UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:3)(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
or
(cid:4)(cid:4) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM
For the fiscal year ended February 28, 2021
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)
2351 J. Lawson Boulevard, Orlando, Florida
(Address of principal executive offices)
13-1964841
(IRS Employer Identification No.)
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
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:3) No (cid:4)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes (cid:3) No (cid:4)
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 (cid:4) No (cid:3)
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 (cid:4) No (cid:3)
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 definition of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging
growth company" in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer (cid:3) Accelerated filer (cid:4) Non-accelerated filer (cid:3) Smaller reporting company (cid:4) Emerging growth company (cid:4)
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 (cid:3)
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal controls over financial reporting under section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. (cid:3)
Indicate by check mark whether the Registrant is a shell company (as defined in rule 12b-2 of the Act).
Yes (cid:4) No (cid:4)
The aggregate market value of the common stock held by non-affiliates of the Registrant was $120,830,164 (based upon closing price on the
Nasdaq Stock Market on August 31, 2020).
The number of shares outstanding of each of the registrant's classes of common stock, as of May 11, 2021 was:
Class
Class A common stock $.01 par value
Class B common stock $.01 par value
Outstanding
21,727,629
2,260,954
DOCUMENTS INCORPORATED BY REFERENCE
Part III - (Items 10, 11, 12, 13 and 14) Proxy Statement for Annual Meeting of Stockholders to be filed on or before June 17,
2021.
VOXX INTERNATIONAL CORPORATION
Index to Form 10-K
Table of Contents
PART I
Item 1 Business ................................................................................................................................
Item 1A Risk Factors ...........................................................................................................................
Item 1B Unresolved Staff Comments ....................................................................................................
Properties ..............................................................................................................................
Item 2
Item 3 Legal Proceedings ..................................................................................................................
Item 4 Mine Safety Disclosures..........................................................................................................
PART II
Item 5
Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases
of Equity Securities ................................................................................................................
Selected Consolidated Financial Data .......................................................................................
Item 6
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations ............
Item 7A Quantitative and Qualitative Disclosures About Market Risk......................................................
Item 8 Consolidated Financial Statements and Supplementary Data.......................................................
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...........
Item 9A Controls and Procedures..........................................................................................................
Item 9B Other Information...................................................................................................................
PART III
Item 10 Directors, Executive Officers and Corporate Governance ...........................................................
Item 11 Executive Compensation .........................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters ..................................................................................................................................
Item 12
Item 13 Certain Relationships and Related Transactions, and Director Independence................................
Item 14 Principal Accountant Fees and Services....................................................................................
PART IV
Item 15 Exhibits and Financial Statement Schedules..............................................................................
SIGNATURES ....................................................................................................................................
3
12
25
25
25
26
26
28
29
51
52
52
52
55
55
55
55
55
55
55
114
2
CAUTIONARY STATEMENT RELATING TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K, including "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Item 7, and the information incorporated by reference contains "forward-looking
statements" within the meaning of section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We intend those forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements. All statements regarding our expected financial position and operating results, our
business strategy, our financing plans, and the outcome of any contingencies are forward-looking statements. Any
such forward-looking statements are based on current expectations, estimates, projections about our industry and our
business, and the impact of the novel coronavirus (“COVID-19”) outbreak on our results of operations. Words such
as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "should," "would," or variations of
those words and similar expressions are intended to identify such forward-looking statements. Forward-looking
statements are subject to risks and uncertainties that could cause actual results to differ materially from those stated
in or implied by any forward-looking statements. Factors that could cause actual results to differ materially from
forward-looking statements include, but are not limited to, matters listed in Item 1A under "Risk Factors" of this
Form 10-K. Many of the foregoing risks and uncertainties are, and will be, exacerbated by the COVID-19 pandemic
and any worsening of the global business and economic environment as a result thereof. The Company assumes no
obligation and does not intend to update these forward-looking statements.
NOTE REGARDING DOLLAR AMOUNTS AND FISCAL YEAR
In this Annual Report, all dollar amounts are expressed in thousands, except for share prices and per-share amounts.
Unless specifically indicated otherwise, all amounts and percentages in our Form 10-K are exclusive of discontinued
operations.
The Company’s fiscal year ends on the last day of February.
COVID-19 PANDEMIC
The consolidated financial statements contained in this Annual Report as well as the description of our business
contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our
operations as of and for the year ended February 28, 2021. Economies throughout the world have been severely
disrupted by the effects of the quarantines, business closures and the reluctance or inability of individuals to leave
their homes resulting from the outbreak of COVID-19. As a result of these factors, our supply chain was disrupted
and many of our customers have been significantly impacted which, in turn, reduced our level of operations and
activities primarily during the first half our 2021 fiscal year. In addition, the capital markets have been disrupted and
our efforts to raise necessary capital in the future could be adversely impacted by the outbreak of the virus. As this
situation is ongoing and the duration and severity of the COVID-19 pandemic, including the severity and
transmission rates of COVID-19 variants, resurgences of COVID-19 that may continue to occur, and the
availability, distribution, and efficacy of COVID-19 vaccines, continues to be uncertain at this time, we cannot
forecast with any certainty when the disruptions caused by the pandemic will cease to impact our business and the
results of our operations. In reading this report on Form 10-K, consider the additional uncertainties caused by the
outbreak of COVID-19.
Item 1-Business
VOXX International Corporation ("Voxx," "We," "Our," "Us," or the "Company") is a leading international
manufacturer and distributor in the Automotive Electronics, Consumer Electronics, and Biometrics industries. The
Company has widely diversified interests, with more than 30 global brands that it has acquired and grown
throughout the years, achieving a powerful international corporate image, and creating a vehicle for each of these
respective brands to emerge with its own identity. We conduct our business through nineteen wholly-owned
subsidiaries: Audiovox Atlanta Corp., VOXX Electronics Corporation, VOXX Accessories Corp., VOXX German
Holdings GmbH ("Voxx Germany"), Audiovox Canada Limited, Voxx Hong Kong Ltd., Audiovox International
Corp., Audiovox Mexico, S. de R.L. de C.V. ("Voxx Mexico"), Code Systems, Inc., Oehlbach Kabel GmbH
("Oehlbach"), Schwaiger GmbH ("Schwaiger"), Invision Automotive Systems, Inc. ("Invision"), Premium Audio
Company LLC ("Klipsch"), Omega Research and Development LLC ("Omega"), Voxx Automotive Corp.,
Audiovox Websales LLC, VSM-Rostra LLC (“VSM”), VOXX DEI LLC, and VOXX DEI Canada LLC
3
(collectively, with VOXX DEI LLC, “DEI”), as well as a majority owned subsidiary, EyeLock LLC ("EyeLock").
We market our products under the Audiovox® brand name and other brand names and licensed brands, such as
808®, Acoustic Research®, Advent®, Avital®, Car Link®, Chapman®, Clifford®, Code-Alarm®, Crimestopper™,
Directed®, Discwasher®, Energy®, Heco®, Invision®, Jamo®, Klipsch®, Mac Audio™, Magnat®, Mirage®,
myris®, Oehlbach®, Omega®, Prestige®, Project Nursery®, Python®, RCA®, RCA Accessories, Rosen®,
Rostra®, Schwaiger®, Smart Start®, Terk®, Vehicle Safety Automotive, Viper®, and Voxx Automotive as well as
private labels through a large domestic and international distribution network. We also function as an OEM
("Original Equipment Manufacturer") supplier to several customers, as well as market a number of products under
exclusive distribution agreements, such as SiriusXM satellite radio products and Onkyo and Pioneer products in
North America.
VOXX International Corporation was incorporated in Delaware on April 10, 1987 under its former name, Audiovox
Corp., as successor to a business founded in 1960 by John J. Shalam, our Chairman and controlling stockholder. Our
extensive distribution network and long-standing industry relationships have allowed us to benefit from growing
market opportunities and emerging niches in the electronics business.
The Company classifies its operations in the following three reportable segments: Automotive Electronics,
Consumer Electronics, and Biometrics. The Automotive Electronics segment designs, manufactures, distributes, and
markets rear-seat entertainment devices, automotive security, remote start systems, mobile multimedia devices, car-
link smartphone telematics applications, driver distraction products, collision avoidance systems, location-based
services, turn signal switches, automotive lighting products, obstacle sensing systems, cruise control systems,
camera systems, USB ports, heated seats, and satellite radio products. The Consumer Electronics segment designs,
manufactures, distributes and markets home theater systems, high-end loudspeakers, outdoor speakers, business
music systems, cinema speakers, flat panel speakers, wireless and Bluetooth speakers, soundbars, wired and wireless
headphones and earbuds, DLNA (Digital Living Network Alliance) compatible devices, remote controls, karaoke
products, personal sound amplifiers, infant and nursery products, as well as A/V connectivity, portable/home
charging, reception and digital consumer products. The Biometrics segment designs, markets and distributes iris
identification and biometric security related products. See Note 13 to the Company's Consolidated Financial
Statements for segment and geographic area information.
information, news releases and other
We make available financial
information on our web site at
www.voxxintl.com. There is a direct link from the web site to the Company’s Securities and Exchange
Commission's ("SEC") filings, where our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 are available free of charge as soon as reasonably practicable after we file such
reports and amendments with, or furnish them to, the SEC. In addition, we have adopted a Code of Business
Conduct and Ethics which is available free of charge upon request. Any such request should be directed to the
attention of the Company's Human Resources Department, 180 Marcus Boulevard, Hauppauge, New York 11788,
(631) 231-7750.
The Company is monitoring the impacts COVID-19 has had, and continues to have, on its global supply chain,
including disruptions of product deliveries. The Company sources the majority of its merchandise outside the U.S.
through arrangements with vendors primarily located in several Pacific Rim countries. The Company has been
collaborating with its vendors to mitigate significant delays in delivery of product, as certain factories have been
required to close for periods of time during the pandemic, and certain other factories are operating at a limited
capacity.
The Company entered this period of uncertainty with a healthy liquidity position and took immediate, aggressive,
and prudent actions, including reevaluating all expenditures, to enhance the Company’s ability to meet the
Company’s short-term liquidity needs in order to best position its business for its key stakeholders, including the
Company’s employees, customers, and shareholders. As a precautionary measure, in April 2020, the Company
borrowed $20,000 from its revolving credit facility to improve its cash position and resumed factoring accounts
receivable balances under all of its supply chain financing arrangements, which it had previously scaled back. The
Company repaid the $20,000 precautionary borrowing in November 2020. The Company continues to partner with
its vendors, landlords, and lenders to preserve liquidity and mitigate risk during this unprecedented COVID-19
outbreak and has worked with its service providers to further reduce costs by negotiating lower rates. In addition, the
4
Company has been actively monitoring and assessing the rapidly changing government policy and economic
stimulus responses to COVID-19.
