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EX-31.2 - EXHIBIT 31.2 - VOXX International Corpex312q32016.htm
EX-32.1 - EXHIBIT 32.1 - VOXX International Corpex321q32016.htm
EX-22 - EXHIBIT 22 - VOXX International Corpex22q32016amendedapa.htm
EX-21 - EXHIBIT 21 - VOXX International Corpex21q32016eyelockapa.htm
EX-10.1 - EXHIBIT 10.1 - VOXX International Corpex101q32016amendedcreditag.htm
EX-31.1 - EXHIBIT 31.1 - VOXX International Corpex311q32016.htm
EX-32.2 - EXHIBIT 32.2 - VOXX International Corpex322q32016.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended November 30, 2015

 or
 
o 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.)
 
180 Marcus Blvd., Hauppauge, New York
(Address of principal executive offices)
 
11788
(Zip Code)
 
(631) 231-7750
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes   o No   x

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes   o No   x

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


Class
As of January 8, 2016
Class A Common Stock
21,899,370

Shares
Class B Common Stock
2,260,954

Shares

1




VOXX International Corporation and Subsidiaries
 

 
Table of Contents
 
 
Page
PART I
FINANCIAL INFORMATION
 
 
 
 
Item 1
FINANCIAL STATEMENTS (unaudited)
 
 
Consolidated Balance Sheets at November 30, 2015 and February 28, 2015
 
Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended November 30, 2015 and 2014
 
Consolidated Statements of Cash Flows for the Nine Months Ended November 30, 2015 and 2014
 
Notes to Consolidated Financial Statements
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 4
CONTROLS AND PROCEDURES
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
Item 1
LEGAL PROCEEDINGS
Item 1A
RISK FACTORS
Item 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Item 6
EXHIBITS
SIGNATURES
 


2



PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

VOXX International Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands)
 
 
November 30, 2015
 
February 28, 2015
Assets
 
(unaudited)
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
12,435

 
$
8,448

Accounts receivable, net
 
101,949

 
102,766

Inventory, net
 
153,663

 
156,649

Receivables from vendors
 
3,190

 
3,622

Investment securities, current
 

 
275

Prepaid expenses and other current assets
 
18,248

 
26,370

Income tax receivable
 
1,655

 
1,862

Deferred income taxes
 
1,646

 
1,723

Total current assets
 
292,786

 
301,715

Investment securities
 
10,541

 
12,413

Equity investments
 
22,340

 
21,648

Property, plant and equipment, net
 
78,458

 
69,783

Goodwill
 
102,967

 
105,874

Intangible assets, net
 
189,069

 
158,455

Deferred income taxes
 
673

 
717

Other assets
 
6,118

 
6,908

Total assets
 
$
702,952

 
$
677,513

Liabilities and Stockholders' Equity
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
71,739

 
$
71,403

Accrued expenses and other current liabilities
 
51,690

 
51,744

Income taxes payable
 
4,006

 
3,067

Accrued sales incentives
 
16,330

 
14,097

Deferred income taxes
 
560

 
1,060

Current portion of long-term debt
 
85,179

 
6,032

Total current liabilities
 
229,504

 
147,403

Long-term debt
 
17,298

 
79,455

Capital lease obligation
 
1,454

 
733

Deferred compensation
 
4,404

 
4,650

Other tax liabilities
 
5,013

 
5,157

Deferred tax liabilities
 
35,339

 
34,327

Other long-term liabilities
 
10,827

 
9,648

Total liabilities
 
303,839

 
281,373

Commitments and contingencies (see Note 21)
 


 


Stockholders' equity:
 
 

 
 

Preferred stock:
 
 
 
 
No shares issued or outstanding (see Note 18)
 

 

Common stock:
 
 
 
 
Class A, $.01 par value; 60,000,000 shares authorized, 24,067,444 and 24,003,240 shares issued, 21,898,465 and 21,873,790 shares outstanding at November 30, 2015 and February 28, 2015, respectively
 
256

 
255


3



Class B Convertible, $.01 par value, 10,000,000 authorized, 2,260,954 shares issued and outstanding
 
22

 
22

Paid-in capital
 
293,390

 
292,427

Retained earnings
 
160,298

 
157,629

Non-controlling interest
 
10,111

 

Accumulated other comprehensive loss
 
(43,779
)
 
(33,235
)
Treasury stock, at cost, 2,168,979 and 2,129,450 shares of Class A Common Stock at November 30, 2015 and February 28, 2015, respectively
 
(21,185
)
 
(20,958
)
Total stockholders' equity
 
399,113

 
396,140

Total liabilities and stockholders' equity
 
$
702,952

 
$
677,513

See accompanying notes to consolidated financial statements.

4



VOXX International Corporation and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
 (In thousands, except share and per share data)
(unaudited)

 
 
Three Months Ended
November 30,
 
Nine Months Ended
November 30,
 
 
2015
 
2014
 
2015
 
2014
Net sales
 
$
192,506

 
$
223,356

 
$
511,063

 
$
587,598

Cost of sales
 
136,663

 
154,399

 
362,202

 
413,184

Gross profit
 
55,843

 
68,957

 
148,861

 
174,414

Operating expenses:
 
 

 
 

 
 
 
 
Selling
 
12,464

 
13,623

 
36,182

 
41,229

General and administrative
 
29,536

 
29,587

 
83,530

 
88,290

Engineering and technical support
 
9,459

 
9,103

 
26,190

 
27,579

Intangible asset impairment charges
 

 

 
6,210

 

Acquisition costs
 
800

 

 
800

 

Total operating expenses
 
52,259

 
52,313

 
152,912

 
157,098

Operating income (loss)
 
3,584

 
16,644

 
(4,051
)
 
17,316

Other income (expense):
 
 

 
 

 
 
 
 
Interest and bank charges
 
(1,772
)
 
(1,825
)
 
(4,964
)
 
(5,010
)
Equity in income of equity investees
 
1,927

 
1,245

 
5,002

 
4,631

Venezuela currency devaluation, net
 

 

 
(34
)
 
(6,232
)
Gain on bargain purchase
 
4,679

 

 
4,679

 

Other, net
 
636

 
142

 
1,137

 
1,416

Total other income (expense), net
 
5,470

 
(438
)
 
5,820

 
(5,195
)
Income before income taxes
 
9,054

 
16,206

 
1,769

 
12,121

Income tax expense (benefit)
 
2,968

 
584

 
791

 
(1,308
)
Net income
 
$
6,086

 
$
15,622

 
$
978

 
$
13,429

Less: net loss attributable to non-controlling interest
 
(1,691
)
 

 
(1,691
)
 

Net income attributable to Voxx International Corporation
 
$
7,777

 
$
15,622

 
$
2,669

 
$
13,429

Other comprehensive loss:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(7,993
)
 
(8,342
)
 
(9,026
)
 
(15,783
)
Derivatives designated for hedging
 
(32
)
 
578

 
(1,673
)
 
1,529

Pension plan adjustments
 
155

 
64

 
154

 
124

Unrealized holding loss on available-for-sale investment securities arising during the period, net of tax
 
5

 
5

 
1

 
7

Other comprehensive loss, net of tax
 
(7,865
)
 
(7,695
)
 
(10,544
)
 
(14,123
)
Comprehensive (loss) income attributable to Voxx International Corporation
 
$
(88
)
 
$
7,927

 
$
(7,875
)
 
$
(694
)
 
 
 
 
 
 
 
 
 
Net income per common share attributable to Voxx International Corporation (basic)
 
$
0.32

 
$
0.64

 
$
0.11

 
$
0.55

Net income per common share attributable to Voxx International Corporation (diluted)
 
$
0.32

 
$
0.64

 
$
0.11

 
$
0.55

Weighted-average common shares outstanding (basic)
 
24,183,791

 
24,322,307

 
24,177,061

 
24,396,987

Weighted-average common shares outstanding (diluted)
 
24,219,555

 
24,340,534

 
24,211,651

 
24,418,298


See accompanying notes to consolidated financial statements.



