company experienced decreases in sales of certain consumer electronic and accessory products, such as reception products and wireless speakers, primarily due to nationwide brick and mortar business closures related to the COVID-19 pandemic,and delayed customer orders due to the pandemic, as well as due to the Company’s continuing rationalization of SKU’s for certain of these products, with the goal of limiting sales of lower margin products. For the three and nine months ended November 30, 2020, there was also a decrease in sales of the Company’s premium commercial speaker products due to the shut-down of cinemas during the pandemic. Additionally, one of the Company’s healthcare programs ended in September 2020, resulting in a decrease in sales of its motion products for both the three and nine months ended November 30, 2020. ForWithin Europe, the Company experienced net increases in its premium audio product and accessories sales of approximately $1,600 as a result of the partial lifting of COVID-19 restrictions during the nine months ended November 30, 2020,2021, although many restrictions are still noted to be in place. Offsetting these increases, the Company experienced declining sales of hook-up products, reception products, and remotes totaling approximately $5,400 during the Company’s smartnine months ended November 30, 2021, as these products saw a large increase during the comparable prior year period due to the significant number of people working from home during the COVID-19 pandemic. During Fiscal 2022, sales of these products have returned to normal levels.  Additionally, sales of premium wireless speakers and premium mobility products decreased approximately $4,200 in total during the nine months ended November 30, 2021 primarily as a result of chip shortages that have caused product backorders, vendor delays, and shipping container and vessel shortages, as well as due to large load in sales or speaker products at warehouse club channels that did not repeat in the Company began exiting this category during Fiscal 2020.current year.

Biometrics sales represented 0.2% of our net sales for both the three and nine months ended November 30, 2020, compared to 0.1% in both of the respective prior year periods.2021 and 2020. Sales duringfor the three andmonths ended November 30, 2021 have remained relatively flat, while sales for the nine months ended November 30, 20202021 have increased compared to$110.  The increase in sales during the prior year periodsnine months ended November 30, 2021 was due primarily to an increase in sales of its EXT outdoor perimeter accessthe NIXT product, and the updated version of its Nano NXT perimeter access product, both of which launched in the second quarter of Fiscal 2020.  Additionally, the Company began selling itsduring the second half of Fiscal 2021. The NIXT product during the three months ended November 30, 2020, which can be optionally fitted with iTEMP, a product that can take an individual’s temperature before allowing iris access. During Fiscal 2022, the Company has also begun selling NIXT, iTemp, and NEXT products under the distribution agreement signed with GalvanEyes LLC in April 2021.


Gross Profit and Gross Margin Percentage

 

 

November 30,

 

 

 

 

 

 

 

 

 

 

November 30,

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

$ Change

 

 

% Change

 

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Automotive Electronics

 

$

15,777

 

 

$

6,023

 

 

$

9,754

 

 

 

161.9

%

 

$

14,648

 

 

$

15,777

 

 

$

(1,129

)

 

 

(7.2

)%

 

 

25.7

%

 

 

20.1

%

 

 

 

 

 

 

 

 

 

 

23.8

%

 

 

25.7

%

 

 

 

 

 

 

 

 

Consumer Electronics

 

 

42,109

 

 

 

25,627

 

 

 

16,482

 

 

 

64.3

%

 

 

36,754

 

 

 

42,109

 

 

 

(5,355

)

 

 

(12.7

)%

 

 

30.3

%

 

 

32.1

%

 

 

 

 

 

 

 

 

 

 

28.3

%

 

 

30.3

%

 

 

 

 

 

 

 

 

Biometrics

 

 

50

 

 

 

(39

)

 

 

89

 

 

 

228.2

%

 

 

114

 

 

 

50

 

 

 

64

 

 

 

128.0

%

 

 

14.6

%

 

 

(28.3

)%

 

 

 

 

 

 

 

 

 

 

32.1

%

 

 

14.6

%

 

 

 

 

 

 

 

 

Corporate

 

 

192

 

 

 

(147

)

 

 

339

 

 

 

230.6

%

 

 

188

 

 

 

192

 

 

 

(4

)

 

 

(2.1

)%

 

$

58,128

 

 

$

31,464

 

 

$

26,664

 

 

 

84.7

%

 

$

51,704

 

 

$

58,128

 

 

$

(6,424

)

 

 

(11.1

)%

 

 

28.9

%

 

 

28.6

%

 

 

 

 

 

 

 

 

 

 

26.9

%

 

 

28.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Automotive Electronics

 

$

25,555

 

 

$

18,228

 

 

$

7,327

 

 

 

40.2

%

 

$

37,111

 

 

$

25,555

 

 

$

11,556

 

 

 

45.2

%

 

 

22.9

%

 

 

21.1

%

 

 

 

 

 

 

 

 

 

 

24.7

%

 

 

22.9

%

 

 

 

 

 

 

 

 

Consumer Electronics

 

 

90,166

 

 

 

63,040

 

 

 

27,126

 

 

 

43.0

%

 

 

87,854

 

 

 

90,166

 

 

 

(2,312

)

 

 

(2.6

)%

 

 

31.2

%

 

 

30.5

%

 

 

 

 

 

 

 

 

 

 

27.4

%

 

 

31.2

%

 

 

 

 

 

 

 

 

Biometrics

 

 

28

 

 

 

13

 

 

 

15

 

 

 

115.4

%

 

 

231

 

 

 

28

 

 

 

203

 

 

 

725.0

%

 

 

4.0

%

 

 

3.3

%

 

 

 

 

 

 

 

 

 

 

28.4

%

 

 

4.0

%

 

 

 

 

 

 

 

 

Corporate

 

 

430

 

 

 

(39

)

 

 

469

 

 

 

1202.6

%

 

 

386

 

 

 

430

 

 

 

(44

)

 

 

(10.2

)%

 

$

116,179

 

 

$

81,242

 

 

$

34,937

 

 

 

43.0

%

 

$

125,582

 

 

$

116,179

 

 

$

9,403

 

 

 

8.1

%

 

 

29.0

%

 

 

27.7

%

 

 

 

 

 

 

 

 

 

 

26.6

%

 

 

29.0

%

 

 

 

 

 

 

 

 

 

Gross margin percentages for the Company have increased 30decreased 200 and 130240 basis points for the three and nine months ended November 30, 2020,2021, respectively, as compared to the three and nine months ended November 30, 2019.2020.

Gross margin percentages in the Automotive Electronics segment increaseddecreased 560190 for the three months ended November 30, 2021 and increased 180 basis points for the nine months ended November 30, 2021, as compared to the respective prior year periods. Positive margin impacts in this segment have been driven primarily by sales of aftermarket security products related to the Company’s DEI subsidiary, whose products have higher profit margins than those typically achieved by the segment. Sales from DEI were present in the prior year period for five months, as it was established in July 2020, and therefore these sales increased significantly for the nine months ended November 30, 2021 as compared the prior year; but were relatively flat for the three month comparable quarterly periods, achieving less benefit from these high margin sales. The decrease in sales of satellite radio products for both the three and nine months ended November 30, 2021, which typically generate lower margins for the Company, also contributed positively to margins overall. Offsetting these positive impacts, the increased cost of materials and shipping, as well as increases in tariffs included in cost of goods sold, have negatively affected margins during the three and nine months ended November 30, 2021 for such items as OEM rear seat entertainment, OEM and aftermarket automotive safety products, and aftermarket accessory products, which the Company is actively working to mitigate through a combination of sales price adjustments and other sourcing strategies. Additionally, certain new OEM rear seat entertainment products that began during the three and nine months ended November 30, 2021, and that have positively contributed to sales during the periods, have generated lower margins than are normally achieved in this segment.

