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EX-10.2 - EX-10.2 - VOXX International Corpvoxx-ex102_84.htm
EX-10.1 - EX-10.1 - VOXX International Corpvoxx-ex101_85.htm

 

 

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 May 31, 2020

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 July 8, 2020

Class A Common Stock

 

21,656,976 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 May 31, 2020 (unaudited) and February 29, 2020

 

3

 

 

Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three Months Ended May 31, 2020 and 2019

 

4

 

 

Unaudited Consolidated Statements of Stockholders’ Equity for the Three Months Ended May 31, 2020 and 2019

 

5

 

 

Unaudited Consolidated Statements of Cash Flows for the Three Months Ended May 31, 2020 and 2019

 

6

 

 

Notes to Unaudited Consolidated Financial Statements

 

7

Item 2

 

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

 

31

Item 3

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

42

Item 4

 

CONTROLS AND PROCEDURES

 

42

 

 

 

 

 

PART II

 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1

 

LEGAL PROCEEDINGS

 

43

Item 1A

 

RISK FACTORS

 

43

Item 2

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

43

Item 6

 

EXHIBITS

 

44

SIGNATURES

 

45

 

 

 

 

2


 

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

VOXX International Corporation and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

 

May 31,

2020

 

 

February 29,

2020

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

69,039

 

 

$

37,425

 

Accounts receivable, net

 

 

55,069

 

 

 

69,714

 

Inventory

 

 

105,409

 

 

 

99,110

 

Receivables from vendors

 

 

236

 

 

 

230

 

Prepaid expenses and other current assets

 

 

11,186

 

 

 

10,885

 

Income tax receivable

 

 

442

 

 

 

456

 

Total current assets

 

 

241,381

 

 

 

217,820

 

Investment securities

 

 

1,741

 

 

 

2,282

 

Equity investment

 

 

21,284

 

 

 

21,924

 

Property, plant and equipment, net

 

 

50,705

 

 

 

51,424

 

Operating lease, right of use asset

 

 

3,175

 

 

 

3,143

 

Goodwill

 

 

55,000

 

 

 

55,000

 

Intangible assets, net

 

 

87,193

 

 

 

88,288

 

Deferred income tax assets

 

 

52

 

 

 

52

 

Other assets

 

 

1,541

 

 

 

1,638

 

Total assets

 

$

462,072

 

 

$

441,571

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

32,146

 

 

$

22,096

 

Accrued expenses and other current liabilities

 

 

34,552

 

 

 

34,046

 

Income taxes payable

 

 

2,190

 

 

 

1,523

 

Accrued sales incentives

 

 

9,826

 

 

 

12,250

 

Current portion of long-term debt

 

 

1,116

 

 

 

1,107

 

Total current liabilities

 

 

79,830

 

 

 

71,022

 

Long-term debt, net of debt issuance costs

 

 

26,180

 

 

 

6,099

 

Finance lease liabilities, less current portion

 

 

594

 

 

 

720

 

Operating lease liabilities, less current portion

 

 

2,340

 

 

 

2,391

 

Deferred compensation

 

 

1,741

 

 

 

2,282

 

Deferred income tax liabilities

 

 

4,477

 

 

 

3,828

 

Other tax liabilities

 

 

1,213

 

 

 

1,225

 

Other long-term liabilities

 

 

3,427

 

 

 

3,294

 

Total liabilities

 

 

119,802

 

 

 

90,861

 

Commitments and contingencies (see Note 25)

 

 

 

 

 

 

 

 

Redeemable equity (see Note 8)

 

 

2,682

 

 

 

2,481

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock:

 

 

 

 

 

 

 

 

No shares issued or outstanding (see Note 21)

 

 

 

 

 

 

Common stock:

 

 

 

 

 

 

 

 

Class A, $.01 par value, 60,000,000 shares authorized, 24,406,194 and 24,306,194 shares issued and 21,656,976 and 21,556,976 shares outstanding at May 31, 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 May 31, 2020 and February 29, 2020

 

 