5



VOXX International Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)

 
 
Nine Months Ended
November 30,
 
 
2015
 
2014
Cash flows from operating activities:
 
 
 
 
Net income
 
$
978

 
$
13,429

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
11,356

 
12,189

Amortization of debt discount
 
847

 
838

Impairment charges
 
6,210

 

Bad debt expense
 
615

 
371

Interest on notes receivable from EyeLock, Inc.
 
(677
)
 

(Gain) loss on forward contracts
 
(3,289
)
 
40

Equity in income of equity investees
 
(5,002
)
 
(4,631
)
Distribution of income from equity investees
 
4,309

 
3,912

Deferred income tax benefit
 
(1,491
)
 
(450
)
Non-cash compensation adjustment
 
350

 
598

Non-cash stock based compensation expense
 
686

 
291

Venezuela currency devaluation on investment securities
 
23

 
6,702

(Gain) loss on sale of property, plant and equipment
 
(202
)
 
255

       Gain on sale of intangible asset
 
(30
)
 

       Gain on bargain purchase
 
(4,679
)
 

Changes in operating assets and liabilities:
 
 

 
 

Accounts receivable
 
(1,491
)
 
979

Inventory
 
327

 
(13,654
)
Receivables from vendors
 
827

 
(1,053
)
Prepaid expenses and other
 
7,580

 
(1,568
)
Investment securities-trading
 
264

 
(253
)
Accounts payable, accrued expenses, accrued sales incentives and other liabilities
 
3,806

 
17,390

Income taxes payable
 
1,160

 
(4,988
)
Net cash provided by operating activities
 
22,477

 
30,397

Cash flows from investing activities:
 
 

 
 

Purchases of property, plant and equipment
 
(16,625
)
 
(9,862
)
Proceeds from sale of property, plant and equipment
 
317

 
55

Proceeds from sale of intangible asset
 
150

 

Increase in notes receivable
 
(4,176
)
 

Sale of short term investments
 
251

 

Purchase of long-term investments
 

 
(6,000
)
Purchase of acquired business
 
(15,504
)
 

Proceeds from long-term note
 

 
227

Net cash used in investing activities
 
(35,587
)
 
(15,580
)
Cash flows from financing activities:
 
 

 
 

Principal payments on capital lease obligation
 
(310
)
 
(387
)
Repayment of bank obligations
 
(180,686
)
 
(197,364
)
Borrowings on bank obligations
 
198,325

 
186,600

Deferred financing costs
 
(332
)
 


6



Proceeds from exercise of stock options
 
436

 
32

Repurchase of common stock
 
(227
)
 
(2,620
)
Net cash provided by (used in) financing activities
 
17,206

 
(13,739
)
Effect of exchange rate changes on cash
 
(109
)
 
(625
)
Net increase in cash and cash equivalents
 
3,987

 
453

Cash and cash equivalents at beginning of period
 
8,448

 
10,603

Cash and cash equivalents at end of period
 
$
12,435

 
$
11,056


See accompanying notes to consolidated financial statements.


7



VOXX International Corporation and Subsidiaries
Notes to 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 and in accordance with accounting principles generally accepted in the United States of America and include all adjustments (consisting of normal recurring adjustments), which, in the opinion of management, are necessary to present fairly the consolidated financial position, results of operations and cash flows for all periods presented.  The results of operations are not necessarily indicative of the results to be expected for the full fiscal year or any interim period.  These consolidated financial statements do not include all disclosures associated with consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America. Accordingly, these statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto contained in the Company's Form 10-K for the fiscal year ended February 28, 2015. Certain amounts in the prior year have been reclassified to conform to the current year presentation.

We have determined that we operate in three reportable segments, Automotive, Premium Audio and Consumer Accessories. See Note 21 for the Company's segment reporting disclosures.

(2)    Acquisitions

EyeLock

Effective September 1, 2015 ("the Closing Date"), Voxx completed its acquisition of a majority voting interest in substantially all of the assets and certain specified liabilities of Eyelock, Inc. and Eyelock Corporation (collectively the “Seller”), a market leader of iris-based identity authentication solutions, through a newly-formed entity Eyelock LLC.  Eyelock LLC acquired substantially all of the assets and certain specified liabilities of the Seller for a total purchase consideration of $31,880, which consisted of a cash payment of $15,504, assignment of the fair value of the indebtedness owed to the Company by the Seller of $4,677 and the fair value of the non-controlling interest of $12,900, reduced by $1,200 for amounts owed to the LLC by the selling shareholders. Additionally, units in Eyelock LLC were issued to certain executives of EyeLock LLC. The fair value of these units are recorded as compensation expense over the requisite service period of two years. This acquisition allows the Company to enter into the growing biometrics market.

In connection with the closing, the Company entered into a Loan Agreement with Eyelock LLC. The terms of the Loan Agreement allow Eyelock LLC to borrow up to $10,000, bearing interest at 10%. The Loan Agreement provides for a maximum monthly borrowing of $1,000, which can be adjusted to $2,000 for working capital purposes related to new business opportunities. Amounts outstanding under the Loan Agreement are due on September 1, 2017. The Loan Agreement includes customary events of default and is collateralized by all of the property of Eyelock LLC.

Net sales attributable to EyeLock LLC in the Company's consolidated statements of operations for the three and nine months ended November 30, 2015 were approximately $72.

The following table summarizes the preliminary allocation of the purchase price over the fair values of the assets acquired and liabilities assumed, as of the Closing Date:

8

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

 
 
September 1, 2015
Assets acquired:
 
 
     Accounts receivable
 
$
77

     Inventory
 
304

     Property, plant and equipment
 
259

     Intangible assets
 
43,780

        Total assets acquired
 
$
44,420

 
 
 
Liabilities assumed:
 
 
     Accounts payable and accrued expenses
 
729

     Deferred tax liability
 
2,756

     Bridge loans payable to Voxx
 
3,176

     Other long-term liabilities
 
1,200

        Net assets acquired
 
36,559

        Less: purchase price
 
31,880

Gain on bargain purchase
 
$
4,679



The acquisition of substantially all of the assets of Eyelock Inc. and Eyelock Corporation resulted in a bargain purchase gain of $4,679, which was recognized in the Company's Consolidated Statement of Operations and Comprehensive Income (Loss). Prior to the recognition of the bargain purchase gain, the Company reassessed the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition. The Company believes it was able to acquire those assets of Eyelock LLC for less than their fair value due to the distressed financial position of the company, its inability to secure additional financing to support its ongoing operations, and the lack of potential bidders for the entity prior to the Voxx's acquisition.

The fair values assigned to the intangible assets acquired and their related amortization periods are as follows:

 
September 1, 2015
 
 
 
Amortization Period (Years)
Developed technology
$
31,290

 
 
 
11.5 years
Tradename
8,435

 
 
 
Indefinite
Customer relationships
3,470

 
 
 
15.5 years
Non-compete agreement
585

 
 
 
5 years
 
$
43,780

 
 
 
 

The fair values of the intangible assets acquired are measured using Level 3 inputs and are determined using variations of the income approach such as the discounted cash flows and relief of royalty valuation methods. Significant inputs and assumptions used in determining the fair values of the intangible assets acquired include management’s projections of future revenues, earnings and cash flows from Eyelock LLC, a weighted average cost of capital, customer attrition rates, royalty rates and technological obsolescence rates. A change in these inputs and assumptions may cause a significant impact on the fair values of the intangible assets acquired and the resulting bargain purchase gain.

Acquisition related costs relating to this transaction of $800 were expensed as incurred during three and nine months ended November 30, 2015, and are included in acquisition-related costs for these respective periods in the consolidated statements of operations and comprehensive income.

Pro-forma Financial Information


9

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

The following unaudited pro-forma financial information for the nine months ended November 30, 2015 and November 30, 2014 represents the results of the Company's operations as if EyeLock LLC was included for the full nine months of Fiscal 2016 and 2015. The unaudited pro-forma financial information does not necessarily reflect the results of operations that would have occurred had the Company constituted a single entity during such periods.