Gross margin percentages in the Consumer Electronics segment decreased 200 and 380 basis points for the three and nine months ended November 30, 2020,2021, respectively, as compared to the prior year periods. The primary driver of the margin increases in this segment has been sales of OEM and aftermarket products related to the Company’s VSM and DEI subsidiaries, whose products have higher profit margins than those typically achieved by the segment, and whose sales were not present in the prior year periods. The increase in sales of higher margin aftermarket remote start and security products also contributed positively to the segment’s margins during the three and nine months ended November 30, 2020, and for the three months ended November 30, 2020, an increase in sales of the Company’s OEM rear seat entertainment products positively impacted margins for the segment. Offsetting these positive impacts, the decline in sales of higher margin OEM security and remote start products during the three and nine months ended November 30, 2020 due to the shift in demand from accessory level remote starts to production level, factory installed remote starts caused a decline in margins in both periods. In addition,


there was a decline in aftermarket headrest sales during the three and nine months ended November 30, 2020, which typically generate higher margins for the segment and thus negatively impacted margins for both periods.

Gross margin percentages in the Consumer Electronics segment decreased 180 basis points for the three months ended November 30, 2020, but increased 70 basis points for the nine months ended November 30, 2020 as compared to the prior year periods. Margin declines during the three and nine months ended November 30, 2020 were primarily driven by2021 has been significant increases to container costs and surcharges affecting cost of sales for many of the products within the segment, which the Company is actively working to mitigate through pricing adjustments and other sourcing strategies. In addition, the Company’s newest line of premium wireless computer speakers, as well as other premium audio products sold through warehouse club channels, which have contributed positively to sales butduring the three and nine month periods, have been sold at lower margins than those typically associated with the Company’s premium wireless speaker products, particularly duringaudio products. Offsetting these negative margin impacts, sales from the Company’s 11 Trading Company subsidiary positively impacted margins for the three and nine month periods, as these sales were present for only three months of the prior year comparable periods and have also increased year over year for the three months ended November 30, 2020 as a result of holiday promotions. The Company’s premium headphone margins have also been negatively impacted in the three and nine months ended November 30, 2020 due to close out sales of certain older products at lower margins in preparation for the launch of its newest line of wireless earbuds. Additionally, although sales in Europe have increased in the three and nine months ended November 30, 2020, the increase in sales generated from a new sales channel of discount retail customers has generated lower margins and had a negative impact on both periods.  As an offset to these negative impacts, the segment has experienced increases in margins during both the three and nine months ended November 30, 2020 due to factors including the increased sales of the Company’s high margin premium home theater speaker products, as well as an increase in sales of hookup products in both periods. In Europe, a shift in focus of premium audio products from low margin to traditional home theater products, as well as less discounting of product, contributed positively to both sales and overall margins related to this product line. Additionally, while the Company experienced decreases in sales of certain product lines during the three and nine months ended November 30, 2020, such as reception products and remotes, the margins earned on these products improved during both periods as compared to the prior year, due to the movement of production out of China. Finally, sales within the Company’s newly formed subsidiary, 11 Trading Company LLC, which began selling Onkyo and Pioneer products through new distribution agreements during the three and nine months ended November 30, 2020, has contributed positively to margins in both periods.2021.

Gross margin percentages in the Biometrics segment improved in bothfor the three and nine months ended November 30, 20202021 as compared to the respective prior year periods. The increase in margins for the three and nine months ended November 30, 20202021 was


primarily a result of prior year events that negatively impacted the segment’s marginsincrease in Fiscal 2020. Certain tooling and defective repair costs incurred in the three and nine months ended November 30, 2019, as well as the provision of beta samples to certain customers at no cost during the prior year periods, negatively impacted margins in the prior fiscal year. A large sale made at a losssales during the nine months ended November 30, 2019 also caused lower2021 and consistent sales levels during the three months ended November 30, 2021, as the Company’s NIXT product has generated high margins for the segment. Additionally, in the prior year to date period. In the current year,comparable periods, the Company provided more onsite and remote support to customers during the three and nine months ended November 30, 2020,reduced pricing on certain products, which generates higherhelped generate sales, but resulted in lower margins for the segment. Offsetting these positive margin impacts

Operating Expenses

 

 

November 30,

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling

 

$

13,864

 

 

$

13,176

 

 

$

688

 

 

 

5.2

%

General and administrative

 

 

20,049

 

 

 

21,104

 

 

 

(1,055

)

 

 

(5.0

)%

Engineering and technical support

 

 

9,706

 

 

 

5,676

 

 

 

4,030

 

 

 

71.0

%

Acquisition costs

 

 

287

 

 

 

24

 

 

 

263

 

 

 

1095.8

%

Total operating expenses

 

$

43,906

 

 

$

39,980

 

 

$

3,926

 

 

 

9.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling

 

$

37,169

 

 

$

30,976

 

 

$

6,193

 

 

 

20.0

%

General and administrative

 

 

56,609

 

 

 

51,398

 

 

 

5,211

 

 

 

10.1

%

Engineering and technical support

 

 

23,824

 

 

 

14,942

 

 

 

8,882

 

 

 

59.4

%

Acquisition costs

 

 

3,279

 

 

 

270

 

 

 

3,009

 

 

 

1114.4

%

Total operating expenses

 

$

120,881

 

 

$

97,586

 

 

$

23,295

 

 

 

23.9

%

Total operating expenses have increased $3,926 and $23,295 for the three and nine months ended November 30, 2020 has been the reduction in pricing on certain products, which has helped to drive higher sales in Fiscal 2021, but has resulted in lower margins for the segment. Additionally, the release of inventory reserves in the comparable prior year periods had a positive impact on the segment’s gross margin for the prior year, thus negatively impacting the current year margin comparisons.

Operating Expenses

 

 

November 30,

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

$ Change

 

 

% Change

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling

 

$

12,761

 

 

$

9,580

 

 

$

3,181

 

 

 

33.2

%

General and administrative

 

 

21,128

 

 

 

16,689

 

 

 

4,439

 

 

 

26.6

%

Engineering and technical support

 

 

5,676

 

 

 

5,059

 

 

 

617

 

 

 

12.2

%

Total operating expenses

 

$

39,565

 

 

$

31,328

 

 

$

8,237

 

 

 

26.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling

 

$

30,190

 

 

$

28,162

 

 

$

2,028

 

 

 

7.2

%

General and administrative

 

 

51,668

 

 

 

51,896

 

 

 

(228

)

 

 

(0.4

)%

Engineering and technical support

 

 

14,942

 

 

 

15,901

 

 

 

(959

)

 

 

(6.0

)%

Total operating expenses

 

$

96,800

 

 

$

95,959

 

 

$

841

 

 

 

0.9

%

Total operating expenses have increased for the three and nine months ended November 30, 2020respectively, as compared with the prior year periods.


For both the three and nine months ended November 30, 2020, the Company experienced a net increase in selling expenses.  Increases in2021, selling expenses were primarilyincreased $688. This increase was partially attributable to increases in commission expense during both the threehigher salary expenses and nine months ended November 30, 2020 as a result of higher sales. Salary expense alsorelated payroll taxes, which increased for the three and nine months ended November 30, 2020approximately $500 due to the additional headcount created by acquisitionsnew hires at the 11 Trading Company and Australia Premium Audio Company (“Australia PAC”) subsidiaries established in the second quarter of Fiscal 2021 and first quarter of Fiscal 2022, respectively, as well as headcount and compensation increases at certain other subsidiary locations. Website fees also increased approximately $500 for the three months ended November 30, 2021, due to additional online advertising and promotions, as well as the increased price of web advertising as compared to the prior year. The Company also experienced an increase in trade show expenses of approximately $200 during the three months ended November 30, 2021, as a result of the return to in-person attendance at certain shows during the quarter, as compared to the prior year in which all shows were virtual. Finally, the Company saw an increase in travel expenses for the three months ended November 30, 2021 of approximately $100 due to the lifting of some of the Company’s COVID-19 related restrictions which have allowed salesmen to begin traveling to customer sites again. Offsetting these increases was a decrease in commission expense of approximately $600 for the three months ended November 30, 2021 as a result of lower sales as compared to the prior year period.