22

 

 

 

22

 

Paid-in capital

 

 

299,579

 

 

 

299,228

 

Retained earnings

 

 

113,867

 

 

 

122,139

 

Accumulated other comprehensive loss

 

 

(18,742

)

 

 

(19,055

)

Less: Treasury stock, at cost, 2,749,218 shares of Class A Common Stock at both May 31 2020 and February 29, 2020

 

 

(23,918

)

 

 

(23,918

)

Less: Redeemable equity

 

 

(2,682

)

 

 

(2,481

)

Total VOXX International Corporation stockholders' equity

 

 

368,371

 

 

 

376,179

 

Non-controlling interest

 

 

(28,783

)

 

 

(27,950

)

Total stockholders' equity

 

 

339,588

 

 

 

348,229

 

Total liabilities, redeemable equity, and stockholders' equity

 

$

462,072

 

 

$

441,571

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3


 

VOXX International Corporation and Subsidiaries

Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income

(In thousands, except share and per share data)

 

 

 

Three months ended

May 31,

 

 

 

2020

 

 

2019

 

Net sales

 

$

71,987

 

 

$

93,454

 

Cost of sales

 

 

52,012

 

 

 

67,445

 

Gross profit

 

 

19,975

 

 

 

26,009

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling

 

 

8,362

 

 

 

9,881

 

General and administrative

 

 

14,995

 

 

 

17,425

 

Engineering and technical support

 

 

4,485

 

 

 

5,807

 

Total operating expenses

 

 

27,842

 

 

 

33,113

 

Operating loss

 

 

(7,867

)

 

 

(7,104

)

Other (expense) income:

 

 

 

 

 

 

 

 

Interest and bank charges

 

 

(853

)

 

 

(997

)

Equity in income of equity investee

 

 

862

 

 

 

1,440

 

Other, net

 

 

534

 

 

 

1,644

 

Total other income, net

 

 

543

 

 

 

2,087

 

Loss before income taxes

 

 

(7,324

)

 

 

(5,017

)

Income tax expense (benefit)

 

 

1,781

 

 

 

(2,645

)

Net loss

 

 

(9,105

)

 

 

(2,372

)

Less: net loss attributable to non-controlling interest

 

 

(833

)

 

 

(1,224

)

Net loss attributable to VOXX International Corporation

 

$

(8,272

)

 

$

(1,148

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

504

 

 

 

(811

)

Derivatives designated for hedging

 

 

(177

)

 

 

(107

)

Pension plan adjustments

 

 

(14

)

 

 

14

 

Other comprehensive income (loss), net of tax

 

 

313

 

 

 

(904

)

Comprehensive loss attributable to VOXX International Corporation

 

$

(7,959

)

 

$

(2,052

)

Loss per share - basic: Attributable to VOXX International Corporation

 

$

(0.34

)

 

$

(0.05

)

Loss per share - diluted: Attributable to VOXX International Corporation

 

$

(0.34

)

 

$

(0.05

)

Weighted-average common shares outstanding (basic)

 

 

24,224,478

 

 

 

24,355,791

 

Weighted-average common shares outstanding (diluted)

 

 

24,224,478

 

 

 

24,355,791

 

 

See accompanying notes to unaudited consolidated financial statements.

4


 

VOXX International Corporation and Subsidiaries

Unaudited Consolidated Statements of Stockholders' Equity

For the three months ended May 31, 2020 and 2019

(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 29, 2020

 

$

266

 

 

$

299,228

 

 

$

122,139

 

 

$

(19,055

)

 

$

(27,950

)

 

$

(23,918

)

 

$

(2,481

)

 

$

348,229

 

Net loss

 

 

 

 

 

 

 

 

(8,272

)

 

 

 

 

 

(833

)

 

 

 

 

 

 

 

 

(9,105

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

313

 

 

 

 

 

 

 

 

 

 

 

 

313

 

Stock-based compensation expense

 

 

1

 

 

 

351

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(201

)

 

 

151

 

Balances at May 31, 2020

 