 
Nine Months Ended November 30,
 
2015
 
2014
Net sales:
 
 
 
As reported
$
511,063

 
$
587,598

Pro forma
512,178

 
592,106

Net income:
 
 
 
As reported
$
2,669

 
$
13,429

Pro forma
(5,819
)
 
12,926

Basic income per share:
 
 
 
As reported
$
0.11

 
$
0.55

Pro forma
(0.24
)
 
0.53

Diluted income per share:
 
 
 
As reported
0.11

 
0.55

Pro forma
(0.24
)
 
0.53

Average shares - basic
24,177,061

 
24,396,987

Average shares - diluted
24,211,651

 
24,418,298


The above pro-forma results include certain adjustments for the periods presented to adjust the financial results and give consideration to the assumption that the acquisition occurred on March 1, 2014. These adjustments include costs such as an estimate for amortization associated with intangible assets acquired, the removal of interest expense, as well as rent and utility expenses on debt and property leases not assumed, as well as the movement of expenses and gains specific to the acquisition from Fiscal 2016 to Fiscal 2015. These pro-forma results of operations have been estimated for comparative purposes only and may not reflect the actual results of operations that would have been achieved had the transaction occurred on the date presented or be indicative of results to be achieved in the future.

Audited financial statements of the business acquired for the period ended December 31, 2014 and unaudited financial statements for the period ended June 30, 2015, as well as the related pro forma financial information, is not yet available but will be filed, when available, with the Securities and Exchange Commission on an amendment to the Company’s Form 8-K dated September 8, 2015. 


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

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


10

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

 
 
Three Months Ended
November 30,
 
Nine Months Ended
November 30,
 
 
2015
 
2014
 
2015
 
2014
Weighted-average common shares outstanding
 
24,183,791

 
24,322,307

 
24,177,061

 
24,396,987

Effect of dilutive securities:
 
 

 
 

 
 

 
 

Stock options and warrants
 
35,764

 
18,227

 
34,590

 
21,311

Weighted-average common shares and potential common shares outstanding
 
24,219,555

 
24,340,534

 
24,211,651

 
24,418,298

 
Restricted stock, stock options and warrants of 131,250 and 156,291 for the three months ended November 30, 2015 and 2014, respectively, and 126,808 and 108,489 for the nine months ended November 30, 2015 and 2014, respectively, were not included in the net income (loss) per diluted share calculation because the exercise price of these restricted stock, stock options and warrants was greater than the average market price of the Company’s common stock during these periods or their inclusion would have been anti-dilutive.


11

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

(4)    Fair Value Measurements and Derivatives

The Company applies the authoritative guidance on “Fair Value Measurements," which among other things, requires enhanced disclosures about investments that are measured and reported at fair value. This guidance establishes a hierarchal disclosure framework that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices, or for which fair value can be measured from actively quoted prices, generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified and disclosed in one of the following categories:
Level 1 - Quoted market prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable.
Level 3 - Unobservable inputs developed using the Company's estimates and assumptions, which reflect those that market participants would use.

The following table presents assets measured at fair value on a recurring basis at November 30, 2015:

 
 
 
Fair Value Measurements at Reporting Date Using
 
Total
 
Level 1
 
Level 2
Cash and cash equivalents:
 
 
 
 
 
Cash and money market funds
$
12,435

 
$
12,435

 
$

Derivatives
 

 
 

 
 

Designated for hedging
$
519

 
$

 
$
519

Investment securities:
 

 
 

 
 

Trading securities
$
4,247

 
$
4,247

 
$

Available-for-sale securities
12

 
12

 

Other investments at amortized cost (a)
6,282

 

 

Total investment securities
$
10,541

 
$
4,259

 
$


The following table presents assets measured at fair value on a recurring basis at February 28, 2015:

 
 
 
Fair Value Measurements at Reporting Date Using
 
Total
 
Level 1
 
Level 2
Cash and cash equivalents:
 
 
 
 
 
Cash and money market funds
$
8,448

 
$
8,448

 
$

Derivatives
 

 
 

 
 

Designated for hedging
$
3,111

 
$

 
$
3,111

Investment securities:
 

 
 

 
 

Trading securities
$
4,511

 
$
4,511

 
$

Available-for-sale securities
15

 
15

 

Other investments at amortized cost (a)
8,162

 

 

Total investment securities
$
12,688

 
$
4,526

 
$


(a)
Included in this balance are investments in two non-controlled corporations accounted for at cost (see Note 4). The fair values of these investments would be based upon Level 3 inputs. At February 28, 2015, this balance also included an investment in a third non-controlled corporation, as well as the Company's held-to-maturity investment in bonds issued by the Venezuelan government, which were recorded at amortized cost (see Note 5). At November 30, 2015 and February 28, 2015, it is not practicable to estimate the fair values of these items.


12

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

The carrying amount of the Company's accounts receivable, short-term debt, accounts payable, accrued expenses, bank obligations and long-term debt approximates fair value because of (i) the short-term nature of the financial instrument; (ii) the interest rate on the financial instrument being reset every quarter to reflect current market rates, and (iii) the stated or implicit interest rate approximates the current market rates or are not materially different than market rates.
Derivative Instruments
The Company's derivative instruments include forward foreign currency contracts utilized to hedge a portion of its foreign currency inventory purchases and local operating expenses. The Company also has four interest rate swap agreements, two of which hedge interest rate exposure related to the forecasted outstanding borrowings on a portion of its senior secured credit facility ("the Credit Facility"); a third that hedges interest rate exposure related to the forecasted outstanding balance of one of its mortgage notes, with monthly payments due through May 2023; and a fourth agreement, entered into in July 2015, which hedges interest rate exposure related to the forecasted outstanding balance of its construction loan, with monthly payments due from March 2016 through March 2026. The two swap agreements related to the Credit Facility lock the Company's LIBOR rates at 0.515% and 0.518% (exclusive of credit spread) for the respective agreements through the swaps' maturities of February 28, 2017 and April 29, 2016, respectively. The swap agreement related to the Company's mortgage locks the interest rate on the debt at 3.92% (inclusive of credit spread) through the end of the mortgage. The swap agreement related to the Company's construction loan locks the interest rate on the debt at 3.48% (inclusive of credit spread) through the maturity date of the loan. 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 range from 1 - 15 months and are classified in the balance sheet according to their terms. Interest rate swap agreements qualifying for hedge accounting are designated as cash flow hedges and valued based on a 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 interest rate swap agreements 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.
It is the Company's policy to enter into derivative instrument contracts with terms that coincide with the underlying exposure being hedged. As such, the Company's derivative instruments are expected to be highly effective. Hedge ineffectiveness, if any, is recognized as incurred through Other Income (Expense) in the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) and amounted to $166 and $153 for the three and nine months ended November 30, 2015, respectively, and $85 and $121 for the three and nine months ended November 30, 2014, respectively.
Financial Statement Classification
The Company holds derivative instruments that are designated as hedging instruments. The following table discloses the fair value as of November 30, 2015 and February 28, 2015 of derivative instruments:
 
 
Derivative Assets and Liabilities
 
 
 
 
Fair Value
 
 
Account
 
November 30, 2015
 
February 28, 2015
Designated derivative instruments
 
 
 
 
 
 
Foreign currency contracts
 
Accrued expenses and other current liabilities
 
$
(393
)
 
$

 
 
Prepaid expenses and other current assets
 
$
1,455

 
$
3,180

Interest rate swap agreements
 
Accrued expenses and other current liabilities
 
(12
)
 

 
 
Other long term liabilities
 
(531
)
 
(69
)
 
 
 
 
 
 
 
Total derivatives
 
 
 
$
519

 
$
3,111


Cash flow hedges


13

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

During Fiscal 2015, as well as during the first nine months of Fiscal 2016, the Company entered into forward foreign currency contracts, which have a current outstanding notional value of $17,011 and are designated as cash flow hedges at November 30, 2015. The current outstanding notional values of the Company's four interest rate swaps at November 30, 2015 are $18,750, $25,000, $5,915 and $7,658. For cash flow hedges, the effective portion of the gain or loss is reported as a component of Other Comprehensive Income (Loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