For the nine months ended November 30, 2021, selling expenses increased $6,193. This increase was primarily attributable to higher salary expenses during the nine months ended November 30, 2021, as compared to the prior year-to-date period. Salary expense and related payroll taxes increased approximately $3,300 due primarily to the absence of COVID-19 related furloughs and salary and bonus reductions that were present in the comparable prior year period, as well as due to the additional headcount created by the July 2020 acquisition resulting in the establishment of the VSMCompany’s DEI subsidiary and DEInew hires related to the 11 Trading Company and Australia PAC subsidiaries established in the fourth quarter of Fiscal 2020 and the second quarter of Fiscal 2021 respectively, as well as additional hires related to the Company’s distribution agreements for Onkyo and Pioneer products. While advertising expense decreasedfirst quarter of Fiscal 2022, respectively. Advertising expenses and web fees increased approximately $1,900 for the nine months ended November 30, 20202021, due to increased advertising and promotions in response to higher online traffic and sales, the lifting of COVID-19 related cost cutting measures, as well as due to the COVID-19 pandemic closure and phased re-openingincreased price of many brick and mortar stores during the year, web advertising expensescompared to the prior year. Commission expense increased approximately $700, as a result of the increase in both periods duethe Company’s sales for the nine months ended November 30, 2021 as compared to prior year. The Company also experienced an increase in online traffic, with many consumers working and shopping from homecredit card fees of approximately $600 during the mandatory quarantines and business shut-downs throughoutnine months ended November 30, 2021, due primarily to sales generated by the country.Company’s new DEI subsidiary, as its telematic subscription sales are paid by customers through credit card transactions.  Additionally, a larger number of customers have gradually begun using credit cards to pay for orders than in prior periods across the entire Company. Finally, the Company saw an increase in travel expenses for the nine months ended November 30, 2021 of approximately $300 due to the lifting of some of the Company’s COVID-19 related restrictions which have allowed salesmen to begin traveling to customer sites again. Offsetting these increases in selling expenses for the three and nine months ended November 30, 2020, were decreases2021 was a


decrease in trade show expenses of approximately $800, as most trade shows have continued to be either cancelled or held virtually due to factors related to the COVID-19 pandemic which resultedand only began to return to in the temporary shut-down of many brick and mortar stores and mandatory quarantine ordersperson attendance during the first quarter of our Fiscal 2021 year, with phased re-openings taking place beginning in the second quarter. Company-wide furloughs and pay reductions at all levels, as well as the elimination of all non-essential travel, resulted in a decrease in salary and travel and entertainment expenses for the nine months ended November 30, 2020. Pay reductions and most of the Company’s furloughs ended in the third quarter of Fiscal 2021; however, non-essential travel was still limited through November 30, 2020, affecting both periods. Additionally, trade show2022.

General and administrative expenses decreased for both the three and nine months ended November 30, 2020 as a result of the cancellation of all events year-to-date due to COVID-19.

For$1,055 during the three months ended November 30, 2020, there was a net increase in general and administrative expenses, while there was a net decrease2021, as compared to the prior year period. Salary expense decreased approximately $3,100 during the ninethree months ended November 30, 20202021, due primarily to lower bonus accruals as compared to the respective prior year periods. Increases to general and administrative expenses during both the three and nine months ended November 30, 2020 wereperiod. Professional fees also decreased approximately $300 due primarily to salary expense and professional fees. Increases in salary expense were due to higher bonus accruals for the three and nine months ended November 30, 2020 as a result of the positive performance of the Company. Professional fees were higher for both periods as the result of ongoing acquisition-related services provided in connection with the Company’s new DEI and VSM subsidiaries, as well as due to a stock grant awarded to the Company’s non-employee directors during the third quarter of Fiscal 2021 that did not repeat in the current year. As an offset to these decreases, the Company experienced increases in occupancy and office expenses totaling approximately $800 due to expenses related to the Company’s new Onkyo subsidiary as a result of the September 2021 acquisition, as well as due to a return to normal operations in the third quarter of Fiscal 2022 with all of the Company’s office locations open and operating. Bad debt expense increased approximately $400 for the three months ended November 30, 2021 due to the prior year recovery of a receivable balance that did not recur in the current year. Depreciation and amortization expense increased approximately $500 due to additional expense related to the Company’s new Onkyo subsidiary established in September 2021. DuringTaxes and licensing fees increased approximately $200 during the three months ended November 30, 2021, also due to expenses related to the new Onkyo subsidiary, as well as due to additional licenses related to cyber security. Finally, insurance premiums increased approximately $200 during the three months ended November 30, 2021 due to higher premiums for cyber security coverage and directors’ and officers’ insurance as compared to the prior year period.

General and administrative expenses increased $5,211 during the nine months ended November 30, 2021, as compared to the prior year period. Professional fees increased approximately $2,500 for the year-to-date period due to increased litigation fees related primarily to an arbitration case, as well as consulting fees related to the EyeLock distribution agreement with GalvanEyes LLC, and legal and professional fees related to the Company’s newest 11 Trading Company and Australia PAC subsidiaries established in the second quarter of Fiscal 2021 and the first quarter of Fiscal 2022, respectively. Professional fees were also higher during the nine months ended November 30, 2021, due to the lifting of many COVID-19 related restrictions, as both the Company and many of its professional service providers had temporary office closures during the nine months ended November 30, 2020, insurance expense increasedor provided fee concessions as a result of the deductiblepandemic that did not repeat in the current year. Occupancy and office expenses increased approximately $1,300 in total for the nine months ended November 30, 2021, due to costs related to an IT security incidentthe Company’s new Onkyo subsidiary resulting from the September 2021 acquisition and a full year of DEI expenses resulting from the July 2020 acquisition. The Company has also returned to normal operations after the lifting of COVID-19 related restrictions, with all of the Company’s locations open and operating, resulting in further increases to office and occupancy costs. Fees related to taxes and licensing increased approximately $800 during the nine months ended November 30, 2021 due to the establishment of Company’s Onkyo subsidiary in September 2021, as well as the DEI, 11 Trading Company, and PAC Australia subsidiaries, and additional licenses obtained related to cyber security. Depreciation and amortization expense also increased approximately $800 due to additional expense related to the Company’s Onkyo subsidiary and a full year of expense related to DEI. Finally, bad debt expense increased approximately $600 for the nine months ended November 30, 2021 due primarily to the prior year recovery of a receivable balance that did not recur in the second quartercurrent year. As an offset to these increases in general and administrative expense, the Company experienced a decrease in salary expense of approximately $700 during the nine months ended November 30, 2021, due primarily to lower profitability for bonus accruals as compared to the prior year period.  

Engineering and technical support expenses increased $4,030 for the three months ended November 30, 2021, as compared to the prior year period. The Company experienced a net increase in research and development expense of approximately $2,100 for the three months ended November 30, 2021, primarily as a result of the fiscalCompany’s product development projects related to its new Onkyo subsidiary in the Consumer Electronics segment, and within the Automotive Electronics segment related to projects for Stellantis and Ford. This was offset by decreases related to certain Consumer Electronics projects in development during the prior year period that have been completed. There was also an increase in direct labor and related payroll tax expense of approximately $1,900, as a result of additional headcount created by the September 2021 acquisition resulting in the establishment of the Company’s Onkyo subsidiary, as well as due to prior year reimbursements of engineering labor expense that did not recur, and an increase in the Company’s new VSM, DEI,use of outside labor at certain subsidiaries.