The Company has seen reductions in sales of certain products as a result of COVID-19. These reductions in revenue
were not offset by proportional decreases in expense, as the Company continues to incur overhead costs including
depreciation expense, and certain other costs such as compensation and administrative expenses, resulting in a
negative effect on the relationship between the Company’s costs and revenues.
In addition, the Company could still experience other material impacts as a result of COVID-19, including, but not
limited to, charges from potential adjustments of the carrying value of inventory, additional asset impairment
charges, and deferred tax valuation allowances.
Though the current circumstances are dynamic and the impacts of COVD-19 on the Company’s business operations,
including the duration and impact on overall customer demand, cannot be reasonably estimated at this time, the
Company anticipates COVID-19 may continue to have an impact on its business, results of operations, financial
condition, and cash flows in Fiscal 2022.
For further information about COVID-19, refer to “Item 1A. Risk Factors” and “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations," of this Form 10-K.
Acquisitions and Dispositions
The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected the economies and
financial markets worldwide, and potential target companies or potential buyers may defer or end discussions for a
potential acquisition or disposition with us depending on whether or not COVID-19 affects their business
operations. The extent to which COVID-19 impacts our search for a business combination or a potential buyer for a
business disposition will depend on future developments, which are highly uncertain and cannot be predicted,
including new information which may emerge concerning the severity of COVID-19 and the actions to contain
COVID-19 or treat its impact, among others. We may be unable to complete a business combination or a disposition
if continued concerns relating to COVID-19 restrict travel, limit the ability to have meetings with potential
investors, or if a target company’s personnel, vendors, and service providers are unavailable to negotiate and
consummate a transaction in a timely manner.
Our most recent acquisition and disposition transactions are discussed below:
On July 1, 2020, Voxx acquired certain assets and assumed certain liabilities, comprising the aftermarket vehicle
remote start and security systems and connected car solutions (telematics) businesses of Directed LLC and Directed
Electronics Canada Inc. (collectively, with Directed LLC, “Directed”) via an asset purchase agreement. The
acquired assets included inventory, accounts receivable, certain fixed assets, IT systems, and intellectual property.
The cash purchase price was $11,000. The purpose of this acquisition was to expand the Company’s market share
within the automotive electronics industry. Details of the tangible and intangible assets acquired are outlined in Note
2 "Business Acquisitions" of the Notes to the Consolidated Financial Statements.
On January 31, 2020, Voxx acquired certain assets and assumed certain liabilities of Vehicle Safety Holding Corp.
(“VSHC”), a leading developer, manufacturer, and distributer of automotive safety electronics, for a cash purchase
price of $16,500. The purpose of this acquisition was to increase the Company’s market share in the automotive
industry, including trucks and sports vehicles, as well as strengthen its business and customer reach and add new
product lines. Details of the tangible and intangible assets acquired are outlined in Note 2 "Business Acquisitions" of
the Notes to the Consolidated Financial Statements.
On April 18, 2017, Voxx acquired certain assets and assumed certain liabilities of Rosen Electronics LLC for cash
consideration of $1,814. In addition, the Company agreed to pay a 2% fee related to future net sales of Rosen
products for three years. The purpose of this acquisition was to increase the Company's market share and strengthen
its intellectual property related to the rear seat entertainment market.
On August 31, 2017 (the "Closing Date"), the Company completed its sale of Hirschmann Car Communication
GmbH and its subsidiaries (collectively, “Hirschmann”) to a subsidiary of TE Connectivity Ltd ("TE"). The
5
consideration received by the Company was €148,500. The purchase price, at the exchange rate as of the close of
business on the Closing Date approximated $177,000.
Strategy
Our objective is to grow our business both organically and through strategic acquisitions. We anticipate we will
drive the business organically by continued product development in new and emerging technologies that should
increase gross margins and improve operating income. We are focused on expanding sales both domestically and
internationally and broadening our customer and partner base as we bring new products to our target markets. In
addition, we plan to continue to acquire synergistic companies that would allow us to leverage our overhead,
penetrate new markets, and expand existing product categories. Notwithstanding the above, if the appropriate
opportunity arises, the Company will explore the potential divestiture of a product line or business.
Subject to our ongoing evaluation of the COVID-19 pandemic and its impact on our business (as further described
elsewhere in this report), the key elements of our strategy are as follows:
Continue to build and capitalize on the VOXX family of brands. We believe the "VOXX" portfolio of brands is one
of our greatest strengths and offers us significant opportunity for increased market penetration. Today, VOXX
International has over 30 global brands in its portfolio, which provides the Company with the ability to bring to
market products under brands that consumers know to be quality. In addition, with such a wide brand portfolio, we
can manage channels and sell into multiple outlets as well as leverage relationships with distributors, retailers,
aftermarket car dealers and expeditors, and global OEMs. Finally, we are open to opportunities to license some of
our brands as an additional use of the brands and as a growth strategy.
Continue to maintain diversified, blue chip customer base. Voxx distributes products through a wide range of
specialty and mass merchandise channels and has arrangements as a tier-1 and tier-2 auto OEM supplier. OEM
products account for 8% of total net sales.
Capitalize on niche product and distribution opportunities in our target markets. Throughout our history, we have
used our extensive distribution and supply networks to capitalize on niche product and distribution opportunities in
the automotive electronics, consumer electronics, and biometrics categories. We will continue that focus as we
remain committed to innovation, developing products internally and through our outsourced technology and
manufacturing partners to provide our customers with products that are in demand by consumers.
Combine new, internal manufacturing capabilities with our proven outsourced manufacturing with industry
partners. VOXX International employs an outsourced manufacturing strategy that enables the Company to deliver
the latest technological advances without the fixed costs associated with manufacturing, and also has manufacturing
capabilities to produce select product lines, such as rear-seat entertainment systems, security related products, and
high-end speakers. This blend of internal and outsourced manufacturing enables the Company to drive innovation,
control product quality and speed time-to-market.
Use innovative technology generation capabilities to enable us to build a robust pipeline of new products. Voxx has
invested significantly in R&D. The Company uses a mix of internal and external R&D, internal and external
manufacturing, and has a number of valuable trademarks, copyrights, patents, domain names and other intellectual
property. Through Voxx's focus on R&D, the Company has built a pipeline of new products across all three of its
segments.
Leverage our domestic and international distribution network. VOXX International Corporation has a highly
expansive distribution network. This network, which includes OEM's, car dealers, automotive manufacturers,
various types of retailers and chain stores, mass merchandisers, distributors, e-commerce platforms, system
integrators, communication network providers, smart grid manufacturers, banks, cinema operators, healthcare
equipment manufacturers, and the U.S. military, should allow us to increase our market penetration. We intend to
capitalize on new and existing distribution outlets to further grow our business across our three operating segments,
both domestically and abroad.
Grow our international presence. We have an international presence through our local subsidiaries in Europe, as
well as operations in Canada and China. We also continue to export from our domestic operations in the United
States. Our strategy remains to diversify our geographic exposure, while expanding our product offerings and
distribution touch points across the world.
6
Pursue strategic and complementary acquisitions. We continue to monitor economic and industry conditions in
order to evaluate potential strategic and synergistic business acquisitions that are expected to allow us to leverage
overhead, penetrate new markets and expand our existing business distribution. Over the past several years, the
Company has employed an M&A strategy to build its brand portfolio and enhance its product offerings in higher
margin product categories, while at the same time exiting lower margin and commoditized product lines, resulting in
improved bottom-line performance. The Company is focused on continuing to grow organically, but may pursue
opportunistic acquisitions to augment our Automotive Electronic (primarily with OEM accounts), Consumer
Electronic, and Biometric segments.
Maintain disciplined acquisition criteria. Virtually all of our acquisitions have been made to strengthen our product
offerings, customer reach and growth potential across our operating business segments. Our strategy remains to
acquire complimentary businesses, products and/or assets in our Automotive Electronic, Consumer Electronic, and
Biometric operating segments. Additionally, acquisitions should have a gross margin structure equal to or higher
than our consolidated gross margins, and we will continue to look for acquisitions where we can leverage our
corporate overhead and resources. Furthermore, it is important that management remains with Voxx as part of the
acquisition, as their legacy expertise and knowledge of both the inner workings of their respective companies and
the end-markets they serve are paramount to successfully running operations and achieving growth. We also pursue
acquisitions that will be accretive for the Company and its shareholders in the first year such acquisitions are made.
Rapidly integrate acquired businesses. One of the more compelling factors as to why acquired businesses choose
VOXX International Corporation is that we are perceived as both a financial and strategic partner. We are operators,
and companies view their association with us as a positive for the future of their businesses in that we can provide
resources and support that others in our sector, or in the Private Equity community, cannot. Our strategy upon
acquisition, and in the years that follow, is to leverage our corporate strengths and integrate acquisitions into our
operations. We provide accounting, MIS, warehouse, and logistics support, as well as a host of value-added services
that enable acquired companies to lower their cost basis and improve profitability. In recent years, we have
consolidated facilities in our German operations and in Indiana, where we brought our RCA® and Klipsch operating
groups together. We have also fully integrated our Rosen, VSM, and DEI acquisitions into our Florida operations.
Improve bottom-line performance and generate sustainable shareholder returns. The Company has instituted an
aggressive strategy in recent years to shift its product mix to higher-margin product categories, while controlling
costs and strategically investing in its infrastructure. Additionally, during Fiscal 2019, the Company began a
comprehensive SKU rationalization program to discontinue certain product lines and streamline the Company’s
consumer electronic product lines to focus on offerings with longer life cycles, more sustainable gross margins, and
better growth potential. The Company remains focused on growing its business organically, continuing to enhance
its gross profit margins and leveraging its fixed overhead structure to generate sustainable returns for its
stockholders.
Industry
We participate in select product categories in the automotive, consumer, and biometric markets within the
electronics industry. These markets are large and diverse, encompass a broad range of products and offer the ability
to specialize in niche product groups. The introduction of new products and technological advancements are the
major growth drivers in these markets. Based on this, we continue to introduce new products across all segments,
with an increased focus on niche product offerings.
Products
The Company currently reports sales data for the following three operating segments:
Automotive Electronic products include:
automotive security, vehicle access, and remote start systems,
satellite radios, including plug and play models and direct connect models,
smart phone telematics applications,
(cid:5) mobile multi-media infotainment products, including overhead, seat-back, and headrest systems,
(cid:5)
(cid:5)
(cid:5)
(cid:5) mobile interface modules,
(cid:5)
(cid:5)
(cid:5)
automotive power accessories,
rear observation and collision avoidance systems,
driver distraction products,
7
power lift gates,
turn signal switches,
automotive lighting products,
automotive sensing and camera systems,
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5) USB ports,
(cid:5)
(cid:5)
cruise control systems, and
heated seats.