$

267

 

 

$

299,579

 

 

$

113,867

 

 

$

(18,742

)

 

$

(28,783

)

 

$

(23,918

)

 

$

(2,682

)

 

$

339,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at February 28, 2019

 

$

264

 

 

$

296,946

 

 

$

148,582

 

 

$

(16,944

)

 

$

(12,571

)

 

$

(21,176

)

 

$

-

 

 

$

395,101

 

Net loss

 

 

 

 

 

 

 

 

(1,148

)

 

 

 

 

 

(1,224

)

 

 

 

 

 

 

 

 

(2,372

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

(904

)

 

 

 

 

 

 

 

 

 

 

 

(904

)

Stock-based compensation expense

 

 

 

 

 

159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

159

 

Balances at May 31, 2019

 

$

264

 

 

$

297,105

 

 

$

147,434

 

 

$

(17,848

)

 

$

(13,795

)

 

$

(21,176

)

 

$

-

 

 

$

391,984

 

 

See accompanying notes to unaudited consolidated financial statements.

5


 

VOXX International Corporation and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

 

 

 

 

Three months ended

May 31,

 

 

 

 

2020

 

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

$

(9,105

)

 

 

$

(2,372

)

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

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

2,543

 

 

 

 

3,067

 

Amortization of debt discount

 

 

 

206

 

 

 

 

206

 

Bad debt (recovery) expense

 

 

 

(7

)

 

 

 

52

 

Reduction in the carrying amount of the right of use asset

 

 

 

243

 

 

 

 

225

 

Gain on forward contracts

 

 

 

(67

)

 

 

 

(107

)

Equity in income of equity investees

 

 

 

(862

)

 

 

 

(1,440

)

Distribution of income from equity investees

 

 

 

1,502

 

 

 

 

1,472

 

Deferred income tax expense (benefit)

 

 

 

644

 

 

 

 

(1,154

)

Non-cash compensation adjustment

 

 

 

(541

)

 

 

 

326

 

Stock based compensation expense

 

 

 

351

 

 

 

 

159

 

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

 

 

 

 

 

 

 

1

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

14,842

 

 

 

 

11,401

 

Inventory

 

 

 

(6,059

)

 

 

 

(1,278

)

Receivables from vendors

 

 

 

(4

)

 

 

 

462

 

Prepaid expenses and other

 

 

 

(255

)

 

 

 

1,099

 

Investment securities-trading

 

 

 

541

 

 

 

 

(136

)

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

 

 

 

7,638

 

 

 

 

(6,502

)

Income taxes payable

 

 

 

675

 

 

 

 

(1,213

)

Net cash provided by operating activities

 

 

 

12,285

 

 

 

 

4,268

 

Cash flows used in investing activities:

 

 

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

 

(586

)

 

 

 

(703

)

Net cash used in investing activities

 

 

 

(586

)

 

 

 

(703

)

Cash flows provided by (used in) financing activities:

 

 

 

 

 

 

 

 

 

 

Principal payments on finance lease obligation

 

 

 

(169

)

 

 

 

(108

)

Repayment of bank obligations

 

 

 

(125

)

 

 

 

(1,428

)

Borrowings on bank obligations

 

 

 

20,000

 

 

 

 

 

Net cash provided by (used in) financing activities

 

 

 

19,706

 

 

 

 

(1,536

)

Effect of exchange rate changes on cash

 

 

 

209

 

 

 

 

(261

)

Net increase in cash and cash equivalents

 

 

 

31,614

 

 

 

 

1,768

 

Cash and cash equivalents at beginning of period

 

 

 

37,425

 

 

 

 

58,236

 

Cash and cash equivalents at end of period

 

 

$

69,039

 

 

 

$

60,004

 

 

See accompanying notes to unaudited consolidated financial statements.

 

6


 

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 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 29, 2020.

We operate in three reportable segments: Automotive Electronics, Consumer Electronics, and Biometrics. See Note 23 for the Company's segment reporting disclosures.