Engineering and 11 Trading Company LLC subsidiaries. As an offset to these general and administrative expense increases were decreases related totechnical support expenses increased $8,882 for the COVID-19 pandemic, as well as other factors. Office and occupancy expenses decreased for both the three and nine months ended November 30, 2020 due2021, as compared to lower overhead,the prior year period. The Company experienced a net increase in research and development expense of approximately $4,500 for the nine months ended November 30, 2021, primarily as certaina result of the Company’s offices were shut downproduct development projects related to its new Onkyo subsidiary in the Consumer Electronics segment, and within the Automotive Electronics segment related to projects for Stellantis and Ford, as well as due to additional headcount within the Biometrics segment. This was offset by decreases related to certain Consumer Electronics projects in development during the firstprior year that have been completed. The Company also experienced an increase in direct labor and second quartersrelated payroll tax expense of approximately $4,100 for the nine months ended November 30, 2021, as a result of additional headcount created by the July 2020 and September 2021 acquisitions resulting in the establishment of the fiscal yearCompany’s DEI and Onkyo subsidiaries, respectively, as well as due to the


prior year reimbursement of engineering labor expense that did not recur, and the absence of Company-wide furloughs and pay reductions related to COVID-19 pandemic, and most re-opened offices have remained at a reduced capacity throughthat were in place during the nine months ended November 30, 2020. Bad debt expense decreased

Acquisition costs increased $263 and $3,009 for the three and nine months ended November 30, 20202021, as a result ofcompared to the recovery of certain receivable balances that were previously written off. Depreciation and amortization expense also decreased, net, forrespective prior year periods.  During the three and nine months ended November 30, 2020 as a result of the impairment of certain definite-lived intangible assets at EyeLock in the fourth quarter of Fiscal 2020, which reduced the amortizable base of these assets. This was offset by increases in depreciation and amortization expense2021, acquisition costs incurred were related to newly acquired tangibleconsulting and intangible assets within the VSM and DEI subsidiaries. Additionally, while the Company experienced a net increase in salary expense during both the three and nine months ended November 30, 2020, Company-wide furloughs and pay reductions at all levels due to the pandemic, as well as the elimination of non-essential travel, resulted in salary and travel and entertainment expense decreases during the nine months ended November 30, 2020. Pay reductions and most of the Company’s furloughs ended in the third quarter of Fiscal 2021; however, non-essential travel was still limited through November 30, 2020. Finally, during the second quarter of Fiscal 2020, the Company granted 200,000 fully vested shares of Class A Common Stock to the Company’s Chief Executive Officer in accordance with his employment agreement, resulting in compensation expense of approximately $800diligence fees for the nine months ended November 30, 2019 that did not repeat inasset purchase agreement signed with Onkyo Home Entertainment Corporation and the current fiscal year.

Engineering and technical support expenses increased forjoint venture created with Sharp Corporation to complete the three months ended November 30, 2020 and decreased fortransaction. This transaction was completed on September 8, 2021.  In the nine months ended November 30, 2020 as compared to the respective prior year, periods. Thereacquisition costs incurred were increases in salary expense during both the three and nine months ended November 30, 2020 driven by additional headcount and labor related to the Company’s new VSMVSHC and DEI subsidiaries establishedacquisitions, completed in connection with the Company’s acquisitions in the fourth quarter of FiscalJanuary 2020 and second quarter of Fiscal 2021,July 2020, respectively. Research and development expense increased for the three months ended November 30, 2020 due to the timing of new product launches compared to the prior year. For the nine months ended November 30, 2020, Company-wide furloughs and pay reductions at all levels, as well as the elimination of non-essential travel, contributed to decreases in salary and travel and entertainment expense. Pay reductions and most of the Company’s furloughs ended in the third quarter of Fiscal 2021; however, non-essential travel was still limited through November 30, 2020, affecting both periods.


Other (Expense) Income

 

 

November 30,

 

 

 

 

 

 

 

 

 

 

November 30,

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

$ Change

 

 

% Change

 

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and bank charges

 

$

(471

)

 

$

(751

)

 

$

280

 

 

 

37.3

%

 

$

(730

)

 

$

(471

)

 

$

(259

)

 

 

(55.0

)%

Equity in income of equity investee

 

 

1,761

 

 

 

967

 

 

 

794

 

 

 

82.1

%

 

 

2,206

 

 

 

1,761

 

 

 

445

 

 

 

25.3

%

Gain on sale of real property

 

 

 

 

 

4,057

 

 

 

(4,057

)

 

 

(100.0

)%

Arbitration settlement

 

 

(39,444

)

 

 

 

 

 

(39,444

)

 

 

(100.0

)%

Investment gain

 

 

42

 

 

 

 

 

 

42

 

 

 

100.0

%

 

 

 

 

 

42

 

 

 

(42

)

 

 

(100.0

)%

Other, net

 

 

(121

)

 

 

(322

)

 

 

201

 

 

 

62.4

%

 

 

(143

)

 

 

294

 

 

 

(437

)

 

 

148.6

%

Total other income

 

$

1,211

 

 

$

3,951

 

 

$

(2,740

)

 

 

(69.3

)%

 

$

(38,111

)

 

$

1,626

 

 

$

(39,737

)

 

 

(2443.8

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and bank charges

 

$

(2,334

)

 

$

(2,635

)

 

$

301

 

 

 

11.4

%

 

$

(1,840

)

 

$

(2,280

)

 

$

440

 

 

 

19.3

%

Equity in income of equity investee

 

 

4,506

 

 

 

3,672

 

 

 

834

 

 

 

22.7

%

 

 

6,964

 

 

 

4,506

 

 

 

2,458

 

 

 

54.5

%

Gain on sale of real property

 

 

 

 

 

4,057

 

 

 

(4,057

)

 

 

(100.0

)%

Arbitration settlement

 

 

(39,444

)

 

 

 

 

 

(39,444

)

 

 

(100.0

)%

Investment gain

 

 

42

 

 

 

775

 

 

 

(733

)

 

 

(94.6

)%

 

 

 

 

 

42

 

 

 

(42

)

 

 

(100.0

)%

Other, net

 

 

21

 

 

 

1,869

 

 

 

(1,848

)

 

 

(98.9

)%

 

 

675

 

 

 

753

 

 

 

(78

)

 

 

(10.4

)%

Total other income

 

$

2,235

 

 

$

7,738

 

 

$

(5,503

)

 

 

(71.1

)%

 

$

(33,645

)

 

$

3,021

 

 

$

(36,666

)

 

 

(1213.7

)%

 

Interest and bank charges represent interest expense and fees related to the Company's bank obligations, supply chain financing agreements and factoring agreements, interest related to finance leases, and amortization of debt issuance costs,costs. During the first quarter of Fiscal 2021, the Company made a precautionary borrowing from the Credit Facility of $20,000 related to COVID-19 pandemic concerns. This balance was repaid during the third quarter of Fiscal 2021 and credit card fees. Forthere has been no balance outstanding during the three and nine months ended November 30, 2020,2021. This resulted in a decrease in interest expense was lower duerelated to reduced factoringthe Credit Facility of approximately $115 and supply chain financing fees. While$302 for the Company sold a larger balance of customer accounts receivable during these periodsthree and nine months ended November 30, 2021 as compared to the prior year. In addition, interest expense was lower during the three and nine months ended November 30, 2021 due to the amendment of the Company’s Credit Facility in April 2021, which resulted in a decrease in amortization of debt issuance costs of $51 and $247 for the three and nine months ended November 30, 2021. As an offset to these decreases in interest expense, the Company’s new Onkyo subsidiary entered into a shareholder loan payable to the Company’s joint venture partner, Sharp, during the third quarter of Fiscal 2022, for which interest expense was incurred during the three and nine months ended November 30, 2021 that was not present in the prior year the related fees charged have been lower in Fiscal 2021.periods.