Consumer Electronic products include:
Bluetooth headphones and ear buds,
soundbars,
premium loudspeakers,
architectural speakers,
commercial speakers,
outdoor speakers,
home theater systems,
business music systems,
streaming music systems,
on-ear and in-ear headphones,
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5) wireless and Bluetooth speakers,
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5) wired and wireless headphones and ear buds,
(cid:5)
(cid:5)
(cid:5) DLNA (Digital Living Network Alliance) compatible devices,
(cid:5) High-Definition Television ("HDTV") antennas,
(cid:5) Wireless Fidelity ("WiFi") antennas,
(cid:5) High-Definition Multimedia Interface ("HDMI") accessories,
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
(cid:5)
karaoke products,
infant/nursery products,
home electronic accessories such as cabling, power cords, and other connectivity products,
performance enhancing electronics,
TV universal remotes,
flat panel TV mounting systems,
power supply systems and charging products,
electronic equipment cleaning products,
personal sound amplifiers,
set-top boxes, and
home and portable stereos.
Biometric products include:
(cid:5)
(cid:5)
iris identification products, and
biometric security related products.
We believe our segments have expanding market opportunities with certain levels of volatility related to domestic
and international markets, new car sales, increased competition by manufacturers, private labels, technological
advancements, discretionary consumer spending and general economic conditions. Further, all of our products are
subject to price fluctuations, which could affect the carrying value of inventories and gross margins in the future.
Within the industry our Biometrics segment operates in, technology is developing rapidly. During Fiscal 2021, the
COVID-19 pandemic has begun to cause a greater interest for safe and touchless biometric systems. Widely used
face readers are now being rendered ineffective by the use of facemasks and other protective facial gear, and
fingerprint and palm reader secure access devices are now seen as infectious public surfaces. Iris biometric
algorithms read the unique texture in the colored part of the eye, creating a unique identification for access, similar
to that of a fingerprint or the geometric pattern of a face. This iris-based key, however, has the benefit of not only
being touchless, but is also not hindered by the obstacles encountered by face recognition devices, such as
facemasks or other devices that hide facial features. Iris biometrics can operate successfully without touching or
mask removal, even through protective gear such as hazmat suits, if a person’s eyes are visible.
8
Net sales, by segment, gross profit and total assets are as follows (Refer to Item 7 and Note 13 to the Notes to the
Consolidated Financial Statements for additional information):
Automotive Electronics
Consumer Electronics
Biometrics
Corporate/Eliminations
Total net sales
Gross profit
Gross margin percentage
Total assets
Fiscal
2021
163,903
398,263
836
603
563,605
$
$
Fiscal
2020
114,154
279,675
461
599
394,889
$
$
Fiscal
2019
161,647
283,144
1,098
927
446,816
158,547
$
28.1%
109,776
$
27.8%
121,417
27.2%
550,818
$
441,571
$
508,811
$
$
$
$
Patents, Trademarks/Tradenames, Licensing and Royalties
The Company regards its trademarks, copyrights, patents, domain names, and similar intellectual property as
important to its operations. It relies on trademark, copyright and patent law, domain name regulations, and
confidentiality or license agreements to protect its proprietary rights. The Company has registered, or applied for the
registration of, a number of patents, trademarks, domain names and copyrights with U.S. and foreign governmental
authorities. Additionally, the Company has filed U.S. and international patent applications covering certain of its
proprietary technology. The Company renews its registrations, which vary in duration, as it deems appropriate from
time to time.
The Company has licensed in the past, and expects that it may license in the future, certain of its proprietary rights to
third parties. Some of the Company's products are designed to include intellectual property licensed, or otherwise
obtained from third parties. While it may be necessary in the future to seek or renew licenses relating to various
aspects of the Company's products, the Company believes, based upon past experience and industry practice, such
licenses generally could be obtained on commercially reasonable terms; however, there is no guarantee such licenses
could be obtained at all. We intend to operate in a way that does not result in willful infringement of the patents,
trade secrets and other intellectual property rights of other parties. Nevertheless, there can be no assurance that a
claim of infringement will not be asserted against us or that any such assertion will not result in a judgment or order
requiring us to obtain a license in order to make, use, or sell our products.
License and royalty programs offered to our manufacturers, customers and other electronic suppliers are structured
using a fixed amount per unit or a percentage of net sales, depending on the terms of the agreement. Current license
and royalty agreements have duration periods which range from 1 to 12 years or continue in perpetuity. Certain
agreements may be renewed at termination of the agreement. The Company's license and royalty income is recorded
upon sale and amounted to $1,285, $1,224 and $1,382 for the years ended February 28, 2021, February 29, 2020 and
February 28, 2019, respectively.
Distribution and Marketing
We sell our products to:
automotive and vehicle manufacturers,
•
• OEM Tier 1, Tier 2, and secondary OEM manufacturers,
• mass merchants,
•
•
•
•
•
•
•
•
•
•
regional chain stores,
distributors,
e-commerce platforms,
premium department stores,
lifestyle retailers,
specialty and internet retailers,
retail solutions manufacturers,
power retailers,
independent 12-volt retailers,
new car dealers,
9
•
•
•
•
•
•
•
•
•
healthcare equipment manufacturers,
system integrators,
communication network providers,
smart grid manufacturers,
banks,
the U.S. military,
cinema operators,
sporting goods equipment retailers, and
cell phone carriers.
Our business is diversified within our segments across end-markets, customers, and products. We sell our
automotive electronic products to both OEM and aftermarket customers. We sell our products under OEM
arrangements with domestic and/or international subsidiaries of automobile manufacturers such as Ford, Fiat
Chrysler, General Motors, Toyota, Kia, Mazda, Subaru, Nissan, Mack Truck, Polaris, Bendix Commercial, Daimler
Trucks North America, Textron Finance Shared Service, Wesco Distribution, ZF North America Autocar, Dieter’s
Metal Fabricating, Grote Industries, International Truck (PDC), P.A.I. Products and Ryco Motorsport. These
arrangements require a close partnership with the customer as we develop products to meet specific
requirements. OEM products accounted for approximately 8% of net sales for the year ended February 28, 2021,
13% for the year ended February 29, 2020, and 20% for the year ended February 28, 2019. Our consumer electronic
and biometric products are sold through both retail and commercial channels.
Our five largest customers represented 30% of net sales for the year ended February 28, 2021, 24% for the year
ended February 29, 2020, and 25% for the year ended February 28, 2019. One customer in the Company’s
Consumer Electronics segment accounted for 12% of the Company’s total consolidated net sales during the year
ended February 28, 2021. No one customer accounted for more than 10% of the Company's net sales for the years
ended February 29, 2020 or February 28, 2019. Geographically, approximately 85% of our revenues were derived
from our domestic operations within the United States, while approximately 15% was derived from our operations in
Europe, and less than 1% was derived from other regions.
We have flexible shipping policies designed to meet customer needs. In the absence of specific customer
instructions, we generally ship products within 24 to 48 hours from the receipt of an order from public warehouses,
as well as owned and leased facilities throughout the United States, Canada, China, Hong Kong, the Netherlands,
and Germany. The Company also employs a direct ship model from our suppliers for select customers upon their
request.
Product Development, Warranty and Customer Service
Our product development cycle includes:
•
•
•
identifying consumer trends and potential demand,
responding to those trends through product design and feature integration, which includes software design,
electrical engineering, industrial design, and pre-production testing. In the case of OEM customers, the
product development cycle may also include product validation to customer quality standards, and
evaluating and testing new products in our own facilities to ensure compliance with our design
specifications and standards.
Utilizing our company-owned and third-party facilities in North America, Europe, and Asia, we work closely with
our suppliers throughout the product design, testing and development process in an effort to meet the expectations of
consumer demand for technologically advanced and high-quality products. Our Auburn Hills, Michigan and
Orlando, Florida facilities are both IATF 16949:2016 certified, and our Orlando, Florida facility is ISO 14001:2015
and ISO 9001:2008 certified, all of which require the monitoring of quality standards in all facets of business. The
Orlando, Florida facility is also Ford Q1 certified, which is a certification awarded to Ford suppliers who
demonstrate excellence beyond the ISO certifications in certain critical areas.
We provide product warranties for all our product lines, which primarily range from 30 days to three years. The
Company also provides limited lifetime warranties for certain products, which limit the end-user's remedy to the
repair or replacement of the defective product during its lifetime, as well as warranties for certain vehicle security
products for the life of the vehicle for the original owner. To support our warranties, we have independent warranty
centers in the United States and Europe. Our customer service group, along with our Company websites, provide
product information, answer questions, and serve as a technical hotline for installation help for end-users and
customers.
10
Suppliers
We work directly with our suppliers on industrial design, feature sets, product development, and testing in order to
ensure that our products and component parts meet our design specifications.
We purchase our products and component parts from manufacturers principally located in several Pacific Rim
countries, including China, Hong Kong, Indonesia, Malaysia, Thailand, Vietnam, South Korea, Taiwan, and
Singapore, as well as the United States, Canada, Mexico, and Europe. In selecting our manufacturers, we consider
quality, price, service, reputation, financial stability, as well as labor practices, disruptions, or shortages. In order to
provide coordination and supervision of supplier performance, such as price negotiations, delivery, and quality
control, we maintain buying and inspection offices in China and Hong Kong. We consider relations with our
suppliers to be good and alternative sources of supply are generally available within 180 days. We have few long-
term contracts with our suppliers, and we generally purchase our products under short-term purchase
orders. Although we believe that alternative sources of supply are currently available, an unplanned shift to a new
supplier could result in product delays and increased cost, which may have a material impact on our operations.
Competition
The electronics industry is highly competitive across all product categories, and we compete with a number of well-
established companies that manufacture and sell similar products. Brand name, design, advancement of technology
and features as well as price are the major competitive factors within the electronics industry. Our Automotive
Electronic products compete against factory-supplied products, including those provided by, among others, General
Motors, Ford, and Fiat Chrysler and large Tier 1's, such as Denso, Panasonic, LG, Continental, Lear, and Bosch. Our
Consumer Electronic products compete against major companies such as Polk, Definitive, Bose, Sonos, Sonance,
Bowers and Wilkins, Sony, Phillips, Emerson Radio, GE, Belkin, and Private Label Brands. Competitors for our
Biometrics products include companies such as IRIS ID, 3M, Suprema, Iritech, Inc., IrisGuard, Crossmatch, NEC,
Gemalto, Vision-Box, IDEMIA, BioID, GoVerifyID, BioConnect, and Princeton Identity.