(2)

Acquisitions

On January 31, 2020, the Company acquired certain assets and liabilities of Vehicle Safety Holdings Corp. (“VSHC”) via an asset purchase agreement for a preliminary purchase price of $16,610, which included $16,500 in cash and contingent consideration with 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 VSHC included in our consolidated results for the three months ended May 31, 2020 represented approximately 7% of our consolidated net sales. VSHC’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 product offerings and market share, as VSHC is a leading developer, manufacturer, and distributor of safety electronics.

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:

7


 

 

 

January 31, 2020

 

Assets acquired:

 

 

 

 

Inventory

 

$

6,982

 

Accounts receivable

 

 

3,415

 

Right of use assets

 

 

483

 

Other current assets

 

 

145

 

Property and equipment

 

 

714

 

Customer relationships

 

 

5,460

 

Trademarks

 

 

560

 

Patented technology

 

 

280

 

Goodwill

 

 

215

 

Other non-current assets

 

 

3

 

Total assets acquired

 

$

18,257

 

 

 

 

 

 

Liabilities assumed:

 

 

 

 

Accounts payable

 

 

757

 

Accrued expenses

 

 

483

 

Lease liabilities

 

 

219

 

Warranty accrual

 

 

188

 

Total

 

$

1,647

 

Total purchase price

 

$

16,610

 

The purchase allocation presented above is preliminary. We are in the process of refining the valuation of acquired assets and liabilities, including goodwill, and expect to finalize the purchase price allocation in the third quarter of Fiscal 2021. Goodwill was determined as the excess of the purchase price over the fair value of the assets acquired (including the identifiable intangible assets).

(3)

Net (Loss) Income Per Common Share

Basic net (loss) income per common share, net of non-controlling interest, is based upon the weighted-average common shares outstanding during the period. Diluted net (loss) income 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 no reconciling items which impact the numerator of basic and diluted net (loss) income per common share.  A reconciliation between the denominator of basic and diluted net (loss) income per common share is as follows:

 

 

 

Three months ended

May 31,

 

 

 

2020

 

 

2019

 

Weighted-average common shares outstanding (basic)

 

 

24,224,478

 

 

 

24,355,791

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Restricted stock and stock grants

 

 

 

 

 

 

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

 

 

24,224,478

 

 

 

24,355,791

 

 

Restricted stock and stock grants totaling 596,379 and 627,544 for the three months ended May 31, 2020 and 2019, respectively, were not included in the net (loss) income per diluted share calculation because the grant price of the restricted stock and stock grants 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.

 

 

8


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

(4)

Investment Securities

As of May 31, 2020, and February 29, 2020, the Company had the following investments:

 

 

 

May 31, 2020

 

 

 

Fair Value

 

Investment Securities

 

 

 

 

Marketable Equity Securities

 

 

 

 

Mutual funds

 

$

1,741

 

Total Marketable Equity Securities

 

 

1,741

 

Total Investment Securities

 

$

1,741

 

 

 

 

February 29, 2020

 

 

 

Fair Value

 

Investment Securities

 

 

 

 

Marketable Equity Securities

 

 

 

 

Mutual funds

 

$

2,282

 

Total Marketable Securities

 

 

2,282

 

Total Investment Securities

 

$

2,282

 

 

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.

 

(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.

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 May 31, 2020 and February 29, 2020, the Company did not have any assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

9


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 measured at fair value on a recurring basis at May 31, 2020:

 

 

 

 

 

 

 

Fair Value Measurements at

Reporting Date Using

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

69,039

 

 

$

69,039

 

 

$

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Designated for hedging

 

$

(606

)

 

$

 

 

$

(606

)

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

Mutual funds

 

$

1,741

 

 

$

1,741

 

 

$

 

Total investment securities

 

$

1,741

 

 

$

1,741

 

 

$

 

 

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

 

 

 

 

 

 

 

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

 

 

$

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Designated for hedging

 

$

(476

)

 

$

 

 

$

(476

)

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

Mutual funds

 

$

2,282

 

 

$

2,282

 

 

$

 

Total investment securities

 

$

2,282

 

 

$

2,282

 

 

$

 

 

At May 31, 2020, 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.