Equity in income of equity investee represents the Company's share of income from its 50% non-controlling ownership interest in ASA Electronics LLC and Subsidiaries ("ASA"). The increase in income for the three and nine months ended November 30, 20202021 is due to an increase in ASA net income resulting from improved sales across all of its markets due primarily as a resultto the lifting of improved margins, lower overhead,COVID-19 restrictions on customers and growthend consumers and an increase in the RVdemand for product, offset by an increase in both ocean and marine markets.air freight costs.

On September 30, 2019, the Company, through its subsidiary Voxx German Holdings Gmbh (the “Seller”), sold its real property in Pulheim, Germany to CLM S.A. RL (the “Purchaser”) for €10,920. Net proceeds received from the transaction were approximately $9,500 after transactional costs and repayment of the outstanding mortgage. Concurrently with the sale, the Seller entered into an operating lease arrangement (“lease”) with the Purchaser for a small portion of the real property to continue to operate its sales office in Germany. The transaction qualified for sale leaseback accounting in accordance with ASC 842 and the Company recognized a gain on the execution of the sale transaction forFor the three and nine months ended November 30, 2019.2021, the Company has recorded a charge of $39,444 related to an unfavorable interim arbitration settlement award relating to a breach of contract claim brought against the Company by Seaguard Electronics LLC for a contractual arrangement entered in 2007 for the purchase of products and back-end services. The Company is reviewing its legal options and has moved in the arbitration proceeding to modify the interim award.

During the three and nine months ended November 30, 2020, a final pay-out of $42 was received representing proceeds from the Fiscal 2018 sale of the Company sold itsCompany’s investment in RxNetworks, a non-controlled corporation, consisting of shares of the investee’s preferred stock. Voxx recognized a gain during Fiscal 2018 on the sale of this investment; however,stock, as a portion of the cash proceeds were subject to a hold-back provision, and was not included inhad been held back at the gain recognized in Fiscal 2018. During the second quartertime of Fiscal 2020, the hold-back provision expired, and the Company received the majority of the remaining proceeds from the sale, recording an investment gain of $775 for the nine months ended November 30, 2019.  A final pay-out of $42 received in November 2020sale. The payment was recorded as an investment gain for the three and nine months ended November 30, 2020.2020


Other, net includes net foreign currency gains or losses, interest income, rental income, and other miscellaneous income and expense. During the three and nine months ended November 30, 2021, the Company had foreign currency losses of $382 and $268, respectively, as compared to foreign currency gains/(losses) of $34 and $(445) for the three and nine months ended November 30, 2020, interest income decreased as a result of lower interest rates applicable to the Company’s short-term money market investments. Additionally,respectively. As an offset, during the nine months ended November 30, 2020, the Company had foreign currency losses of $(445) as compared to foreign currency gains of $297 for the nine months ended November 30, 2019. During the nine months ended November 30, 2019, the Company received the proceeds of a key man life insurance policy in the net amount of $1,000, related to a former employee of Klipsch Group, Inc. that Voxx became$420, which did not recur in the beneficiary of in conjunction with the acquisition of Klipsch in Fiscal 2012, which were offset by a charge of $804 related to a payment made to TE Connectivity Ltd. in final settlement of the working capital calculation related to the Fiscal 2018 sale of Hirschmann Car Communication GmbH. This settlement impacted both the three and nine months ended November 30, 2019.current year.  


Income Tax Provision

The Company’s provision for income taxes consists of federal, foreign, and state taxes necessary to align the Company’s year-to-date tax provision with the annual effective rate that it expects to achieve for the full year. At each interim period, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments, as necessary.

On March 27, 2020,For the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act made various tax law changes including among other things (i) increased the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest (ii) enacted a technical corrections so that qualified improvement property can be immediately expensed under IRC Section 168(k) and net operating losses arising in tax years beginning in 2017 and ending in 2018 can be carried back two years and carried forward twenty years without a taxable income limitation as opposed to carried forward indefinitely, and (iii) made modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years. With respect to the technical correction to net operating losses,three months ended November 30, 2021, the Company recorded an income tax benefit of $641, which includes a discrete income tax provision of $4,275 during$175 related primarily to finalization of the nine months ended November 30, 2020, as its valuation allowance related to net operating losses with limited carryforward periods increased.

federal and certain state tax return filings. For the three months ended November 30, 2020, the Company recorded an income tax provision of $2,334, which includes a discrete income tax benefit of $542 related primarily to the finalization of the federal and certain state tax return filings.  For the three months ended November 30, 2019, the Company recorded an income tax provision of $2,720, which includes a discrete income tax provision of $1,035. The Company recorded a discrete tax provision of $1,153 in connection with excluding the U.S. tax jurisdiction from the estimated annual effective tax rate and a discrete tax benefit of $118 primarily related to the reversal of uncertain tax provision liabilities as a result of the lapse of the applicable statute of limitations, the remeasurement of deferred tax assets and liabilities for enacted state law changes, offset by an income tax provision related to the finalization of federal and state tax filings during the quarter ended November 30, 2019.

The effective tax rates for the three months ended November 30, 2021 and 2020 were an income tax benefit of 2.1% on a pre-tax loss of $30,313 and 2019 were an income tax provision of 11.8% on pre-tax income of $19,774, and an income tax provision of 66.6% on pre-tax income of $4,087, respectively. The effective tax rate for the three months ended November 30, 20202021 differs from the U.S. statutory rate of 21% primarily related to an increase in valuation allowance as the Company recorded a limited tax benefit with respect to the Arbitration Settlement as it could not conclude that all of its US deferred tax assets were realizable on a more-likely-than-not basis. The effective tax rate for the three months ended November 30, 2020 differed from the statutory rate of 21% primarily due to the anticipated reversal of a portion of the U.S. valuation allowance based on projected current year earnings, immediate U.S. taxation of foreign earnings, non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, and income taxed in foreign jurisdictions at varying tax rates. The effective tax rate for

For the threenine months ended November 30, 2019 differed from2021, the statutory rateCompany recorded an income tax benefit of 21% primarily due$374, which includes a discrete income tax provision of $31 related to the calculationfinalization of federal and state tax filings during the quarter ended November 30, 2021 and the accrual of interest for unrecognized tax benefits, offset with the reversal of uncertain tax provision liabilities as a result of the U.S. tax provision on a discrete basis,lapse of the U.S. taxationapplicable statute of foreign earnings, nondeductible permanent differences, non-controlling interest related to EyeLock LLC, an increase in the valuation allowance, state and local income taxes, and income taxed in foreign jurisdictions at varying tax rates.

limitations.  For the nine months ended November 30, 2020, the Company recorded an income tax provision of $6,724, which includes a discrete income tax provision of $3,609. The Company recorded a discrete tax provision of $4,275 related to an increase in valuation allowance as a result of the technical correction to net operating losses as provided in the CARES Act and a discrete income tax benefit of $697 related to finalization of federal and state tax filings during the quarter ended November 30, 2020, and the reversal of uncertain tax provision liabilities as a result of the lapse of the applicable statute of limitations, offset with a discrete tax provision of $31 related to the accrual forof interest for unrecognized tax benefits.  For the nine months ended November 30, 2019, the Company recorded an income tax provision of $1,190, which includes a discrete income tax benefit of $345. The Company recorded a discrete tax benefit of $50 in connection with excluding the U.S. tax jurisdiction from the estimated annual effective tax rate, and a discrete income tax benefit of $295 primarily related to the reversal of uncertain tax provision liabilities as a result of the lapse of the applicable statute of limitations, the remeasurement of deferred tax assets and liabilities for enacted state law changes, offset by an income tax provision related to the finalization of federal and state tax filings during the quarter ended November 30, 2019.