Financial Information about Foreign and Domestic Operations
The amounts of net sales and long-lived assets attributable to foreign and domestic operations for all periods
presented are set forth in Note 13 of the Notes to Consolidated Financial Statements, included herein.
Equity Investment
We have a 50% non-controlling ownership interest in ASA Electronics, LLC ("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.
Human Capital
VOXX International Corporation believes the Company’s greatest asset is its employees. The Company’s emphasis
on the health and safety of its employees is an important factor in maintaining its experienced workforce and
attracting new talent. As of February 28, 2021, the Company employed 921 people, of which 629 were U.S. based
and 292 were internationally based. 41 of our U.S. based employees were covered under collective bargaining
agreements. We consider our relations with employees to be good as of February 28, 2021.
The Company’s U.S. based full-time employees are all eligible to participate in the Company’s health and welfare
plans, including health, vision, dental, life, short-term disability insurance plans, long-term disability insurance
plans, flexible spending plans and/or health saving plans, pet insurance, critical care plans and identity theft
protection plans. Many of these plans are fully paid for by the Company, while others are cost shared between the
Company and the employees or are employee-paid at a discounted rate. To encourage our employees to save for the
future and their retirement, the Company offers employees a 401(k) retirement plan which has options for traditional
pre-tax deferrals, as well as Roth options. The 401(k) plan also includes a discretional Company match which
encourages employees to participate and enhances the Company’s commitment to its employees and their families.
Internationally based employees also receive health, welfare, and retirement plans that are statutory-based, and in
some instances, employees may choose to participate in plans that supplement the statutory benefits and are funded
by the employee. To further encourage employees to prioritize their health, the Company sponsors events and
benefits such as on-site flu vaccinations, health fairs, mobile preventative screenings, on-site fitness centers at
certain Company locations, gym membership reimbursements, weight loss programs, and periodic health and fitness
11
competitions, which are often aligned with fundraising campaigns. The Company encourages all employees to give
back to their communities and make a social impact through activities such as hosting on-site blood donation drives,
donation drives for causes including cancer and autism, local holiday toy and giving drives, as well as food drives.
The Company also participates in matching gift programs for certain charities. Additionally, we provide service
awards to employees, which show appreciation and recognition to longstanding employees for certain service
milestones.
Early in the COVID-19 pandemic, certain of the Company’s customers delayed or cancelled orders due to both
uncertainty in the economy and health concerns. During this time, the Company attempted to keep as many of its
employees working as possible by shifting work responsibilities when possible; however, due to the impacts of the
pandemic, approximately 20% of our employees worldwide were furloughed in April 2020. The Company also
worked closely to accommodate employees’ requests to use the Families First Coronavirus Relief Act and the
Family Medical Leave Act. As of February 28, 2021, less than 1% of our employees worldwide remain on furlough.
In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best
interest of our employees, as well as the communities in which we operate, and which comply with government
regulations. This includes providing our office, support, and non-production staff the ability to work remotely from
their homes. For our production staff, or for office and support staff who were unable to work remotely, we
implemented several safety measures, including daily temperature checks, mandatory health questionnaire
completion, social distancing, plexi-glass partitions between workstations, staggered lunch and break times, hand
sanitizing stations throughout all buildings, mask/face coverings, and replaced air filters in all buildings to be
complaint with COVID-19 standards.
Item 1A-Risk Factors
We have identified certain risk factors that apply to us. Each of the following risk factors should be carefully
considered, as well as all of the other information included or incorporated by reference in this Form 10-K. If any of
these risks, or other risks not presently known to us or that we currently believe not to be significant, develop into
actual events, then our business, financial condition, liquidity, or results of operations could be adversely affected. If
that happens, the market price of our common stock would likely decline, and you may lose all or part of your
investment. Many of the foregoing risks and uncertainties are, and will continue to be, exacerbated by the COVID-
19 pandemic and any worsening of the global business and economic environment as a result.
Economic, Strategic and Market Risks
Major public health issues, and specifically, the pandemic caused by the spread of COVID-19, could have an
adverse impact on our financial condition and results of operations and other aspects of our business.
The global spread of COVID-19 has created significant macroeconomic uncertainty, volatility, and disruption. In
response, many governments have implemented policies intended to stop or slow the further spread of the disease
and its variants, such as lockdowns, shelter-in-place, or restricted movement guidelines, and these measures may
remain in place for an extended period of time. These policies have resulted in lower consumer and commercial
activity across many markets in many geographic areas. Further, a global economic downturn, including increased
unemployment, that may result from lower consumer and commercial activity may continue to decrease demand for
our products.
The spread of COVID-19 has caused us to modify our business practices (including employee travel, employee
work locations, and cancellation of physical participation in meetings and events), and we may take further actions
as may be required by government authorities or that we determine are in the best interests of our employees,
customers, and business partners. There is no certainty that such measures will be sufficient to mitigate the risks
posed by the virus or otherwise be satisfactory to government authorities.
The extent to which the COVID-19 outbreak impacts our business, financial condition, results of operation or cash
flows will depend on numerous evolving factors and future developments, which are highly uncertain and cannot be
predicted, including, but not limited to, the ultimate duration and scope of the pandemic; the severity of the virus,
including the emergence of new variants, some of which may be more transmissible than the initial strain, the
impact of the COVID-19 vaccines, including the speed at which they are disseminated and their effectiveness
against the virus and the evolving strains; the actions taken by governments to contain the virus or treat its impact,
12
and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-
19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of its
global economic impact, including any recession, economic downturn, or increased unemployment that has occurred
or may occur in the future. One or more of our customers, distribution partners, service providers or suppliers may
also experience financial distress, file for bankruptcy protection, go out of business, or suffer disruptions in their
business due to the COVID-19 outbreak, and as a result, our operating revenues may be impacted. The Company
could also experience other material impacts, including, but not limited to, charges from potential adjustments to the
carrying value of inventory, asset impairment charges, and deferred tax valuation charges.
There are no comparable recent events which may provide guidance as to the effect of the spread of COVID-19 and
a global pandemic, and, as a result, the ultimate impact of this outbreak, or a similar health epidemic, is highly
uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations,
or the global economy as a whole. However, the effects may have a material adverse effect on our business,
financial condition, results of operations, and cash flows.
Our businesses are highly competitive and face significant competition from Original Equipment Manufacturers
(OEMs) and direct imports by our retail and commercial customers.
The markets for automotive electronics, consumer electronics, and biometric products are highly competitive across
all product lines. We compete against many well-established companies, some of whom have substantially greater
financial and engineering resources than we do. We compete directly with OEMs, including divisions of well-known
automobile manufacturers, in the auto security, mobile video, and accessories markets. We believe that OEMs have
diversified and improved their product offerings and placed increased sales pressure on new car dealers with whom
they have close business relationships to purchase OEM-supplied equipment and accessories. To the extent that
OEMs succeed in their efforts, this success would have a material adverse effect on our sales of automotive
entertainment and security products to new car dealers. In addition, we compete with major retailers and
commercial distributors within the consumer electronic and biometric industries who may at any time choose to
direct import products that we may currently supply.
OEM sales are dependent on the economic success of the automotive industry.
A portion of our OEM sales are to automobile manufacturers. In the past, some domestic OEM manufacturers have
reorganized their operations as a result of general economic conditions. Recently, as a result of the COVID-19
pandemic, many car manufacturers were required to temporarily shut-down their manufacturing facilities or operate
at a reduced capacity, and supply chain issues in sourcing computer chips necessary for manufacturing new vehicles
and certain automotive products has resulted in a global chip shortage, which could further delay or stall new vehicle
production. There is no guarantee that additional automobile manufacturers will not face reorganizations again in the
future. If additional reorganizations do take place and are not successful, it could have a material adverse effect on
our OEM business.
Sales in our businesses are dependent on new products, product development and consumer acceptance.
Our businesses depend, to a large extent, on the introduction and availability of innovative products and
technologies. If we are not able to continually introduce new products that achieve consumer acceptance, our sales
and profit margins may decline.
The impact of technological advancements may cause price erosion and adversely impact our profitability and
inventory value.
Since we do not manufacture all of our products and do not conduct all of our own research and development, we
cannot assure that we will be able to source technologically advanced products in order to remain competitive.
Furthermore, the introduction or expected introduction of new products or technologies may depress sales of
existing products and technologies. This may result in declining prices and inventory obsolescence. Since we
maintain a substantial investment in product inventory, declining prices and inventory obsolescence could have a
material adverse effect on our business and financial results.
13
Our estimates of excess and obsolete inventory may prove to be inaccurate, in which case the provision required for
excess and obsolete inventory may be understated or overstated. Although we make every effort to ensure the
accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or
technological developments could have a significant impact on the value of our inventory and operating results.
We purchase a significant amount of our products from suppliers in Pacific Rim countries and we are subject to
the economic risks associated with inherent changes in the social, political, regulatory, and economic conditions
not only in these countries, but also in other countries we do business in, including our own.
We import most of our products from suppliers in the Pacific Rim. Countries in the Pacific Rim have, in the past,
experienced significant social, political, geographic, and economic upheaval. Due to the large concentrations of our
purchases in Pacific Rim countries, particularly China, Hong Kong, South Korea, Vietnam, Malaysia and Taiwan,
any adverse changes in the social, political, regulatory, or economic conditions in these countries may materially
increase the cost of the products that we buy from our foreign suppliers or delay shipments of products, which could
have a material adverse effect on our business. In addition, our dependence on foreign suppliers forces us to order
products further in advance than we would if our products were manufactured domestically. This increases the risk
that our products will become obsolete or face selling price reductions before we can sell our inventory.
Our business, and that of our suppliers in these countries and elsewhere, are subject to the impact of natural
catastrophic events such as earthquakes, floods or power outages, political crises such as terrorism or war, and
public health crises, such as disease outbreaks, epidemics, or pandemics in the U.S. and global economies.
Currently, the rapid spread of COVID-19 globally has resulted in increased travel restrictions and disruption and
shutdown of businesses. Our business relies on raw materials, components, and finished goods provided by our
suppliers. If additional quarantining measures cause delays along our supply chain, we will likely experience a
slow-down in our business as a result.
The United States, Mexico, and Canada entered into a signed trade agreement called The United States - Mexico -
Canada Agreement (“USMCA”) that became effective on July 1, 2020. The USMCA governs trade in North
America and replaced the North American Free Trade Agreement ("NAFTA"). Compared to the previous NAFTA
trade agreement, USMCA will increase environmental and labor regulations and will create incentives for more U.S.
production of cars and trucks and impose a quota for Canadian and Mexico automotive production. Although we
have determined that there have been no current immediate effects on our operations with respect to USMCA, we
cannot predict future developments in the political climate involving the United States, Mexico, and Canada and
thus these may have an adverse and material impact on our operations and financial growth.