Activity related to cash flow hedges recorded during the three and nine months ended November 30, 2015 and 2014 was as follows:
 
Three months ended
 
Nine months ended
 
November 30, 2015
 
November 30, 2015
 
Pretax (Loss) Recognized in Other Comprehensive Income
 
Pretax Gain Reclassified from Accumulated Other Comprehensive Income (a)
 
(Loss)for Ineffectiveness in Other Income
 
Pretax Gain (Loss) Recognized in Other Comprehensive Income
 
Pretax Gain Reclassified from Accumulated Other Comprehensive Income (a)
 
(Loss) for Ineffectiveness in Other Income
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Foreign currency contracts
$
989

 
$
747

 
$
166

 
$
1,358

 
$
2,921

 
$
153

Interest rate swaps
$
(127
)
 
$

 
$

 
$
(474
)
 
$

 
$

 
Three months ended
 
Nine months ended
 
November 30, 2014
 
November 30, 2014
 
Pretax Gain Recognized in Other Comprehensive Income
 
Pretax (Loss) Reclassified from Accumulated Other Comprehensive Income (a)
 
Gain for Ineffectiveness in Other Income
 
Pretax Gain Recognized in Other Comprehensive Income
 
Pretax (Loss) Reclassified from Accumulated Other Comprehensive Income (a)
 
Gain for Ineffectiveness in Other Income
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
Foreign currency contracts
$
1,181

 
$
213

 
$
85

 
$
2,012

 
$
(59
)
 
$
121

Interest rate swaps
$
(99
)
 
$

 
$

 
$
65

 
$

 
$


(a) Gains and losses related to foreign currency contracts are reclassified to cost of sales. Gains and losses related to interest rate swaps are reclassified to interest expense.

The net loss recognized in Other Comprehensive Income (Loss) for foreign currency contracts is expected to be recognized in cost of sales within the next eighteen months. No amounts were excluded from the assessment of hedge effectiveness during the respective periods. As of November 30, 2015, seven contracts originally designated for hedge accounting, with a notional amount of $5,660, were de-designated, resulting in a gain of $64 recorded in Other Income (Expense) for the three and nine months ended November 30, 2015 in the Company's Consolidated Statements of Operations and Comprehensive Income (Loss). As of November 30, 2015, no contracts originally designated for hedge accounting were terminated.

(5)    Investment Securities

As of November 30, 2015 and February 28, 2015, the Company had the following investments:


14

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

 
November 30, 2015
 
February 28, 2015
 
Cost
Basis
 
Unrealized
Holding
Gain/(Loss)
 
Fair
Value
 
Cost
Basis
 
Unrealized
Holding
Gain/(Loss)
 
Fair
Value
Investment Securities
 

 
 

 
 

 
 

 
 

 
 

Marketable Securities
 

 
 

 
 

 
 

 
 

 
 

Trading
 

 
 

 
 

 
 

 
 

 
 

Deferred Compensation
$
4,247

 
$

 
$
4,247

 
$
4,511

 
$

 
$
4,511

Available-for-sale
 

 
 

 
 

 
 

 
 

 
 

Cellstar

 
12

 
12

 

 
15

 
15

Held-to-maturity Investment

 

 

 
275

 

 
275

Total Marketable Securities
4,247

 
12

 
4,259

 
4,786

 
15

 
4,801

Other Investments
6,282

 

 
6,282

 
7,887

 

 
7,887

Total Investment Securities
$
10,529

 
$
12

 
$
10,541

 
$
12,673

 
$
15

 
$
12,688



Current Investments

Held-to-Maturity Investment

At February 28, 2015, current investments included an investment in sovereign bonds issued by the Venezuelan government, which were classified as held-to-maturity and accounted for under the amortized cost method. These bonds matured in March 2015 and the Company received payment of $251 for the outstanding balance of these bonds at their maturity date.
Long-Term Investments

Trading Securities

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

Available-For-Sale Securities

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

Unrealized holding gains and losses, net of the related tax effect (if applicable), on available-for-sale securities are reported as a component of Accumulated Other Comprehensive Income (Loss) until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis and reported in Other Income (Expense).

A decline in the market value of any available-for-sale security below cost that is deemed other-than-temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established.  The Company considers numerous factors, on a case-by-case basis, in evaluating whether the decline in market value of an available-for-sale security below cost is other-than-temporary. Such factors include, but are not limited to, (i) the length of time and the extent to which the market value has been less than cost; (ii) the financial condition and the near-term prospects of the issuer of the investment; and (iii) whether the Company's intent to retain the investment for the period of time is sufficient to allow for any anticipated recovery in market value. No other-than-temporary losses were incurred by the Company during the three and nine months ended November 30, 2015 or 2014.

Other Long-Term Investments

15

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)


Other long-term investments include investments in two non-controlled corporations accounted for at cost. As of November 30, 2015, the Company's investment in Rx Networks totaled $1,829 and we held 15.3% of the outstanding shares of this company. No additional investment was made in Rx Networks during the three and nine months ended November 30, 2015. During the nine months ended November 30, 2014, the Company invested $3,000 in EyeSee360, Inc., consisting of shares of the investee's preferred stock. During the nine months ended November 30, 2015, Voxx increased this investment to $4,453, as a result of acquiring additional preferred stock shares. The Company holds 9.3% of the outstanding shares of EyeSee360, Inc. as of November 30, 2015. The total balance of the two investments at November 30, 2015 was $6,282.

During the nine months ended November 30, 2014, the Company also invested $3,000 in EyeLock, Inc., consisting of a convertible debt security. On September 1, 2015, the Company completed an acquisition of a majority voting interest in substantially all of the assets and certain liabilities of EyeLock, Inc. and EyeLock Corporation (see Note 2).

(6)    Accumulated Other Comprehensive Income (Loss)

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

 
 
Foreign Exchange Losses
 
Unrealized losses on investments, net of tax
 
Pension plan adjustments, net of tax
 
Derivatives designated in a hedging relationship, net of tax
 
Total
Balance at February 28, 2015
 
$
(32,935
)
 
$
(101
)
 
$
(2,742
)
 
$
2,543

 
$
(33,235
)
Other comprehensive (loss) income before reclassifications
 
(9,026
)
 
1

 
154

 
404

 
(8,467
)
Reclassified from accumulated other comprehensive income (loss)
 

 

 

 
(2,077
)
 
(2,077
)
Net current-period other comprehensive (loss) income
 
(9,026
)
 
1

 
154

 
(1,673
)
 
(10,544
)
Balance at November 30, 2015
 
$
(41,961
)
 
$
(100
)
 
$
(2,588
)
 
$
870

 
$
(43,779
)

During the three and nine months ended November 30, 2015, the Company recorded tax expense (benefit) related to unrealized losses on investments of $0 in both periods, pension plan adjustments of $0 in both periods and derivatives designated in a hedging relationship of $(72) and $448, respectively.

(7)    Supplemental Cash Flow Information

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

 
 
Nine Months Ended
November 30,
 
 
2015
 
2014
Non-cash investing and financing activities:
 
 
 
 
Capital expenditures funded by long-term obligations
 
$
1,109

 
$

       Non-cash acquisition of long-term investment
 
$
1,453

 
$

Cash paid during the period:
 
 
 
 
Interest (excluding bank charges)
 
$
3,128

 
$
3,342

Income taxes (net of refunds)
 
$
1,089

 
$
2,906


(8)    Accounting for Stock-Based Compensation

16

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

 
The Company has various stock-based compensation plans, which are more fully described in Note 1 of the Company’s Form 10-K for the fiscal year ended February 28, 2015.

The Company granted 125,000 options in October 2014, which vested on October 16, 2015, expire two years from date of vesting (October 15, 2017), have an exercise price equal to $7.76, $0.25 above the sales price of the Company’s stock on the day prior to the date of grant, have a contractual term of 3.0 years and a grant date fair value of $2.78 per share determined based upon a Black-Scholes valuation model.

