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.) |
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2351 J Lawson Blvd., Orlando, Florida (Address of principal executive offices) |
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32824 (Zip Code) |
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(800) 645-7750 (Registrant's telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Act: |
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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 |
☐ |
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|
|
|
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
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Page |
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PART I |
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Item 1 |
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Consolidated Balance Sheets at May 31, 2020 (unaudited) and February 29, 2020 |
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3 |
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4 |
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5 |
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Unaudited Consolidated Statements of Cash Flows for the Three Months Ended May 31, 2020 and 2019 |
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6 |
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7 |
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Item 2 |
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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31 |
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Item 3 |
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42 |
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Item 4 |
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42 |
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PART II |
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Item 1 |
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43 |
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Item 1A |
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43 |
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Item 2 |
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43 |
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Item 6 |
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44 |
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45 |
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2
PART I - FINANCIAL INFORMATION
VOXX International Corporation and Subsidiaries
(In thousands, except share and per share data)
|
|
|
May 31, 2020 |
|
|
February 29, 2020 |
|
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|
|
|
(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)
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.
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:
|
|
|
Three months ended May 31, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
Issuance of redeemable equity |
|
$ |
201 |
|
|
$ |
- |
|
|
Cash paid during the period: |
|
|
|
|
|
|
|
|
|
Interest (excluding bank charges) |
|
$ |
291 |
|
|
$ |
337 |
|
|
Income taxes (net of refunds) |
|
|
466 |
|
|
|
289 |
|
|
(8) |
Accounting for Stock-Based Compensation |
The Company has various stock-based compensation plans, which are more fully described in Note 1 of the Company’s Form 10-K for the fiscal year ended February 29, 2020.
12
VOXX International Corporation and Subsidiaries
Notes to Unaudite