The United States Government under former President Donald J. Trump imposed new tariffs on certain foreign
goods imported from China and certain other countries, and increasingly levied sanctions and export controls on
China and certain other countries. Such actions have, in many cases, led to retaliatory trade measures by China and
other foreign governments. Such policies could make it more difficult or costly for us to do business in or import our
products from those countries. In turn, we may need to raise prices or make changes to our operations, which could
negatively impact our revenue or operating results. The new administration in Washington D.C. may likely take a
different view on tariffs with China and other nations than the preceding administration, but the impact of any
changes cannot be accurately predicted at this time.
A commercial market for biometrics technology is still developing. There can be no assurance our iris-based
identity authentication technology will be successful or achieve market acceptance.
A component of our strategy to grow revenue includes expansion of our iris-based identity authentication solutions
into commercial markets. To date, biometrics technology has received only limited acceptance in such markets.
Although the recent appearance of biometric readers on popular consumer products, such as smartphones, has
increased interest in biometrics as a means of authenticating and/or identifying individuals, commercial markets for
biometrics technology are still developing and evolving. Biometrics-based solutions compete with more traditional
security methods including keys, cards, personal identification numbers and security personnel. Acceptance of
biometrics as an alternative to such traditional methods depends upon a number of factors, including:
•
the cost, performance and reliability of our products and services and the products and services offered by
our competitors;
14
•
•
•
the continued growth in demand for biometrics solutions within the government and law enforcement
markets as well as the development and growth of demand for biometric solutions in markets outside of
government and law enforcement;
customers’ perceptions regarding the benefits of biometrics solutions;
public perceptions regarding the intrusiveness of these solutions and the manner in which organizations use
the biometric information collected;
public perceptions regarding the confidentiality of private information;
proposed or enacted legislation related to privacy of information;
customers’ satisfaction with biometrics solutions; and
•
•
•
• marketing efforts and publicity regarding biometrics solutions.
We face intense competition from other biometrics solutions providers.
A significant number of established companies have developed or are developing and marketing software and
hardware for biometrics products and applications, including facial recognition, fingerprint biometrics, and other iris
authentication competitors that currently compete with, or will compete directly with, our iris-based identity
authentication solutions. We believe that additional competitors will enter the biometrics market and become
significant long-term competitors, and that as a result, competition will increase. Companies competing with us may
introduce solutions that are competitively priced, have increased performance or functionality or incorporate
technological advances we have not yet developed or implemented.
Our success will depend on a less diversified line of business.
Currently, we generate substantially all of our sales from the Automotive Electronic and Consumer Electronic
segments. We cannot assure you that we can grow the revenues of our Automotive Electronic, Consumer
Electronic, and Biometrics segments or maintain profitability. As a result, the Company's revenues and profitability
will depend on our ability to maintain and generate additional customers and develop new products. A reduction in
demand for our existing products would have a material adverse effect on our business. The sustainability of current
levels of our Automotive Electronics, Consumer Electronics, and Biometrics segments and the future growth of such
revenues, if any, will depend on, among other factors:
•
•
•
•
the overall performance of the economy and discretionary consumer spending,
competition within key markets,
customer acceptance of newly developed products and services, and
the demand for other products and services.
We cannot assure you that we will maintain or increase our current level of revenues or profits from the Automotive
Electronic and Consumer Electronic businesses, or that we will increase revenues and improve profitability in the
Biometric business in future periods.
We depend on a small number of key customers for a large percentage of our sales.
The electronics industry is characterized by a number of key customers. Specifically, 30% of our sales were to five
customers in Fiscal 2021, 24% in Fiscal 2020, and 25% in Fiscal 2019. The loss of one or more of these customers
could have a material adverse impact on our business.
The international marketing and distribution of our products subjects us to risks associated with international
operations, including exposure to foreign currency fluctuations.
As part of our business strategy, we intend to continue to increase our sales, including our international sales,
although we cannot assure you that we will be able to do so. Approximately 15% of our net sales currently originate
in markets outside the U.S. While geographic diversity helps to reduce the Company's exposure to risk in any one
country or part of the world, it also means that we are subject to the full range of risks associated with international
operations, including, but not limited to:
•
changes in exchange rates for foreign countries, which may reduce the U.S. dollar value of revenues,
profits, and cash flows we receive from non-U.S. markets or increase our supply costs, as measured in U.S.
dollars, in those markets;
15
•
•
•
•
exchange controls and other limits on our ability to import raw materials or finished product or to repatriate
earnings from overseas;
political and economic instability, social or labor unrest or changing macroeconomic conditions in our
markets;
foreign ownership restrictions and the potential for nationalization or expropriation of property or other
resources; and
other foreign or domestic legal and regulatory requirements, including those resulting in potentially adverse
tax consequences or other imposition of onerous trade restrictions, price controls or other government
controls.
These risks could have a significant impact on our ability to sell our products on a competitive basis in international
markets and may have a material adverse effect on our results of operations, cash flows and financial condition.
In an effort to reduce the impact on earnings of foreign currency rate movements, we engage in a combination of
cost-containment measures and selective hedging of foreign currency transactions. However, these measures may
not succeed in offsetting any negative impact of foreign currency rate movements on our business and results of
operations. For example, since 2010, Venezuela has been designated as hyperinflationary and the resulting currency
devaluations in Venezuela in that initial year affected our business and results of operations. The government of
Venezuela has also devalued its currency several times since 2013, which, as discussed in the next section, has also
affected our business and results of operations.
Substantial political and economic uncertainty in Venezuela puts our local assets at risk.
We have a subsidiary in Venezuela, whose operations have been suspended due to the economic and political
climate in that country. We hold fixed assets at this subsidiary and have incurred impairments related to our long-
lived assets in Venezuela in the past, as well as charges totaling $3,473 during Fiscal 2019. The net book value of
these assets was $0 as of February 28, 2021 and February 29, 2020. The Company intends to continue to hold these
assets with the hope of recovering value from them in the future; however, if conditions continue to deteriorate, we
may be at risk of government confiscation of these assets.
Conditions in the global economy, the geographic markets we serve, and the financial markets may adversely
affect us.
The current global financial market situation, as well as various social and political circumstances in the U.S. and
around the world, including wars and other forms of conflict, terrorist acts, security operations and catastrophic
events such as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics (including COVID-19
currently affecting the global community), may contribute to increased market volatility and economic uncertainties
or deterioration in the U.S. and worldwide.
Deterioration in the economic conditions in the Eurozone and globally, including instability in financial markets,
may pose a risk to our business. In recent years, financial markets have been affected at times by a number of global
macroeconomic and political events, including the following: large sovereign debts and fiscal deficits of several
countries in Europe and in emerging market jurisdictions, high levels of non-performing loans on the balance sheets
of European banks, the effect of the United Kingdom exiting the European Union in 2020, the potential effect of any
other European country leaving the Eurozone, market volatility and loss of investor confidence driven by political
events, and the global outbreak of COVID-19. Market and economic disruptions have affected, and may in the
future affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default
on consumer debt, and home prices, among other factors. We cannot assure you that market disruptions in Europe,
including the increased cost of funding for certain governments and financial institutions, will not impact the global
economy, and we cannot assure you that assistance packages will be available, or if available, be sufficient to
stabilize countries and markets in Europe or elsewhere affected by a financial crisis. To the extent uncertainty
regarding any economic recovery in Europe negatively impacts consumer confidence and consumer credit factors,
our business, financial condition, and results of operations could be significantly and adversely affected.
The Chinese capital markets have also experienced periods of instability over the past several years. The current
political climate has also intensified concerns about the potential effects of the trade war between the U.S. and China
in connection with each country’s recent or proposed tariffs on the other country’s products and it is unclear at this
16
time how the U.S. Government administration under President Joseph Biden will approach these matters. These
market and economic disruptions have affected, and may in the future affect, the U.S. capital markets, which could
adversely affect our business, financial condition, or results of operations.
Changes in the retail industry could have a material adverse effect on our business or financial condition.
In recent years, the retail industry has experienced consolidation, store closures, bankruptcies, and other ownership
changes. In the future, retailers in the United States and in foreign markets may further consolidate, undergo
restructurings or reorganizations, or realign their affiliations, any of which could decrease the number of stores that
carry our products. Changing shopping patterns, including the rapid expansion of online retail shopping, have
adversely affected customer traffic in mall and outlet centers. We expect competition in the e-commerce market will
continue to intensify. As a greater portion of consumer expenditures with retailers occurs online and through mobile
commerce applications, our brick-and-mortar wholesale customers who fail to successfully integrate their physical
retail stores and digital retail may experience financial difficulties, including store closures, bankruptcies, or
liquidations. We cannot control the success of individual malls, and an increase in store closures by other retailers
may lead to store vacancies and reduced foot traffic. A continuation or worsening of these trends could have a
material adverse effect on our sales, results of operations, financial condition, and cash flows.
We invest, from time to time, in marketable securities and other investments as part of our investing activities.
These investments fluctuate in value based on economic, operational, competitive, political, and technological
factors. These investments could be subject to loss or impairment based on their performance.
The Company has incurred other-than-temporary impairments on its investments in the past, and continues to
monitor investments in non-controlled corporations, as applicable, for potential future impairments. In addition,
there is no guarantee that the fair values recorded for other investments will be sustained in the future. During the
year ended February 28, 2019, the Company incurred impairment charges related to an investment held at cost, less
impairment. The Company did not have any investments held at cost, less impairment at February 28, 2021 or
February 29, 2020. See Note 1(f) for impairment charges recorded and related disclosure.
From time to time, we provide funding to certain entities in the form of loans. Based on the performance of these
entities, these loans may become partially or entirely uncollectible.
The Company has, from time to time, provided funding to certain entities that it owns and controls, or does not own
or control, in the form of collateralized loans. Should the borrowers default on the loans and should the collateral be
insufficient to satisfy the total outstanding balance owed to Voxx, we may not be able to recover 100% of these loan
balances. During the year ended February 28, 2019, certain notes receivable held by the Company became
uncollectible, and the value of the collateral was insufficient, resulting in an impairment charge related to these
notes. See Note 1(f) for impairment charges recorded and related disclosure. We had loans outstanding, including
principal and interest of $72,525, from our majority owned subsidiary, EyeLock LLC, at February 28, 2021.
We must comply with restrictive covenants in our debt agreements.