In addition, the Company issued 15,000 warrants in October 2014 to purchase the Company’s common stock with the same terms as those of the options above as consideration for future legal and professional services. These warrants are included in the outstanding options and warrants table below and are exercisable at November 30, 2015.

The Company granted 256,250 options in December of 2012, which vested on July 1, 2013, expired two years from date of vesting (June 30, 2015), had an exercise price equal to $6.79, $0.25 above the sales price of the Company’s stock on the day prior to the date of grant, had a contractual term of 2.5 years and a grant date fair value of $1.99 per share determined based upon a Black-Scholes valuation model. In addition, the Company issued 17,500 warrants in December of 2012 to purchase the Company’s common stock with the same terms as those of the options above as consideration for future legal and professional services. None of these options or warrants expired unexercised.

During the three and nine months ended November 30, 2015, the Company recorded $32 and $227 in stock-based compensation and professional fees, respectively, related to stock options and warrants. There were no unrecognized compensation costs or professional fees as of November 30, 2015 related to stock options and warrants.

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

 
 
Number of Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
Outstanding at February 28, 2015
 
204,204

 
$
7.46

 
 
Granted
 

 

 
 
Exercised
 
64,204

 
6.79

 
 
Forfeited/expired
 
8,750

 
7.76

 
 
Outstanding and exercisable at November 30, 2015
 
131,250

 
$
7.76

 
2.83

A restricted stock award is an award of common stock that is subject to certain restrictions during a specified period. Restricted stock awards are independent of option grants and are subject to forfeiture if employment terminates prior to the release of the restrictions. In Fiscal 2014, the Company established a Supplemental Executive Retirement Plan (SERP) and granted 84,588 shares of restricted stock under this plan. These shares were granted based on certain performance criteria and vest on the later of three years from the date of participation in the SERP, or the grantee reaching the age of 65 years. During Fiscal 2015 and during the second quarter of Fiscal 2016, an additional 118,058 and 79,268 shares of restricted stock were granted under the SERP, respectively. These shares were also granted based on certain performance criteria and vest on the later of three years from the date of grant or the grantee reaching the age of 65 years. Upon vesting, the shares will be issued to the grantee or settled in cash, at the Company's sole option. The grantee cannot transfer the rights to receive shares before the restricted shares vest. There are no market conditions inherent in the award, only an employee performance requirement, and the service requirement that the respective employee continues employment with the Company through the vesting date. The Company expenses the cost of the restricted stock awards on a straight-line basis over the requisite service period of each employee or a maximum of 12.75 years. For these purposes, the fair market values of the restricted stock, $13.62, $7.77 and $8.13, respectively, were determined based on the mean of the high and low price of the Company's common stock on the grant dates.

The following table presents a summary of the Company's restricted stock activity for the nine months ended November 30, 2015:

17

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)


 
Number of Shares
 
Weighted Average Grant Date Fair Value
Balance at February 28, 2015
202,646
 
$
10.21

Granted
79,268

 
8.13

Vested

 

Forfeited
10,090

 
10.08

Balance at November 30, 2015
271,824

 
9.61


During the three and nine months ended November 30, 2015, the Company recorded $167 and $459, respectively, in stock-based compensation related to restricted stock awards. As of November 30, 2015, there was $1,871 of unrecognized stock-based compensation expense related to unvested restricted stock awards.

(9)    Supply Chain Financing

The Company has four supply chain financing agreements ("factoring agreements") that were entered into for the purpose of accelerating receivable collection and better managing cash flow. The factored balances for all four 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, 2015, net of discounts, were $75,196 and $199,438, compared to $51,117 and $135,613 for the three and nine months ended November 30, 2014, respectively.

(10)    Research and Development

Expenditures for research and development are charged to expense as incurred. Such expenditures amount to $6,412 and $16,990 for the three and nine months ended November 30, 2015, respectively, compared to $4,915 and $16,198 for the three and nine months ended November 30, 2014, respectively, net of customer reimbursement, and are included within Engineering and Technical Support Expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).

The Company enters into development and long-term supply agreements with certain of its OEM ("Original Equipment Manufacturer") customers. Revenues earned from the development services are recorded based upon the milestone method of revenue recognition provided certain criteria are met. Amounts due from OEM customers for development services are reflected as a reduction of research and development expense because the performance of contract development services is not central to the Company's operations. For the three and nine months ended November 30, 2015, the Company recorded $3,326 and $6,446, respectively, and for the three and nine months ended November 30, 2014, the Company recorded $2,029 and $6,825, respectively, of development service revenue as a reduction of research and development expense based upon the achievement of a milestone.


(11)    Goodwill and Intangible Assets

The change in goodwill by segment is as follows:


18

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

Automotive:
Amount
Beginning balance at March 1, 2015
$
59,341

Currency translation
(2,907
)
Balance at November 30, 2015
$
56,434

 
 
Gross carrying amount at November 30, 2015
$
56,434

Accumulated impairment charge

Net carrying amount at November 30, 2015
$
56,434

 
 
Premium Audio:
 
Beginning balance at March 1, 2015
$
46,533

Activity during the period

Balance at November 30, 2015
$
46,533

 
 
Gross carrying amount at November 30, 2015
$
78,696

Accumulated impairment charge
(32,163
)
Net carrying amount at November 30, 2015
$
46,533

 
 
Total Goodwill, net
$
102,967


Note: The Company's Consumer Accessories segment did not carry a goodwill balance at November 30, 2015 or February 28, 2015.

At November 30, 2015, intangible assets consisted of the following:  

 
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Total Net
Book
Value
Finite-lived intangible assets:
 


 
 
 
 
Customer relationships
 
$
64,670

 
$
22,184

 
$
42,486

Trademarks/Tradenames
 
40,140

 
1,068

 
39,072

Patents
 
8,463

 
3,819

 
4,644

License
 
1,400

 
1,400

 

Contract
 
2,141

 
1,586

 
555

Total finite-lived intangible assets
 
$
116,814

 
$
30,057

 
86,757

Indefinite-lived intangible assets
 
 
 
 
 
 
Trademarks
 
 
 
 
 
102,312

Total net intangible assets
 
 
 
 
 
$
189,069


At February 28, 2015, intangible assets consisted of the following: 


19

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

 
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Total Net
Book
Value
Finite-lived intangible assets:
 
 
 
 
 
 
Customer relationships
 
$
62,506

 
$
19,316

 
$
43,190

Trademarks/Tradenames
 
415

 
383

 
32

Patents
 
8,831

 
3,365

 
5,466

License
 
1,400

 
1,400

 

Contract
 
1,556

 
1,556

 

Total finite-lived intangible assets
 
$
74,708

 
$
26,020

 
48,688

Indefinite-lived intangible assets
 
 
 
 
 
 
Trademarks
 
 
 
 
 
109,767

Total net intangible assets
 
 
 
 
 
$
158,455


The Company recorded amortization expense of $2,044 and $1,373 for the three months ended November 30, 2015 and 2014, respectively, and $4,599 and $4,194 for the nine months ended November 30, 2015 and 2014, respectively. The estimated aggregate amortization expense for all amortizable intangibles for each of the succeeding years ending August 31, 2021 is as follows:

Fiscal Year
 
Amount
2017
 
$
8,113

2018
 
8,082

2019
 
7,898

2020
 
7,882

2021
 
7,719



We evaluate the carrying value of long-lived assets, including intangible assets subject to amortization, when events and circumstances warrant such a review. During the second quarter of Fiscal 2016, the Company re-evaluated its projections for its Klipsch reporting unit, located in the Premium Audio segment, based on lower than anticipated results due to certain marketing strategies and re-evaluation of its market position for certain product lines. Accordingly, this was considered an indicator of impairment requiring the Company to test the related indefinite-lived tradename for impairment, and perform a step 1 impairment analysis on the goodwill for this reporting unit. Fair value is determined primarily by using a discounted cash flow methodology that requires considerable management judgment and long-term assumptions, and is considered a Level 3 (unobservable) fair value determination in the fair value hierarchy (see Note 3). A five-year period is analyzed using a risk adjusted discount rate. The discount rates (developed using a weighted average cost of capital analysis) used in the goodwill and intangible analyses were 13.1% and 13.8%, respectively. Long-term growth rates ranged from 0.7% to 2.9%. As a result of this analysis, the Company determined that the tradename for this reporting unit was impaired and recorded an impairment charge of $6,210 in the second quarter of Fiscal 2016. Approximately 44.0% ($46,533) of the Company’s goodwill was allocated to the Klipsch reporting unit as of August 31, 2015. Based on the Company’s goodwill assessment, the fair value of the Klipsch reporting unit exceeded its carrying value by approximately $3,600. The Company believes its assumptions are reasonable, however, the fair value of the reporting unit is close to its carrying amount, including goodwill, and is sensitive to changes in assumptions. There can be no assurance that its estimates and assumptions made for purposes of its goodwill impairment testing, at the annual date and the interim testing date, will prove to be accurate predictions of the future. A sustained decline in Klipsch sales, sustained pricing pressures, unfavorable operating margins, lack of new product acceptance by consumers, changes in customer trends and preferred shopping channels, less than anticipated results for the holiday season, an increase in the discount rate, and/or a decrease in our projected long-term growth rates used in the discounted cash flow model could result in a significant goodwill impairment charge. There were no triggering events during the three months ended November 30, 2015, therefore, management believes the current carrying value of its intangible assets is not impaired.


20

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

(12)    Equity Investment

As of November 30, 2015 and February 28, 2015, the Company had 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,
2015
 
February 28,
2015
Current assets
 
$
46,074

 
$
43,404

Non-current assets
 
5,802

 
5,642

Current liabilities
 
7,196

 
5,750

Members' equity
 
44,680

 
43,296

 
 
Nine Months Ended
November 30,
 
 
2015
 
2014
Net sales
 
$
69,967

 
$
71,974

Gross profit
 
21,633

 
21,187

Operating income
 
9,983

 
8,834

Net income
 
10,004

 
9,262

 
The Company's share of income from ASA was $1,927 and $1,245 for the three months ended November 30, 2015 and 2014, respectively, and $5,002 and $4,631 for the nine months ended November 30, 2015 and 2014, respectively.  

(13)    Income Taxes

The Company’s provision for income taxes consists of U.S. and foreign taxes in amounts necessary to align the Company’s year-to-date provision for income taxes with the effective tax rate that the Company expects to achieve for the full year. The Company’s annual effective tax rate for Fiscal 2016 excluding discrete items is estimated to be 24.0% (which includes U.S., state and local and foreign taxes) based upon the Company’s anticipated earnings both in the U.S. and in its foreign subsidiaries. The Company's projected annual effective tax rate (excluding discrete items) is lower than the statutory rate of 35% primarily due to income taxed in foreign jurisdictions at varying tax rates, the non-controlling interest related to the EyeLock LLC acquisition and the impact of the bargain purchase gain.

For the three and nine months ended November 30, 2015, the Company recorded income tax provisions of $2,968 and $791, respectively, which consisted of U.S., state and local and foreign taxes, including a discrete tax benefit of $5 for the three months ended November 30, 2015 and a discrete tax provision of $366 for the nine months ended November 30, 2015. The discrete tax benefit for the three months ended November 30, 2015 primarily relates to the reversal of uncertain tax position liabilities, federal and state return to accrual adjustments, offset by a provision related to the accrual of interest for unrecognized tax benefits and the impact of re-measurement of a state deferred tax rate. The discrete tax provision for the nine months ended November 30, 2015 includes the impact of a tax law change in Indiana whereby the Company's R&D credits are no longer realizable on a more-likely-than-not basis. For the three and nine months ended November 30, 2014, the Company recorded an income tax provision of $584 and an income tax benefit of $1,308, respectively.

The effective tax rates for the three and nine months ended November 30, 2015 were 32.8% and 44.7%, respectively, compared to a provision of 3.6% and benefit of 10.8% in the comparable prior periods.  The effective tax rates for the three and nine months ended November 30, 2015 are different than the statutory rate primarily due to income taxed in foreign jurisdictions at varying tax rates, the non-controlling interest for EyeLock LLC, and the impact of the bargain purchase gain.


21

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

(14)    Inventory

Inventories by major category are as follows:

 
 
November 30,
2015
 
February 28,
2015
Raw materials
 
$
50,090

 
$
47,307

Work in process
 
5,546

 
3,722

Finished goods
 
98,027

 
105,620

Inventory, net
 
$
153,663

 
$
156,649


(14)     Financing Arrangements

The Company has the following financing arrangements:

 
 
November 30,
2015
 
February 28,
2015
Debt
 
 
 
 
Domestic credit facility (a)
 
$
77,400

 
$
67,700

Construction loan (b)
 
7,658

 

Euro asset-based lending obligation (c)
 
5,517

 
4,087

Schwaiger mortgage (d)
 
922

 
1,152

Klipsch notes (e)
 
6,217

 
6,921

Voxx Germany mortgage (f)
 
4,763

 
5,627

Hirschmann line of credit (g)
 

 

Total debt
 
102,477

 
85,487

Less: current portion of long-term debt
 
85,179

 
6,032

 Total long-term debt
 
$
17,298

 
$
79,455


(a)          Domestic Credit Facility
 
The Company has a senior secured credit facility (the "Credit Facility") with an aggregate availability of $200,000, consisting of a revolving credit facility of $200,000, with a $30,000 multicurrency revolving credit facility sublimit, a $25,000 sublimit for Letters of Credit and a $10,000 sublimit for Swingline Loans. The Credit Facility is due on January 9, 2019; however, it is subject to acceleration upon the occurrence of an Event of Default (as defined in the Credit Agreement).

Generally, the Company may designate specific borrowings under the Credit Facility as either Alternate Base Rate Loans or LIBOR Rate Loans, except that Swingline Loans may only be designated as Alternate Base Rate Loans. VOXX International (Germany) GmbH may only borrow euros, and only as LIBOR 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 1.00 - 2.00% based upon leverage, as defined in the agreement. Loans designated as Alternate Base Rate loans shall bear interest at a rate equal to the base rate plus an applicable margin ranging from 0.00 - 1.00% based on excess availability in the borrowing base. As of November 30, 2015, the interest rate on the facility was 2.26%.

The Credit Facility requires compliance with non-financial and financial covenants. As of January 11, 2016, the date of the Company's Form 10Q filing, the Leverage Ratio and the Consolidated EBIT to Consolidated Interest Expense Ratio Covenants set forth in the Company's Amended and Restated Credit Agreement with Wells Fargo as Administrative Agent, and the other Lenders party thereto, had not been satisfied.  The Total Leverage Covenant requires a ratio less than or equal to 3.50 to 1.00, and the Company's Leverage Ratio was calculated to be

22

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

4.14 to 1.00 as of November 30, 2015 .  The Consolidated EBIT to Consolidated Interest Expense Ratio Covenant requires a ratio greater than or equal to 3.00 to 1.00, and the Company’s Consolidated EBIT to Consolidated Interest Expense Ratio was calculated to be 1.80 to 1.00 as of November 30, 2015.  Wells Fargo, the holder of 27.5% of the Company’s outstanding debt under the Amended and Restated Credit Agreement, has advised the Company that it will agree to waive the default subject to final documentation and the agreement of the balance of 51% of the Lenders. The Company anticipates that it will have the Lenders’ waiver shortly. While the Lenders have the right to declare a default and accelerate the debt based on the Company’s technical default, the Company does not believe that the Lenders will do so. While the Company is prohibited from drawing on this facility while the technical default exists, the Company has sufficient cash and other lines of credit from which it can fund its operations for the foreseeable future.