The effective tax rates for the nine months ended November 30, 2021 and 2020 were an income tax benefit of 1.3% on pre-tax loss of $28,941 and 2019 were an income tax provision of 31.1% on pre-tax income of $21,614, and an income tax provision of 17.1% on a pre-tax loss of $6,979, respectively. The effective tax rate for the nine months ended November 30, 20202021 differs from the U.S. statutory rate of 21% as a result of a number of factors, including the non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, income taxed in foreign jurisdictions at varying tax rates, and an increase in valuation allowance as the Company recorded a limited tax benefit with respect to the Arbitration Settlement as it could not conclude that all of its US deferred tax assets were realizable on a more-likely-than-not basis. The effective tax rate for the nine months ended November 30, 2020 differed from the statutory rate of 21% primarily due to the anticipated reversal of a portion of the U.S. valuation allowance based on projected current year earnings, immediate U.S. taxation of foreign earnings, non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, and income taxed in foreign jurisdictions at varying tax rates. The effective tax rate for the nine months ended November 30, 2019 differed from the statutory rate of 21% primarily due to the calculation of the U.S. taxation provision on a discrete basis, the U.S. taxation of foreign earnings, nondeductible permanent differences, non-controlling interest related to EyeLock LLC, an increase in the valuation allowance, state and local income taxes, and income taxed in foreign jurisdictions at varying tax rates.

EBITDA and Adjusted EBITDA

EBITDA and Diluted Adjusted EBITDA per Common Share

EBITDA, Adjusted EBITDA, and Diluted Adjusted EBITDA per common share are not financial measures recognized by GAAP. EBITDA represents net (loss) income (loss) attributable to VOXX International Corporation, computed in accordance with GAAP, before interest expense and bank charges, taxes, and depreciation and amortization. Adjusted EBITDA represents


EBITDA adjusted for stock-based compensation expense, acquisition costs, certain non-routine legal and professional fees, settlements, gains, and life insurance proceeds. Depreciation, amortization, and stock-based compensation are non-cash items. Diluted Adjusted EBITDA per common share represents the Company's diluted earnings per common share based on Adjusted EBITDA.

We present EBITDA and Adjusted EBITDA and Diluted Adjusted EBITDA per common share in this Form 10-Q because we consider them to be useful and appropriate supplemental measures of our performance. Adjusted EBITDA and Diluted Adjusted EBITDA per common share helphelps 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 certain costs or gains relating to certain events allows for a more meaningful comparison of our results from period-to-period. These non-GAAP measures, as we define them, are not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. EBITDA Adjusted EBITDA, and Diluted Adjusted


EBITDA per common share should not be assessed in isolation from, are not intended to represent, and should not be considered to be more meaningful measures than, or alternatives to, measures of operating performance as determined in accordance with GAAP.

Reconciliation of GAAP Net Income Attributable to VOXX International Corporation to EBITDA and Adjusted EBITDA and Diluted Adjusted EBITDA per Common Share

 

 

Three months ended

November 30,

 

 

Nine months ended

November 30,

 

 

Three months ended

November 30,

 

 

Nine months ended

November 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income (loss) attributable to VOXX International Corporation

 

$

18,251

 

 

$

2,464

 

 

$

17,319

 

 

$

(4,648

)

Net (loss) income attributable to VOXX International Corporation

 

$

(28,121

)

 

$

18,251

 

 

$

(25,094

)

 

$

17,319

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense and bank charges (1)

 

 

325

 

 

 

625

 

 

 

1,907

 

 

 

2,269

 

 

 

565

 

 

 

325

 

 

 

1,357

 

 

 

1,853

 

Depreciation and amortization (1)

 

 

2,904

 

 

 

2,796

 

 

 

8,128

 

 

 

8,313

 

 

 

3,378

 

 

 

2,904

 

 

 

8,891

 

 

 

8,128

 

Income tax expense

 

 

2,334

 

 

 

2,720

 

 

 

6,724

 

 

 

1,190

 

Income tax (benefit) expense

 

 

(641

)

 

 

2,334

 

 

 

(374

)

 

 

6,724

 

EBITDA

 

 

23,814

 

 

 

8,605

 

 

 

34,078

 

 

 

7,124

 

 

 

(24,819

)

 

 

23,814

 

 

 

(15,220

)

 

 

34,024

 

Stock-based compensation

 

 

768

 

 

 

471

 

 

 

1,454

 

 

 

1,816

 

 

 

221

 

 

 

768

 

 

 

694

 

 

 

1,454

 

Gain on sale of real property

 

 

 

 

 

(4,057

)

 

 

 

 

 

(4,057

)

Settlement of Hirschmann working capital

 

 

 

 

 

804

 

 

 

 

 

 

804

 

Investment gain

 

 

(42

)

 

 

 

 

 

(42

)

 

 

(775

)

 

 

 

 

 

(42

)

 

 

 

 

 

(42

)

Acquisition costs

 

 

287

 

 

 

24

 

 

 

3,279

 

 

 

270

 

Professional fees related to distribution agreement with GalvanEyes LLC

 

 

 

 

 

 

 

 

325

 

 

 

 

Non-routine legal fees

 

 

235

 

 

 

 

 

 

1,469

 

 

 

 

Interim arbitration award

 

 

39,444

 

 

 

 

 

 

39,444

 

 

 

 

Life insurance proceeds

 

 

 

 

 

 

 

 

(420

)

 

 

(1,000

)

 

 

 

 

 

 

 

 

 

 

 

(420

)

Adjusted EBITDA

 

$

24,540

 

 

$

5,823

 

 

$

35,070

 

 

$

3,912

 

 

$

15,368

 

 

$

24,564

 

 

$

29,991

 

 

$

35,286

 

Diluted income (loss) per common share attributable to VOXX International Corporation

 

$

0.74

 

 

$

0.10

 

 

$

0.71

 

 

$

(0.19

)

Diluted Adjusted EBITDA per common share attributable to VOXX International Corporation

 

$

0.99

 

 

$

0.24

 

 

$

1.43

 

 

$

0.16

 

 

(1)

For purposes of calculating Adjusted EBITDA for the Company, interest expense and bank charges, as well as depreciation and amortization, have been adjusted in order to exclude the non-controlling interest portion of these expenses attributable to EyeLock LLC.

Liquidity and Capital Resources

Cash Flows, Commitments and Obligations

As of November 30, 2020,2021, we had working capital of $163,034$124,172 which includes cash and cash equivalents of $21,337,$21,162, compared with working capital of $146,798$172,543 at February 29, 2020,28, 2021, which included cash and cash equivalents of $37,425.$59,404. We plan to utilize our current cash position as well as collections from accounts receivable, the cash generated from our operations, when applicable, 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, or to further pay down our debt. As of November 30, 2020,2021, we had cash amounts totaling $3,742$1,077 held in foreign bank accounts, none of which would be subject to United States federal income taxes if made available for use in the United States. The Tax Cuts and Jobs Act provides a 100% participation exemption on dividends received from foreign corporations after January 1, 2018, as the United States has moved away from a worldwide tax system and closer to a territorial system for earnings of foreign corporations.


Operating activities used cash of $2,628$10,008 for the nine months ended November 30, 20202021 due to factors including the increase in inventory and accounts receivable, as well as due to losses incurred by EyeLock LLC. This was offset primarily by the increase in accounts payable, accrued expenses, and accrued sales incentives. For the nine months ended November 30, 2020, operating activities used cash of $2,628 due to factors including the increases in both accounts receivable and inventory, as well as losses incurred by EyeLock LLC. This was offset primarily by increases in accounts payable, accrued expenses, and sales incentives. For the nine months ended November 30, 2019, operating activities used cash of $23,887 due to factors including sales declines and losses incurred by EyeLock LLC, as well as increases in accounts receivable due in part to the suspension of the Company’s domestic supply chain finance arrangements, increases in inventory, and decreases in accrued expenses. These operating cash usages were offset primarily by decreases in receivables from vendors and increases in accrued sales incentives.