Our existing debt agreements contain certain covenants that limit our ability to, among other things, borrow
additional money, pay dividends, dispose of assets, and acquire new businesses. These covenants also require us to
maintain a specified fixed charge coverage ratio. If the Company is unable to comply with these covenants, there
would be a default under these debt agreements. Changes in economic or business conditions, results of operations,
or other factors could cause the Company to default under its debt agreements. A default, if not waived by our
lenders, could result in acceleration of our debt and possible bankruptcy, should we have debt outstanding.
We have recorded, and may record in the future, goodwill, and other intangible assets as a result of acquisitions,
and changes in future business conditions could cause these investments to become impaired, requiring
substantial write-downs that would reduce our operating income.
17
We evaluate the recoverability of recorded goodwill and other intangible asset amounts annually, or when evidence
of potential impairment exists. The annual impairment test is based on several factors requiring judgment. We have
experienced significant impairment charges in past years (see Note 1(k)). Additional future impairment may result
from, among other things, deterioration in the performance of our business or product lines, adverse market
conditions and changes in the competitive landscape, and a variety of other circumstances. The amount of any
impairment is recorded as a charge to our statement of operations. We may never realize the full value of our
goodwill and intangible assets, and any determination requiring the write-off of a significant portion of these assets
may have an adverse effect on our financial condition and results of operations.
If our sales during the holiday season fall below our expectations, our annual results could also fall below
expectations.
Seasonal consumer shopping patterns significantly affect our business. We generally make a substantial amount of
our sales and net income during September, October, and November. We expect this trend to continue. December is
also a key month for us, due largely to the increase in promotional activities by our customers during the holiday
season. If the economy faltered in these periods, if our customers altered the timing or frequency of their
promotional activities, or if the effectiveness of these promotional activities declined, particularly around the holiday
season, it could have a material adverse effect on our annual financial results.
Legal and Regulatory Risks
There is no guarantee that patent/royalty rights will be renewed, or licensing agreements will be maintained.
Certain product development and revenues are dependent on the ownership and or use of various patents, licenses,
and license agreements. If the Company is not able to successfully renew or renegotiate these rights, we may suffer
from a loss of product sales or royalty revenue associated with these rights or incur additional expense to pursue
alternative arrangements.
We are subject to governmental regulations.
We always face the possibility of new governmental regulations which could have a substantial effect on our
operations and profitability. The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions
to improve transparency and accountability concerning the supply of certain minerals, known as “conflict minerals,”
originating from the Democratic Republic of Congo and adjoining countries. There are costs associated with
complying with these disclosure requirements, including for due diligence to determine the sources of conflict
minerals used in our products and other potential changes to products, processes, or sources of supply as a
consequence of such verification activities. These rules could adversely affect the sourcing, supply and pricing of
materials used in our products. As there may be only a limited number of suppliers offering "conflict free" conflict
minerals, we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in
sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain
of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the
origins for all conflict minerals used in our products through the procedures we implement.
A data privacy breach could damage our reputation and customer relationships, expose us to litigation risk and
potential fines, and adversely affect our business.
We and our business partners maintain significant amounts of data electronically in locations around the world. This
data relates to all aspects of our business, including current and future products and initiatives under development,
and contains confidential, propriety, non-public, and personal customer, consumer, supplier, partner, and employee
data, which we collect, process, transmit, and, where appropriate, retain as part of our normal operations. We
maintain systems, protocols, and processes designed to protect this data. Despite the security measures we and our
partners have in place, our facilities and systems, and those of our third-party service providers and partners, are
vulnerable to security breaches, cyber-attacks, acts of vandalism, computer viruses, misplaced or lost data,
programming and/or human error, or other similar events. Threat actors attempt to breach our security systems to
gain access to our data and infrastructure through various techniques, including phishing, ransomware, and other
targeted attacks. The risk of such attacks includes attempted breaches not only of our systems, but also those of our
business partners, customers, clients, and suppliers. The techniques used to obtain unauthorized access are
constantly changing, are becoming increasingly more sophisticated, and often are not recognized until after an
18
exploitation of information has occurred. Therefore, we may be unable to anticipate these techniques or implement
sufficient preventative measures, which may have a material adverse effect on our Company.
The Company has retained and, in the future, may retain third-party experts to assist with the containment of, and
response to, security incidents and, in coordination with law enforcement, with the investigation of such incidents.
The Company has incurred, and may continue to incur, costs to retain such third-party experts in connection with
any such incidents. We may also find it necessary to make significant further investments to protect our information
and our infrastructure. These investments, and the costs we incur in connection with security incidents, could be
material.
As we publicly announced on September 28, 2020, we had previously identified, immediately investigated, and
addressed a security incident that occurred on July 7, 2020, that resulted in data related to current and former
employees (and their beneficiaries) and contractors stored on certain devices becoming encrypted by ransomware.
The incident was promptly addressed and remediated. While we do not believe this or any cybersecurity incident has
resulted in any material impact on our business, operations, or financial results, or on our ability to service our
customers or run our business, future incidents resulting in unauthorized access to our facilities or information
technology systems, networks or infrastructure (or those of our customers, vendors, or other business partners)
could result in, among other things, a total shutdown of our systems that would disrupt our ability to conduct
business or pay vendors and employees.
Further, if we or third parties with which we do business were to fall victim to a successful security breach involving
the misappropriation, loss, or unauthorized disclosure of confidential, proprietary, or personal information, whether
belonging to us or our vendors, customers, or other third-party business partners, such a breach could result in
significant legal and remediation expenses, violate applicable laws and regulations, severely damage our reputation
and our customer relationships, harm sales, increase our cybersecurity and other insurance premiums, expose us to
risks of litigation and liability, and result in a material adverse effect on our business, financial condition, and results
of operations. In addition, cybersecurity incidents and data security breaches could lead to unfavorable publicity,
governmental inquiry and oversight, litigation by affected parties, and possible financial obligations for damages
related to the theft or misuse of such information, any of which could have a material adverse effect on our
profitability and cash flow.
We may face regulatory data protection, data security, and privacy risks in connection with our operations under,
or failure to comply with, applicable data privacy laws and regulations.
Strict data privacy laws regulating the collection, transmission, storage, disclosure and use of personal information
are evolving in the United States, the European Union, the UK, Canada, and other jurisdictions in which we operate.
Privacy laws, including the General Data Protection Regulations in the European Union and the UK and the
California Consumer Privacy Act ("CCPA"), create new individual privacy rights and impose increased obligations
on companies handling personal data. The CCPA, which became effective on January 1, 2020, grants individuals the
right to access, request deletion of, and opt out of the sale of personal information and creates a private right of
action for the unauthorized access and exfiltration, theft, or disclosure of certain types of personal information,
including the right to seek statutory damages, among other things. In 2020, the Court of Justice for the European
Union invalidated mechanisms for transferring personal information out of the European Union, leading to a wave
of potential new barriers for data sharing between the European Union and other countries, including the United
States. These changes in the legal and regulatory environments in the areas of customer and employee privacy, data
security, and cross-border data flows could have a material adverse effect on our business, primarily through (i) the
impairment of our transaction processing activities, (ii) the limitation on the types of information that we may
collect, process and retain, (iii) the resulting costs of complying with such legal and regulatory requirements, and
(iv) the potential monetary penalties for noncompliance. In addition, the federal privacy and security regulations
issued under HIPAA require our facilities to comply with extensive requirements on the use and disclosure of
protected health information, and implement and maintain administrative, physical, and technical safeguards to
protect the security of such information.
A change in applicable privacy or security laws or regulations could require us to devote significant management
and operational resources, and expend significant additional financial resources, to upgrade the security measures
that we employ to comply with such change. Consequently, we may incur significant costs related to ensuring
19
compliance with applicable laws regarding the protection of personal information. The potential costs of non-
compliance with these laws and regulations may include significant penalties. In addition, new and existing
regulations and policies may affect the use of our products and services and could have a material adverse impact on
our results of operations.
Our products could infringe the intellectual property rights of others and we may be exposed to costly litigation.
The products we sell are continually changing as a result of improved technology. Although we and our suppliers
attempt to avoid infringing known proprietary rights of third parties in our products, we may be subject to legal
proceedings and claims for alleged infringement by us, our suppliers, or our distributors, of a third party’s patents,
trade secrets, trademarks, or copyrights.
Any claims relating to the infringement of third-party proprietary rights, even if not meritorious, could result in
costly litigation, divert management’s attention and resources, or require us to either enter into royalty or license
agreements which are not advantageous to us or pay material amounts of damages. In addition, parties making these
claims may be able to obtain an injunction, which could prevent us from selling our products. We may increasingly
be subject to infringement claims as we expand our product offerings.
Operational Risks
A portion of our workforce is represented by labor unions. Collective bargaining agreements can increase our
expenses. Labor disruptions could adversely affect our operations.
As of February 28, 2021, 41 of our full-time employees were covered by collective bargaining agreements. We
cannot predict whether labor unions may be successful in organizing other portions of our workforce or what
additional costs we could incur as a result.
We depend on our suppliers to provide us with adequate quantities of high-quality competitive products and/or
component parts on a timely basis.
We have few long-term contracts with our suppliers. Most of our products and component parts are imported from
suppliers under short-term purchase orders. Accordingly, we can give no assurance that:
•
•
our supplier relationships will continue as presently in effect;
our suppliers will be able to obtain the components necessary to produce high-quality, technologically-
advanced products for us;
• we will be able to obtain adequate alternatives to our supply sources, should they be interrupted;
•
if obtained, alternatively sourced products of satisfactory quality would be delivered on a timely basis,
competitively priced, comparably featured, or acceptable to our customers;
our suppliers have sufficient financial resources to fulfill their obligations;
our suppliers will be able to obtain raw materials and labor necessary for production;
shipments from our suppliers will not be affected by labor disputes within the shipping and transportation
industries;
our suppliers would not be impacted by natural disasters directly or via their supply chains; and
as it relates to products we do not manufacture, our suppliers will not become our competitors.
•
•
•
•
•
On occasion, our suppliers have not been able to produce the quantities of products or component parts that we
desire. Our inability to manufacture and/or supply sufficient quantities of products that are in demand could reduce
our profitability and have a material adverse effect on our relationships with our customers. If any of our supplier
relationships were terminated or interrupted, we could experience an immediate or long-term supply shortage, which
could have a material adverse effect on our business.
We have few long-term sales contracts with our customers that contain guaranteed customer purchase
commitments.
Sales of many of our products are made by purchase orders and are terminable at will by either party. We do have
long-term sales contracts with certain customers; however, these contracts do not require the customers to guarantee
20
specific levels of product purchases over the term of the contracts. The unexpected loss of all or a significant portion
of sales to any one of our large customers could have a material adverse effect on our performance.