The Obligations under the Credit Facility are secured by valid and perfected first priority security interests in liens on all of the following: (a)(i) 100% of the capital stock or other membership or partnership equity ownership of profit interests of each domestic Credit Party (other than the Company), and (ii) 65% of the voting equity interests and 100% of the non-voting equity interests of all present and future first-tier foreign subsidiaries of any Credit Party (or such greater percentage as would not result in material adverse federal income tax consequences for the Company); (b) all of (i) the tangible and intangible personal property/assets of the Credit Parties and (ii) the fee-owned real property of the Company located in Hauppauge, New York; and (c) all products, profits, rents and proceeds of the foregoing.

As of November 30, 2015, $77,400 was outstanding under the line, and has been classified within the current portion of long-term debt on the Consolidated Balance Sheet as a result of the debt covenant default disclosed above. Charges incurred on the unused portion of the Credit Facility during the three and nine months ended November 30, 2015 totaled $70 and $235, respectively, compared to $73 and $212, respectively, during the three and nine months ended November 30, 2014, respectively. These charges are included within Interest and Bank Charges on the Consolidated Statement of Operations and Comprehensive Income (Loss).

The Company incurred debt financing costs totaling approximately $8,200 as a result of entering into and amending the Credit Facility during Fiscal 2013 and Fiscal 2014, which are recorded as deferred financing costs. The Company accounted for the amendments as modifications of debt and added these costs to the remaining financing costs related to the original Credit Facility. These deferred financing costs are included in Other Assets on the accompanying Consolidated Balance Sheets and are being amortized through Interest and Bank Charges in the Consolidated Statement of Operations and Comprehensive Income (Loss) over the five year term of the Credit Facility. During both the three and nine months ended November 30, 2015 and November 30, 2014, the Company amortized $279 and $838 of these costs, respectively.

(b)    Construction 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 (the “Construction Loan”).  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 and will make principal and interest payments to Wells Fargo beginning March 1, 2016 through March of 2026. The Construction Loan is considered a revolving loan during construction and will become a permanent mortgage when the building is completed and ready for occupancy. The Company will make interest payments on the outstanding balance of the Construction Loan through February 29, 2016, at which time monthly principal and interest payments will commence and be made through the loan maturity date. The Construction Loan bears interest at 70% of 1-month LIBOR plus 1.54% (1.43% at November 30, 2015) 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 Construction Loan are as defined in the Company’s Credit Facility with Wells Fargo dated March 14, 2012. The outstanding balance of the Construction Loan as of November 30, 2015 was $7,658.

The Company incurred debt financing costs totaling approximately $332 as a result of obtaining the Construction Loan, which are recorded as deferred financing costs and included in Other Assets on the accompanying

23

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

Consolidated Balance Sheet and are being amortized through Interest and Bank Charges in the Consolidated Statement of Operations and Comprehensive Income (Loss) over the ten year term of the Construction Loan. During the three and nine months ended November 30, 2015, the Company amortized $5 and $9 of these costs, respectively.

On July 20, 2015, the Company entered into an interest rate swap agreement in order to hedge interest rate exposure related to the Construction Loan and will pay a fixed rate of 3.48% under the swap agreement beginning on March 1, 2016 coinciding with the start of principal and interest payments (See Note 4).

(c)          Euro Asset-Based Lending Obligation
 
Foreign bank obligations include a Euro accounts receivable factoring arrangement, which has a credit limit of up to 60% of eligible non-factored accounts receivable and expires on July 31, 2016, and a Euro Asset-Based Lending ("ABL") credit facility, which has a credit limit of €8,000 and expires on October 31, 2016 for the Company's subsidiary, VOXX Germany. The rate of interest for these credit facilities is the three month Euribor plus 1.6% (1.49% at November 30, 2015). As of November 30, 2015, the amounts outstanding under these credit facilities, which are payable on demand, do not exceed their respective credit limits.
  
(d)          Schwaiger Mortgage
 
In January 2012, the Company's Schwaiger subsidiary purchased a building, entering into a mortgage note payable. The mortgage note bears interest at 3.75% and will be fully paid by December 2019.
 
(e)    Klipsch Mortgages

Included in this balance is a mortgage on a facility included in the assets acquired in connection with the Klipsch transaction on March 1, 2011 and assumed by Voxx. The balance at November 30, 2015 is $302 and will be fully paid by the end of Fiscal 2018.

Also included in this balance is a mortgage on the building which houses Klipsch's headquarters in Indianapolis, IN due in May 2023. The interest rate on the mortgage is equal to the 1-month LIBOR plus 2.25%. The Company has an interest rate swap agreement in order to hedge interest rate exposure related to this mortgage and pays a fixed rate of 3.92% under the swap agreement (see Note 4). The balance of the mortgage at November 30, 2015 was $5,915.

(f)    Voxx Germany Mortgage

Included in this balance is a mortgage on the land and building housing Voxx Germany's headquarters in Pulheim, Germany, which was entered into in January 2013. The mortgage bears interest at 2.85%, payable in twenty-six quarterly installments through June 2019.

(g)    Hirschmann Line of Credit

In December 2014, Hirschmann entered into an agreement for a €8,000 working capital line of credit with a financial institution. The line of credit is payable on demand and is mutually cancelable. The rate of interest is the three month Euribor plus 2% (1.89% at November 30, 2015). Hirschmann and Voxx Germany are joint and severally liable for the line of credit balance, which is also guaranteed by VOXX International Corporation.

(16)     Other Income (Expense)

Other income (expense) is comprised of the following:


24

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

 
 
Three Months Ended
November 30,
 
Nine Months Ended
November 30,
 
 
2015
 
2014
 
2015
 
2014
Foreign currency gain (loss)
 
$
487

 
$
111

 
$
466

 
$
476

Interest income
 
38

 
144

 
781

 
282

Rental income
 
109

 
305

 
320

 
896

Miscellaneous
 
2

 
(418
)
 
(430
)
 
(238
)
Total other, net
 
$
636

 
$
142

 
$
1,137

 
$
1,416


Included in interest income for the nine months ended November 30, 2015 is income related to notes receivable from EyeLock, Inc. through the acquisition date of September 1, 2015 (see Note 2).

(17)    Foreign Currency

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

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

In February 2013, the Venezuelan government announced the devaluation of the Bolivar Fuerte, moving the official exchange rate from 4.3 to 6.3 per U.S. dollar. Concurrent with this action, the Venezuelan government established a new auction-based exchange rate market program, referred to as Complementary System for the Administration of Foreign Currency (“SICAD”). The amount of transactions that have run through the SICAD and restrictions around participation limited our access to any foreign exchange rate other than the official rate to pay for imported goods and manage our local monetary asset balances. Although the official exchange rate remained at 6.3 during Fiscal 2014, the government announced in January 2014 that the exchange rate for goods and services deemed non-essential would move to the rate available on the expanded SICAD currency market, which was 11.7 at February 28, 2014 (referred to as SICAD 1). In March 2014, a new exchange control mechanism was opened by the government, referred to as SICAD 2, which was not restricted by auction and was available for all types of transactions. The use of the SICAD 1 rate was dependent upon the availability of auctions, and was not indicative of a free market exchange, as only designated industries could bid into individual auctions and the highest bids were not always recognized by the Venezuelan government. The Company, therefore, used the SICAD 2 rate for its Venezuelan subsidiary for the three and nine months ended November 30, 2014, which was approximately 50 Bolivar Fuerte/$1 at November 30, 2014, with the exception of the Company's investment in Venezuelan government issued sovereign bonds (See Note 5). In February 2015, the Venezuelan government introduced another new currency system, referred to as the Marginal Currency System, or SIMADI rate. This market-based exchange system consists of a mechanism from which both businesses and individuals are allowed to purchase and sell foreign currency at the price set by the market. In conjunction with this introduction, SICAD 2 was annulled and combined with the former SICAD 1, reverting to its original title of SICAD, exclusively applicable to non-essential goods and subject to available auctions. The SIMADI rate at November 30, 2015 was approximately 200 Bolivar Fuerte/$1 and has been used by the Company for its Venezuelan subsidiary at November 30, 2015. A net currency exchange loss of $0 and $(34) was recorded for the three and nine months ended November 30, 2015, and is included in Other Income (Expense) on the Consolidated Statement of Operations and Comprehensive Income (Loss). For the three and nine months ended

25

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

November 30, 2014, net currency exchange losses of $0 and $(6,232) were recorded, respectively, which included the remeasurement loss on the Company's Venezuelan bonds of $(6,702).