Investing activities used cash of $14,510$33,452 during the nine months ended November 30, 20202021 primarily due the acquisition of the Directedhome audio/video business of Onkyo Home Entertainment Corporation, as well as capital expenditures. For the nine months ended November 30, 2019,2020, investing activities used cash of $14,510 primarily due to the acquisition of the Directed business, as well as capital expenditures.

Financing activities provided cash of $9,759 primarily due to the proceeds received from the sale of the Company’s real property in Pulheim, Germany, offset by capital expenditures.

Financing activities used cash of $1,680$5,160 during the nine months ended November 30, 2021 due to proceeds received from the issuance of shares and long-term debt to the non-controlling interest of the Company’s Onkyo joint venture, as well as borrowings under the Company’s Euro asset-based loan in Germany. This was offset by the purchase of treasury shares, the payment of withholding taxes on the net issuance of a stock award, the payment of deferred finance fees related to the


amendment of the Credit Facility, as well as repayments of finance leases and the Florida mortgage. During the nine months ended November 30, 2020, financing activities used cash of $1,680 primarily due to the repayment of the Company’s precautionary borrowing of $20,000 from the Credit Facility, the repayment of the Magnat subsidiary’s Euro asset-based loan balance upon its expiration, repayments of finance leases, and the payment of deferred finance fees related to the amendment of the Credit Facility, offset by the precautionary borrowing of $20,000 made in April 2020. During the nine months ended November 30, 2019, financing activities used cash of $11,563 primarily due to the repayment of bank obligations, including the entire outstanding balance of Voxx Germany’s Euro asset-based loan facility, and the repurchase of shares of the Company’s Class A common stock.

Federal, state, and local governments have taken a variety of actions to contain the spread of COVID-19. Many jurisdictions required mandatory business closures during the Company’s 2021 fiscal year and imposed capacity limitations and other restrictions affecting our operations.operations, some of which have continued into Fiscal 2022. Many of these restrictions were lifted in phases throughout Fiscal 2021 but could return if there is a resurgence of the pandemic spread. We have proactively taken steps to increase available cash, including, but not limited to, utilizing existing supply chain financing and factoring agreements, and utilizing available funds under our existing Credit Facility. The Company also implemented a number of other measures to help preserve liquidity, as further described in our Form 10-K for the year ended February 29, 2020.

The Company has a senior secured credit facility (the "Credit Facility") that provides for a revolving credit facility with committed availability of up to $127,500.$140,000. The availability under the revolving credit line within the Credit Facility is subject to a borrowing base, which is based on eligible accounts receivable, eligible inventory and certain real estate, subject to reserves as determined by the lender, and is also limited by amounts outstanding under the Florida Mortgage (see Note 17(b)16(b)). The availability under the revolving credit line of the Credit Facility was $107,033$128,517 as of November 30, 2020.2021.

All amounts outstanding under the Credit Facility will mature and become due on April 26, 2022;19, 2026; however, it is subject to acceleration upon the occurrence of an Event of Default (as defined in the Credit Agreement). 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 as set forth in the agreement.Agreement.

Generally, the Company may designate specific borrowings under the Credit Facility as either Base Rate Loans or LIBOR Rate Loans, except that Swingline 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 2.001.75 - 2.50%2.25%.  Loans designated as Base Rate loans shall bear interest at a rate equal to the applicable margin for Base Rate Loans plus a range of 1.000.75 - 1.50%1.25%, as defined in the agreement.Agreement, and shall not be lower than 1.75%. The Credit Facility provides for a Benchmark Replacement that will replace the LIBOR rate for all revolver usage. The Benchmark Replacement is subject to the occurrence of a Benchmark Transition Event, as defined in the Second Amended and Restated Credit Agreement and becomes effective after a five-day transition period following the event.

Provided that the Company is in a Compliance Period (the period commencing on that day in which Excess Availability is less than 20.0%15% of the Maximum Revolver Amount and ending on a day in which Excess Availability is equal to or greater than 20.0%15% for any consecutive 30-day period thereafter), the Credit Facility requires compliance with a financial covenant calculated as of the last day of each month, consisting of a Fixed Charge Coverage Ratio. The Credit Facility also contains covenants, subject to defined carveouts, that limit the ability of the loan parties and certain of their subsidiaries which are not loan parties to, among other things: (i) incur additional indebtedness; (ii) incur liens; (iii) merge, consolidate or dispose of a substantial portion of their business; (iv) transfer or dispose of assets; (v) change their name, 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 transaction with an affiliate of any borrower or any of their subsidiaries; (xiii) use proceeds for certain items; (xiv) issue or sell any of their stock; or (xv) consign or sell any of their inventory on certain terms. In addition, if excess availability under the Credit Facility were to fall below certain specified levels, as defined in the agreement,Agreement, the lenders would have the right to assume dominion and control over the Company's cash.


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

The Company has a Euro asset-based loan facility in Germany with a credit limit of €8,000 that expires on July 31, 2023. The Company's subsidiaries Voxx German Holdings GmbH, Oehlbach Kabel GmbH, and Schwaiger GmbH are authorized to borrow funds under this facility for working capital purposes.

The Company also utilizes supply chain financing arrangements and factoring agreements as a component of ourits financing for working capital, which accelerates receivable collection and helps to better manage cash flow. Under the agreements, the Company has agreed to sell certain of its accounts receivable balances to banking institutions who have agreed to advance amounts equal to the net accounts receivable balances due, less a discount as set forth in the respective agreements (see Note 9). The balances under these agreements are accounted for as sales of accounts receivable, as they are sold without recourse.


Cash proceeds from these agreements are reflected as operating activities included in the change in accounts receivable in the Company's Consolidated Statements of Cash Flows. Fees incurred in connection with the agreements are recorded as interest expense by the Company.

Certain contractual cash obligations and other commercial commitments will impact our short and long-term liquidity.  At November 30, 2020,2021, such obligations and commitments are as follows:

 

 

Amount of Commitment Expiration per Period

 

 

Amount of Commitment Expiration per Period

 

Contractual Cash Obligations

 

Total

 

 

Less than

1 Year

 

 

2-3

Years

 

 

4-5

Years

 

 

After

5 Years

 

 

Total

 

 

Less than

1 Year

 

 

2-3

Years

 

 

4-5

Years

 

 

After

5 Years

 

Finance lease obligation (1)

 

$

855

 

 

$

469

 

 

$

386

 

 

$

 

 

$

 

 

$

386

 

 

$

269

 

 

$

117

 

 

$

 

 

$

 

Operating leases (1)

 

 

4,924

 

 

 

1,111

 

 

 

1,692

 

 

 

980

 

 

 

1,141

 

 

 

4,102

 

 

 

1,029

 

 

 

1,312

 

 

 

691

 

 

 

1,070

 

Total contractual cash obligations

 

$

5,779

 

 

$

1,580

 

 

$

2,078

 

 

$

980

 

 

$

1,141

 

 

$

4,488

 

 

$

1,298

 

 

$

1,429

 

 

$

691

 

 

$

1,070

 

Other Commitments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank obligations (2)

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

1,591

 

 

$

1,591

 

 

$

 

 

$

 

 

$

 

Stand-by and commercial letters of credit (3)

 

 

7,257

 

 

 

7,257

 

 

 

 

 

 

 

 

 

 

 

 

50

 

 

 

50

 

 

 

 

 

 

 

 

 

 

Other (4)

 

 

7,239

 

 

 

500

 

 

 

1,000

 

 

 

1,000

 

 

 

4,739

 

 

 

11,534

 

 

 

500

 

 

 

1,000

 

 

 

1,000

 

 

 

9,034

 

Pension obligation (5)

 

 

818

 

 

 

 

 

 

 

 

 

 

 

 

818

 

 

 

498

 

 

 

 

 

 

 

 

 

 

 

 

498

 

Unconditional purchase obligations (6)

 

 

170,367

 

 

 

170,367

 

 

 

 

 

 

 

 

 

 

 

 

228,807

 

 

 

228,807

 

 

 

 

 

 

 

 

 

 

Total other commitments

 

 

185,681

 

 

 

178,124

 

 

 

1,000

 

 

 

1,000

 

 

 

5,557

 

 

 

242,480

 

 

 

230,948

 

 

 

1,000

 

 

 

1,000

 

 

 

9,532

 

Total commitments

 

$

191,460

 

 

$

179,704

 

 

$

3,078

 

 

$

1,980

 

 

$

6,698

 

 

$

246,968

 

 

$

232,246

 

 

$

2,429

 

 

$

1,691

 

 

$

10,602

 

 

1.