Derivative Instruments

The Company’s derivative instruments include forward foreign currency contracts utilized to hedge a portion of its 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 – 10 months and are classified in the balance sheet according to their terms. The Company also has an interest rate swap agreement as of May 31, 2020 that 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 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.

10


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 May 31, 2020 and February 29, 2020 of the Company’s derivative instrument:

 

 

 

Derivative Assets and Liabilities

 

 

 

 

 

Fair Value

 

 

 

Account

 

May 31, 2020

 

 

February 29, 2020

 

Designated derivative instruments

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

Prepaid expenses and other current assets

 

$

 

 

$

 

Interest rate swap agreement

 

Other long-term liabilities

 

 

(606

)

 

 

(476

)

Total derivatives

 

 

 

$

(606

)

 

$

(476

)

 

Cash Flow Hedges

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. On March 1, 2019, the Company adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities, which eliminated the requirement to separately measure and report hedge ineffectiveness. 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 (“OCI”). When the amounts recorded in OCI are reclassified to earnings, they are presented in the same income statement line item as the effect of the hedged item. The adoption of ASU No. 2017-12 did not have a material impact on the Company’s consolidated financial statements.

On May 29, 2020, the Company entered into forward foreign currency contracts, which have a current outstanding notional value of $8,000 and are designated as cash flow hedges at May 31, 2020. During Fiscal 2020, the Company did not enter into any forward foreign currency contracts and all previous contracts settled through February 29, 2020. The current outstanding notional value of the Company's interest rate swap at May 31, 2020 is $7,489. For cash flow hedges, the gain or loss is reported as a component of Other comprehensive (loss) income 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 for foreign currency contracts is expected to be recognized in Cost of sales during the next thirteen months. No 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 and subsequently reclassified into Interest and bank charges in the period in which the hedged transaction affects earnings. As of May 31, 2020, no interest rate swaps originally designated for hedge accounting were de-designated or terminated.

Activity related to cash flow hedges recorded during the three months ended May 31, 2020 and 2019 was as follows:

 

 

 

Three months ended

 

 

 

May 31, 2020

 

 

 

Pretax Gain

(Loss)

Recognized in

Other

Comprehensive

Income

 

 

Pretax Gain

Reclassified from

Accumulated Other

Comprehensive

Income

 

Cash flow hedges

 

 

 

 

 

 

 

 

Foreign currency contracts

 

$

 

 

$

68

 

Interest rate swaps

 

 

(130

)

 

 

 

11


VOXX International Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

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

 

 

 

 

Three months ended

 

 

 

May 31, 2019

 

 

 

Pretax Gain

Recognized in

Other

Comprehensive

Income

 

 

Pretax Loss

Reclassified

from

Accumulated Other

Comprehensive

Income

 

Cash flow hedges

 

 

 

 

 

 

 

 

Foreign currency contracts

 

$

218

 

 

$

119

 

Interest rate swaps

 

 

(172

)

 

 

 

 

(6)

Accumulated Other Comprehensive (Loss) Income

The Company’s accumulated other comprehensive (loss) income 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

 

 

504

 

 

 

(14

)

 

 

(177

)

 

 

313

 

Reclassified from accumulated other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

Net current-period other comprehensive income (loss)

 

 

504

 

 

 

(14

)

 

 

(177

)

 

 

313

 

Balance at May 31, 2020

 

$

(17,235

)

 

$

(901

)

 

$

(606

)

 

$

(18,742

)

 

During the three months ended May 31, 2020, the Company recorded tax expense related to derivatives designated in a hedging relationship of $(21), and pension plan adjustments of $0.

The other comprehensive income (loss) before reclassification of $504 includes the remeasurement of intercompany transactions of a long-term investment nature of $(186) with certain subsidiaries whose functional currency is not the U.S. dollar, and $690 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.

(7)

Supplemental Cash Flow Information

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