Our investment in Venezuela mainly consists of $3,851 of rental properties that are currently being held for investment purposes. As of November 30, 2015, the Company made an assessment of the recoverability of its investment properties in Venezuela. In reviewing the recoverability of its investment properties, the Company considered the expected cash flows from these properties, the length of time the properties have been held, the volatile market conditions, the Company’s financial condition, and the intent and ability to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value. Based on our assessment, none of our rental properties were impaired as of November 30, 2015.

Our automotive business in Venezuela and our ability to obtain U.S. dollars are impacted by the continued economic instability, increasing inflation and currency restrictions imposed by the government. The Company is monitoring this situation closely and continues to evaluate its local properties. However, further devaluations or regulatory actions could impair the carrying value of these properties.

(18)     Lease Obligations

At November 30, 2015, the Company was obligated under non-cancelable operating leases for equipment, as well as warehouse and office facilities for minimum annual rental payments as follows:

 
Operating
Leases
2016
$
4,276

2017
3,192

2018
946

2019
638

2020
179

Thereafter
356

Total minimum lease payments
$
9,587


The Company has three capital leases with a total lease liability of $1,503 at November 30, 2015. These leases have maturities through Fiscal 2020.

The Company leases a facility from its principal stockholder which expires on November 30, 2016. At November 30, 2015, minimum annual rental payments on this related party operating lease, which are included in the above table, are as follows:

2016
$
847

2017

Total
$
847


(19)     Capital Structure
 
The Company's capital structure is as follows:
 

26

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

 
 
 
 
Shares Authorized
 
Shares Outstanding
 
 
 
 
Security
 
Par
Value
 
November 30,
2015
 
February 28,
2015
 
November 30,
2015
 
February 28,
2015
 
Voting
Rights per
Share
 
Liquidation
Rights
Preferred Stock
 
$
50.00

 
50,000

 
50,000

 

 

 

 
$50 per share
Series Preferred Stock
 
$
0.01

 
1,500,000

 
1,500,000

 

 

 

 
 
Class A Common Stock
 
$
0.01

 
60,000,000

 
60,000,000

 
21,898,465

 
21,873,790

 
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
Treasury Stock at cost
 
at cost

 
2,168,979

 
2,129,450

 
N/A
 
N/A
 
N/A
 
 


(20)    Variable Interest Entities

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, 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.

Effective September 1, 2015, Voxx acquired of 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-formed entity, Eyelock LLC (See Note 2). We have 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

a loan agreement with EyeLock LLC, executed in conjunction with the acquisition, in which the subsidiary borrows may funds of up to $10,000 from Voxx for working capital purposes. The loan bears interest at 10% and has a maximum monthly borrowing capacity of $1,000, which can be adjusted to $2,000. The outstanding balance of the loan as of November 30, 2015 was $5,940 .
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 that we had the power to direct the activities EyeLock LLC 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, as a result of our majority ownership interest, the assets of EyeLock LLC can only be used to satisfy the obligations of the subsidiary. As a result of our majority ownership interest in the entity and our primary beneficiary conclusion, we consolidated EyeLock LLC in our consolidated financial statements beginning on September 1, 2015. Prior to September 1, 2015, EyeLock Inc. was not required to be consolidated in our consolidated financial statements, because we concluded that we were not the primary beneficiary of EyeLock Inc. prior to that time.

Assets and Liabilities of EyeLock LLC In accordance with ASC 810, the consolidation of EyeLock LLC was treated as an acquisition of assets and liabilities and, therefore, the assets and liabilities of EyeLock LLC were included in our consolidated financial statements at their fair value as of September 1, 2015. Refer to Note 2 for the fair value of the

27

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

assets and liabilities of EyeLock LLC on the acquisition date and the discussion of purchase accounting procedures performed.

 The following table sets forth the carrying values of assets and liabilities of EyeLock LLC that were included on our Consolidated Balance Sheet as of November 30, 2015:

 
 
November 30, 2015
Assets
 
(unaudited)
Current assets:
 
 
Cash and cash equivalents
 
$
21

Accounts receivable, net
 
149

Inventory, net
 
304

Prepaid expenses and other current assets
 
165

Total current assets
 
639

Property, plant and equipment, net
 
263

Intangible assets, net
 
43,015

Total assets
 
$
43,917

Liabilities and Stockholders' Equity
 
 
Current liabilities:
 
 
Accounts payable
 
$
1,164

Accrued expenses and other current liabilities
 
370

Total current liabilities
 
1,534

Long-term debt
 
5,940

Other long-term liabilities
 
1,200

Total liabilities
 
8,674

Commitments and contingencies
 
 
Partners' equity:
 
 
Capital
 
39,578

Retained earnings
 
(4,335
)
Total partners' equity
 
35,243

Total liabilities and stockholders' equity
 
$
43,917


The assets of EyeLock LLC can only be used to satisfy the obligations of EyeLock LLC.

Revenue and Expenses of EyeLock LLC The following table sets forth the revenue and expenses of EyeLock LLC that were included in our Consolidated Statements of Operations for the three and nine months ended November 30, 2015:


28

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

 
 
Three Months Ended November 30, 2015
 
Nine Months Ended November 30, 2015
Net sales
 
$
72

 
$
72

Cost of sales
 
11

 
11

Gross profit
 
61

 
61

Operating expenses:
 
 
 
 
Selling
 
359

 
359

General and administrative
 
1,779

 
1,779

Engineering and technical support
 
2,142

 
2,142

Total operating expenses
 
4,280

 
4,280

Operating loss
 
(4,219
)
 
(4,219
)
Interest and bank charges
 
(117
)
 
(117
)
Loss before income taxes
 
(4,336
)
 
(4,336
)
Income tax expense
 

 

Net loss
 
$
(4,336
)
 
$
(4,336
)


(21)    Segment Reporting

The Company operates in three distinct segments based upon our products and our internal organizational structure. The three operating segments, which are also the Company's reportable segments, are Automotive, Premium Audio and Consumer Accessories.

Our Automotive segment designs, manufactures, distributes and markets rear-seat entertainment devices, satellite radio products, automotive security, remote start systems, digital TV tuners, mobile antennas, mobile multimedia devices, aftermarket/OE-styled radios, car link-smartphone telematics application, collision avoidance systems and location-based services.
Our Premium Audio segment designs, manufactures, distributes and markets home theater systems, high-end loudspeakers, outdoor speakers, iPod/computer speakers, business music systems, cinema speakers, flat panel speakers, Bluetooth speakers, soundbars, headphones and DLNA (Digital Living Network Alliance) compatible devices.
Our Consumer Accessories segment designs and markets remote controls; rechargeable battery packs; wireless and Bluetooth speakers; EyeLock iris identification and security related products; personal sound amplifiers; and iPod docks/iPod sound, A/V connectivity, portable/home charging, reception, and digital consumer 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.

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


29

VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)

 
Automotive
 
Premium Audio
 
Consumer Accessories
 
Corporate/ Eliminations
 
Total
Three Months Ended November 30, 2015
 
 
 
 
 
 
 
 
 
Net sales
$
92,575

 
$
44,722

 
$
54,825

 
$
384

 
$
192,506

Equity in income of equity investees
1,927

 

 

 

 
1,927

Interest expense and bank charges
1,468

 
2,259

 
1,495

 
(3,450
)
 
1,772

Depreciation and amortization expense
1,788

 
875

 
1,117

 
522

 
4,302

Income (loss) before income taxes
7,175

 
2,432

 
(3,862
)
 
3,309

 
9,054

 
 
 
 
 
 
 
 
 
 
Three Months Ended November 30, 2014
 
 
 
 
 
 
 
 
 
Net sales
$
110,237

 
$
54,353

 
$
58,202

 
$
564

 
$
223,356

Equity in income of equity investees
1,245