Represents total principal payments due under operating and finance lease obligations. Total current balances (included in other current liabilities) due under finance and operating lease obligations are $469$269 and $1,111,$1,029, respectively, at November 30, 2020.2021. Total long-term balances due under finance and operating leases are $386$117 and $3,813,$3,073, respectively, at November 30, 2020.2021.

2.

Represents amounts outstanding under the Company’s Credit Facility and the VOXX Germany asset-based lending facility at November 30, 2020.2021.

3.

We issue standby and commercial letters of credit to secure certain purchases and insurance requirements.

4.

This amount represents the outstanding balancebalances of the mortgage for our manufacturing facility in Florida.Florida and the shareholder loan payable to Sharp.

5.

Represents the liability for an employer defined benefit pension plan covering certain eligible current and former employees of Voxx Germany.

6.

Open purchase obligations represent inventory commitments. These obligations are not recorded in the consolidated financial statements until commitments are fulfilled given that 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 for the next twelve months, including the intercompany loan funding we provide to our majority owned


subsidiary, EyeLock LLC.LLC, and our accrual related to an unfavorable interim arbitration award recorded in November 30, 2021 for which a schedule for the issuance of a final award has not yet been established. In the event 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.


Related Party Transactions

None noted.

New Accounting Pronouncements

We are required to adopt certain new accounting pronouncements. See Note 2625 to our consolidated financial statements included herein.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Risk

Voxx conducts business in various non-U.S. countries, including Germany, Canada, Mexico, China, Denmark, the Netherlands, France, and FranceAustralia and thus is exposed to market risk for changes in foreign currency exchange rates. As a result, we have exposure to various foreign currency exchange rate fluctuations for revenues generated by our operations outside of the U.S., which can adversely impact our net income and cash flows. For the three and nine months ended November 30, 2020,2021, a uniform 10% strengthening of the U.S. dollar relative to the local currency of our foreign operations would have resulted in a decrease in sales of approximately $3,500$3,900 and $6,500,$9,300, respectively, and in net income of approximately $360$270 and $490,$630, respectively. The effects of foreign currency exchange rates on future results would also be impacted by changes in sales levels or local currency prices.

While the prices we pay for products purchased from our suppliers are principally denominated in United States dollars, price negotiations depend in part on the foreign currency of foreign manufacturers, as well as market, trade, and political factors. The Company also has exposure related to transactions in which the currency collected from customers is different from the currency utilized to purchase the product sold in its foreign operations, and U. S.U.S. dollar denominated purchases in its foreign subsidiaries. The Company enters forward contracts to hedge certain euro-relatedEuro-related transactions. The Company minimizes the risk of nonperformance on the forward contracts by transacting with major financial institutions. For the three and nine months ended November 30, 2020,2021, unrealized losses recorded in Other comprehensive income (loss) associated with these contracts were $242$89 and $707.$233, respectively. A hypothetical 10% adverse change in the fair value of our forward exchange contracts would result in a negative impact of $47$11 on the fair value of these forward exchange contracts at November 30, 20202021.

We are also subject to risk from changes in foreign currency exchange rates from the translation of financial statements of our foreign subsidiaries and for long-term intercompany loans with the foreign subsidiaries. These changes result in cumulative translation adjustments, which are included in Accumulated other comprehensive (loss) income. At November 30, 2020,2021, we had translation exposure to various foreign currencies with the most significant being the Euro. A hypothetical 10% adverse change in the foreign currency exchange rates would result in a negative impact of $98$22 on Other comprehensive income (loss) for the nine months ended November 30, 2020.2021.

The Company continues to monitor the political and economic climate in Venezuela. Venezuela did not have sales for the three and nine months ended November 30, 20202021 and there were minimal cash related assets invested in Venezuela as of November 30, 20202021 that would be subject to government foreign exchange controls. The Company has certain long-lived assets in Venezuela, which are held for investment purposes and had no value as of November 30, 2020.2021.

Interest Rate Risk

Our earnings and cash flows are subject to fluctuations due to changes in interest rates on investment of available cash balances in money market funds and investment grade corporate and U.S. government securities. In addition, our bank loans expose us to changes in short-term interest rates since interest rates on the underlying obligations are either variable or fixed. In connection with the Florida Mortgage, we have debt outstanding in the amount of $7,239$6,739 at November 30, 2020.2021. Interest on this mortgage is charged at 70% of 1-month LIBOR plus 1.54%. The Company currently has one interest rate swap for the Florida Mortgage with a notional amount of $7,239$6,739 at November 30, 2020.2021. This swap locks the interest rate at 3.48% (inclusive of credit spread) on the Florida Mortgage through the mortgage end date of March 2026. The Company also has a Euro asset-based lending facility in Germany with a variable rate, which did not have an outstanding balance at November 30, 20202021 (see Note 17)16).

As of November 30, 2020,2021, the total net fair value of the interest rate swap recorded in other liabilities on our Unaudited Consolidated Balance Sheet is $552,$305, which represents the amount that would be paid upon unwinding the interest rate swap agreement based on market conditions on that date. Changes in the fair value of this interest rate swap agreement is reflected as an adjustment to other assets or liabilities with an offsetting adjustment to Accumulated other comprehensive (loss) income.

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 as of November 30, 20202021 to provide reasonable assurance that information required to be disclosed by the Company in its filing under the Exchange Act was recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

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 nine months ended November 30, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


PART II - OTHER INFORMATION

See Note 2524 of the Notes to the Unaudited Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and Note 15 of the Form 10-K for the fiscal year ended February 29, 202028, 2021 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 29, 2020.28, 2021.

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

We have an ongoing authorization from our Board of Directors to repurchase shares of the Company's Class A Common Stock. During the three and nine months ended November 30, 2020, we did not repurchase any2021, the Company purchased 113,000 shares for an aggregate cost of the Company’s Class A Common Stock.$1,220 as follows:

Period

 

Total Number of Shares Purchased (1)

 

 

Average Price Paid Per Share

 

 

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

 

 

Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs

 

7/20/2021 - 7/31/21

 

 

113,000

 

 

$

10.80

 

 

 

113,000

 

 

 

2,305,876

 

Total other commitments

 

 

113,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

ITEM 6. EXHIBITS

 

Exhibit

Number

 

Description

 

 

 

 

 

 

31.1

 

Certification of Patrick M. Lavelle Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith).

 

 

 

31.2

 

Certification of Charles M. Stoehr 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).

 

 

 

101

 

The following materials from VOXX International Corporation's Quarterly Report on Form 10-Q for the period ended November 30, 2020,2021, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets, (ii), the Unaudited Consolidated Statements of Operations and Comprehensive Income, (Loss), (iii) the Unaudited Consolidated Statements of Stockholders’ Equity, (iv) the Unaudited Consolidated Statements of Cash Flows, and (v) Notes to the Unaudited Consolidated Financial Statements.

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document).

 


 

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.

 

VOXX INTERNATIONAL CORPORATION

 

January 11, 202110, 2022

 

 

 

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

 

4950