We are increasingly dependent on the continuous and reliable operation of our information technology systems,
and a disruption of these systems resulting from cybersecurity attacks or other events could adversely affect our
business.
We increasingly depend on our information technology, or IT, infrastructure in order to achieve our business
objectives. To meet these business objectives, the Company relies on our information technology systems and those
of our third-party business partners to process and store sensitive data, including confidential research, business
plans, financial information, intellectual property, and personal data. The secure operation of these systems and
products, including the protection of the information they process, is critical to our business operations and strategy.
Our customers and business partners rely on the security of our infrastructure, including hardware and other
elements provided by third parties, to ensure the reliability of our products and the protection of their data. The
extensive cybersecurity threats which affect companies globally pose a risk to the security and availability of these
IT systems and the confidentiality, integrity, and availability of confidential, proprietary, and personal data. To date,
the Company has not experienced any material impact to its business or operations resulting from a data breach or
cybersecurity attack. However, because of frequently changing attack techniques, along with the increased volume
and sophistication of the attacks, there is the potential for the Company to be adversely impacted. If we experience a
cyberattack that impairs our IT infrastructure, such as a computer virus, a problem with the functioning of an
important IT application, or an intentional disruption of our IT systems by a third party, the resulting disruptions
could impede our ability to record or process orders, manufacture, and ship in a timely manner, or otherwise carry
on our business in the ordinary course. Any such events could cause us to lose customers or revenue and could
require us to incur significant remediation expense. Furthermore, although the Company maintains insurance
coverage for various cybersecurity and business continuity risks, there can be no guarantee that all costs or losses
incurred will be fully insured.
Our computer systems are subject to penetration and our security and data protection measures may not prevent
unauthorized access. Threats to our systems and our associated third parties’ systems can result from human error,
fraud, or malice on the part of employees or third parties, as well as from accidental technological failure. Despite
security measures, computer viruses, malware, and other “hacking” programs and devices may cause significant
damage, delays or interruptions to our systems and operations or to certain of the products we sell, resulting in
damage to our reputation and brand names. Although the Company has business continuity plans in place, if these
plans do not provide effective alternative processes on a timely basis, the Company may suffer interruptions in its
ability to manage or conduct its operations, which may adversely affect its business. The Company may need to
expend additional resources in the future to continue to protect against, or to address problems caused by, any
business interruptions or security breaches. Any business interruptions or data security breaches (including
cybersecurity breaches resulting in private data disclosure) could result in lawsuits or regulatory proceedings,
damage our reputation, or adversely impact our results of operations, cash flows, and financial condition.
A failure to keep pace with developments in technology could impair our operations or competitive position.
Our business continues to demand the use of sophisticated systems and technology. If we are unable to timely
update and replace our systems and technology with more advanced systems on a regular basis in order for us to
meet our customers’ demands and expectations, or if we are unable to appropriately and timely train our employees
to operate any of these new systems, our business could suffer. We also may not achieve the benefits that we
anticipate from any new system or technology implemented by us, and a failure to do so could result in higher than
anticipated costs or could impair our operating results.
We are continuously working to upgrade our information technology systems and provide employee awareness
training around phishing, malware, and other cyber risks to protect our customer, employee, and company data
against cyber risks and security breaches. Despite these efforts, there is no guarantee that the procedures that we
have implemented to protect against unauthorized access to secured data are adequate to safeguard against future
data security breaches. Because of the frequently changing attack techniques, along with the increased volume and
sophistication of the attacks, there is the potential for the Company to be adversely impacted. Moreover, because the
techniques used to gain access to or sabotage systems often are not recognized until launched against a target, we
21
may be unable to anticipate the methods necessary to defend against these types of attacks, and we cannot predict
the extent, frequency or impact these attacks may have on us. To the extent our business is interrupted, this impact
could include reputational, competitive, operational, or other business harm as well as financial costs and regulatory
action. Further, the theft or unauthorized use or publication of our trade secrets and other confidential business
information as a result of such an incident could adversely affect our competitive position.
Remote working arrangements driven by the COVID-19 pandemic could significantly increase the Company’s
digital and cybersecurity risks.
The COVID-19 pandemic has caused us to modify our business practices. In response to mandates and/or
recommendations from federal, state, and local authorities, as well as our concern for the health and safety of our
employees, we temporarily closed or reduced operations in many of our locations. With the continuing COVID-19-
driven shift to remote working, and the use of virtual board and executive management meetings, cybersecurity risks
are exponentially greater. Social distancing measures restricting the ability of our employees to work at our offices
create an increased demand for information technology resources, and thus may increase the risk of phishing and
other cybersecurity attacks as well as increase the risk of unauthorized dissemination of sensitive personal
information or proprietary or confidential information about us or our customers, employees, or business partners.
Despite our cybersecurity measures, we may be more susceptible to security breaches and other security incidents
because we have less capability to implement, monitor, and enforce our information security and data protection
policies. Techniques or software used to gain unauthorized access, and/or disable, degrade, or harm our systems may
be difficult to detect for prolonged periods of time, and we may be unable to anticipate these techniques or put in
place protective or preventive measures. The damage or disruption of our systems, or the theft or compromise of our
technology, data, or intellectual property, may negatively impact our business, financial condition and results of
operations, reputation, stock price and long-term value. Any such event may also expose us to costly remediation,
litigation, and regulatory investigations or actions by state and federal authorities as well as non-US authorities,
interference with the Company's operations, and damage to the Company's reputation, which could adversely affect
the Company's business.
We are responsible for product warranties and defects.
Whether we outsource manufacturing or manufacture products directly for our customers, we provide warranties for
all of our products, for which we have provided an estimated liability. Therefore, we are highly dependent on the
quality of our suppliers’ products.
If we experience an increase in warranty claims, or if our costs associated with such warranty claims increase
significantly, we will begin to incur liabilities for warranty claims after the sale of our products at levels that we
have not previously incurred or anticipated. In addition, an increase in the frequency of our warranty claims or
amount of warranty costs may harm our reputation and could have a material adverse effect on our financial
condition and results of operations.
We provide financial support to one of our subsidiaries through an intercompany loan agreement and may need
to secure additional financing for our own operations, but we cannot be sure that additional financing will be
available.
We have an intercompany loan agreement with our majority owned subsidiary, EyeLock LLC, which is expected to
continue to require additional funding beyond one year. In funding the loan to EyeLock LLC, we have less cash
flow available to support our domestic operations and other activities. If we are unable to generate sufficient cash
flows in the future to support our operations and service our debt as a result of funding EyeLock LLC, we may be
required to refinance all or a portion of our existing debt, as applicable, or to obtain additional financing. There can
be no assurance that any refinancing will be possible or that any additional financing could be obtained on
acceptable terms. The inability to service or refinance our existing debt or to obtain additional financing would have
a material adverse effect on our financial position, liquidity, and results of operations.
22
Our capital resources may not be sufficient to meet our future capital and liquidity requirements.
We believe our current funds and available credit lines would provide sufficient resources to fund our existing
operations for the foreseeable future. However, we may need additional capital to operate our business if:
our business plans or assumptions change,
• market conditions change,
•
• we make significant acquisitions,
• we need to make significant increases in capital expenditures or working capital,
•
• we need to continue to provide financial support to EyeLock LLC for an extended period of time.
our restrictive covenants do not provide sufficient credit, or
Acquisitions and strategic investments may divert our resources and management’s attention; results may fall
short of expectations.
We intend to continue pursuing selected acquisitions of, and investments in, businesses, technologies, and product
lines as a component of our growth strategy. Any future acquisition or investment may result in the use of
significant amounts of cash, potentially dilutive issuances of equity securities, or the incurrence of debt and
amortization expenses related to intangible assets. Acquisitions involve numerous risks, including:
•
•
•
•
difficulties in the integration and assimilation of the operations, technologies, products, and personnel of an
acquired business;
diversion of management’s attention from other business concerns;
increased expenses associated with the acquisition, and
potential loss of key employees or customers of any acquired business.
We cannot assure you that our acquisitions will be successful and will not adversely affect our business, results of
operations, or financial condition.
We depend heavily on existing directors, management and key personnel and our ability to recruit and retain
qualified personnel.
Our success depends on the continued efforts of our directors, executives, and senior vice presidents, many of whom
have worked with VOXX International Corporation for several decades, as well as our other executive officers and
key employees. We have employment contracts with most of our executive officers. The loss or interruption of the
continued full-time service of certain of our executive officers and key employees could have a material adverse
effect on our business. In addition, to support our continued growth, we must effectively recruit, develop, and retain
additional qualified personnel both domestically and internationally. Our inability to attract and retain necessary
qualified personnel could have a material adverse effect on our business.
We may be unable to collect amounts owed to us by our customers.
We typically grant our customers credit on a short-term basis. Related credit risks are inherent as we do not typically
collateralize receivables due from customers. We provide estimates for uncollectible accounts based primarily on
our judgment using historical losses, current economic conditions, and individual evaluations of each customer as
evidence supporting the collectability of the receivables’ valuations stated on our financial statements. However, our
receivables valuation estimates may not be accurate and receivables due from customers reflected in our financial
statements may not be collectible. Our inability to perform under our contractual obligations, or our customers’
inability or unwillingness to fulfill their contractual commitments to us, may have a material adverse effect on our
financial condition, results of operations and cash flows.
Risks Related to the Ownership of our Common Stock
23
Our stock price could fluctuate significantly.
The market price of our common stock could fluctuate significantly in response to various factors and events,
including:
•
•
•
•
•
•
•
•
•
•
operating results being below market expectations,
announcements of technological innovations or new products by us or our competitors,
loss of a major customer or supplier,
changes in, or our failure to meet, financial estimates by securities analysts,
industry developments,
economic and other external factors,
general downgrading of our industry sector by securities analysts,
acquisitions and dispositions,
ability to integrate acquisitions, and
inventory write-downs.
In addition, the securities markets have experienced significant price and volume fluctuations over the past several
years that have often been unrelated to the operating performance of particular companies. These market
fluctuations may also have a material adverse effect on the market price of our common stock.
John J. Shalam, our Chairman, controls a significant portion of the voting power of our common stock and can
exercise control over our affairs.
Mr. Shalam beneficially owns approximately 52.8% of the combined voting power of both classes of common stock.
This will allow him to elect the majority of our Board of Directors and, in general, determine the outcome of any
other matter submitted to the stockholders for approval. Mr. Shalam's voting power may have the effect of delaying
or preventing a change in control of the Company.
We have two classes of common stock: Class A common stock, which is traded on the NASDAQ Stock Market
under the symbol VOXX, and Class B common stock, which is not publicly traded and substantially all of which is
beneficially owned by Mr. Shalam. Each share of Class A common stock is entitled to one vote per share and each
share of Class B common stock is entitled to ten votes per share. Class A shareholders vote separately for the
election/removal of the Class A directors, while both classes vote together as a single class on all other matters and
as otherwise may be required by Delaware law. Since our charter permits shareholder action by written consent,
Mr. Shalam may be able to take significant corporate actions without prior notice and a shareholder meeting.
We exercise our option for the "controlled company" exemption under NASDAQ rules.
The Company has exercised its right to the "controlled company" exemption under NASDAQ rules which enables
us to forego certain NASDAQ requirements which include: (i) maintaining a majority of independent directors; (ii)
electing a nominating committee composed solely of independent directors; (iii) ensuring the compensation of our
executive officers is determined by a majority of independent directors or a compensation committee composed
solely of independent directors; and (iv) selecting, or recommending for the Board's selection, director nominees,
either by a majority of the independent directors or a nominating committee composed solely of independent
directors. Although we do not maintain a nominating committee and do not have a majority of independent
directors, the Company notes that at the present time we do maintain a compensation committee comprised solely of
independent directors who approve executive compensation, and the recommendations for director nominees are
governed by a majority of independent directors. However, election of the "controlled company" exemption under
NASDAQ rules allows us to modify our position at any time.
General Risks
A decline in general economic conditions could lead to reduced consumer demand for the discretionary products
we sell.
Consumer spending patterns, especially discretionary spending for products such as mobile, consumer, and
accessory electronics, are affected by, among other things, prevailing economic conditions, energy costs, raw
material costs, wage rates, inflation, consumer confidence, and consumer perception of economic conditions. A
general slowdown in the U.S. and certain international economies or an uncertain economic outlook could have a
material adverse effect on our sales and operating results.
24
Our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash
and cash equivalents fail.
Our cash and cash equivalents consist of demand deposits and highly liquid money market funds with original
maturities of three months or less at the time of purchase. We maintain the cash and cash equivalents with major
financial institutions. Some deposits with these banks exceed the Federal Deposit Insurance Corporation ("FDIC")
insurance limits or similar limits in foreign jurisdictions. While we monitor daily the cash balances in the operating
accounts and adjust the balances as appropriate, these balances could be impacted if one or more of the financial
institutions with which we deposit fails or is subject to other adverse conditions in the financial or credit markets. To
date, we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we can
provide no assurance that access to our invested cash and cash equivalents will not be impacted by adverse
conditions in the financial and credit markets.
Our business could be affected by unseasonal or severe weather-related factors.
Our results of operations may be adversely affected by weather-related factors. Adverse weather conditions and
extreme seasonal fluctuations may deter or prevent patrons from reaching facilities where our products are sold, or
negatively affect customer demand for certain products. Although our budget assumes certain seasonal fluctuations
in our revenues to ensure adequate cash flow during expected periods of lower revenues, we cannot ensure that
weather-related factors will not have a material adverse effect on our operations.
Other Risks
Other risks and uncertainties include:
•
•
•
•
•
•
additional changes in U.S. federal, state, and local law,
our ability to implement operating cost structures that align with revenue growth,
additional trade sanctions against or from foreign countries,
successful integration of business acquisitions and new brands in our distribution network,
compliance with the Sarbanes-Oxley Act, and
compliance with complex financial accounting and tax standards, both foreign and domestic.
Item 1B-Unresolved Staff Comments
As of the filing of this annual report on Form 10-K, there were no unresolved comments from the staff of the
Securities and Exchange Commission.
Item 2-Properties
Our Corporate headquarters is located at 2351 J. Lawson Blvd. in Orlando, Florida, which is owned by the
Company, and also serves as a manufacturing facility for its automotive electronic business. In addition, as of
February 28, 2021, the Company leased a total of 19 operating facilities or offices located in 8 states as well as
China, Canada, Mexico, France, Germany, and Hong Kong. The leases have been classified as operating
leases. Within the United States, the Company’s leased facilities are located in Georgia, New York, California,
Ohio, North Carolina, Florida, Texas, and Arkansas. The Company also owns 8 of its operating facilities or offices
(including its Corporate headquarters and automotive manufacturing facility in Florida), located in New York,
Indiana, Michigan, and Arkansas in the United States, as well as in Germany and Venezuela. These facilities serve
as offices, warehouses, manufacturing facilities and distribution centers. Additionally, we utilize public warehouse
facilities located in Virginia, Nevada, Indiana, Florida, Mexico, China, the Netherlands, Germany, and Canada.
Item 3-Legal Proceedings
The Company is currently, and has in the past, been a party to various routine legal proceedings incident to the
ordinary course of business. If management determines, based on the underlying facts and circumstances of each
matter, that it is probable a loss will result from a litigation contingency and the amount of the loss can be
reasonably estimated, the estimated loss is accrued for. The Company does not believe that any outstanding
litigation will have a material adverse effect on the Company's financial statements, individually or in the aggregate.
The products the Company sells are continually changing as a result of improved technology. As a result, although
the Company and its suppliers attempt to avoid infringing known proprietary rights, the Company may be subject to
25
legal proceedings and claims for alleged infringement by patent, trademark, or other intellectual property
owners. Any claims relating to the infringement of third-party proprietary rights, even if not meritorious, could
result in costly litigation, divert management’s attention and resources, or require the Company to either enter into
royalty or license agreements which are not advantageous to the Company or pay material amounts of damages.
Item 4-Mine Safety Disclosure
Not applicable.
PART II
Item 5-Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities
Market Information
The Class A Common Stock of Voxx is traded on the Nasdaq Stock Market under the symbol "VOXX." The
following table sets forth the low and high sale price of our Class A Common Stock, based on the last daily sale in
each of the last eight fiscal quarters:
Year ended February 28, 2021
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year ended February 29, 2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Dividends
$
$
High
Low
5.77 $
7.14
13.87
27.18
High
Low
4.97 $
4.86
5.16
4.79
1.83
4.87
5.71
11.79
3.55
3.50
4.17
3.30
We have not paid or declared any cash dividends on our common stock. We have retained all our earnings for use in
developing our business. Future cash dividends, if any, will be paid at the discretion of our Board of Directors and
will depend, among other things, upon our future operations and earnings, capital requirements and surplus, general
financial condition, contractual restrictions, and such other factors as our Board of Directors may deem relevant
giving consideration to any requirements or restrictions under the Company's credit agreements (see Note 7(a) to the
Notes to the Consolidated Financial Statements).
Holders
There are 670 holders of record of our Class A Common Stock and 4 holders of Class B Convertible Common
Stock.
Issuer Purchases of Equity Securities
In April 2019, the Company was authorized by the Board of Directors to increase the number of Class A Common
Shares available for repurchase in connection with its share repurchase program (the “Program”) to 3,000,000.
During the year ended February 29, 2020, the Company purchased 581,124 shares of its Class A Common Stock for
an aggregate cost of $2,742. During the years ended February 28, 2021 and February 28, 2019, the Company did not
purchase any shares. As of February 28, 2021, the cumulative total of acquired shares (net of reissuances of 11,635)
pursuant to the Program was 2,749,218, with a cumulative value of $23,918. The remaining authorized share
repurchase balance is 2,418,876 at February 28, 2021.
26
Performance Graph
The following table compares the annual percentage change in our cumulative total stockholder return on our Class
A common stock during the period commencing on February 29, 2016 and ending on February 28, 2021 with the
cumulative total return of the Nasdaq Stock Market (U.S.) Index and our SIC Code Index, during such period.
27
Item 6-Selected Consolidated Financial Data
The following selected consolidated financial data for the last five years should be read in conjunction with the
consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of this Form 10-K. The Company's financial statements for Fiscal 2017
presented herein have been recast to reflect a certain business that was classified as discontinued operations during
the second quarter of Fiscal 2018.
Year
Ended
February 28,
2021 (1)
Year
Ended
February 29,
2020 (1),(4)
Year
Ended
February 28,
2019 (1),(2)
Year
Ended
February 28,
2018 (3)
Year
Ended
February 28,
2017
Consolidated Statement of Operations
Data
Net sales
Operating income (loss)
Net income (loss) from continuing
operations
Net income from discontinued operations,
net of taxes
Net income (loss) attributable to VOXX
International Corporation
$
563,605 $
22,479
394,889 $
(50,303)
446,816 $
(42,013)
507,092 $
(19,099)
514,530
(8,168)
23,366
(41,822)
(52,832)
(6,659)
(9,268)
—
—
—
34,618
6,066
26,767
(26,443)
(46,091)
35,304
4,422
Earnings (loss) per share - basic:
Continuing operations
Discontinued operations
Attributable to VOXX
International Corporation
Earnings (loss) per share - diluted:
Continuing operations
Discontinued operations
Attributable to VOXX
International Corporation
$
$
$
$
$
$
1.11 $
— $
(1.08) $
— $
(1.89) $
— $
0.03 $
1.43 $
(0.07)
0.25
1.11 $
(1.08) $
(1.89) $
1.45 $
0.18
1.09 $
— $
(1.08) $
— $
(1.89) $
— $
0.03 $
1.41 $
(0.07)
0.25
1.09 $
(1.08) $
(1.89) $
1.44 $
0.18
As of
As of
February 28, February 29, February 28, February 28, February 28,
As of
As of
As of
Consolidated Balance Sheet Data
Cash and cash equivalents
Total assets
Working capital
Long-term obligations (6)
Total stockholders' equity
2021 (1)
2020 (1),(5) 2019 (1),(2)
2018 (3)
2017
$
59,404 $
550,818
172,543
24,693
376,069
37,425 $
441,571
146,798
19,839
348,229
58,236 $
508,811
151,169
18,494
395,101
51,740 $
575,644
170,472
30,139
450,118
956
668,486
143,281
147,104
391,315
(1) Fiscal 2021, Fiscal 2020, and Fiscal 2019 amounts reflect intangible asset impairment charges (see Note 1(k) of
the Notes to the Consolidated Financial Statements).
(2) Fiscal 2019 amounts include Venezuela currency devaluation and impairment charges related to Venezuela
investment properties (see Note 1(p) of the Notes to the Consolidated Financial Statements).
(3) Fiscal 2018 reflects the effect of the sale of Hirschmann on the decrease in total assets. The gain recognized on
the sale of Hirschmann is included in Discontinued Operations.
(4) Fiscal 2020 includes the gain on the sale of real property in Pulheim, Germany (see Note 11).
(5) Fiscal 2020 reflects the prospective adoption of ASC 842, “Leases,” in which the Company has recognized
current and non-current right of use assets and lease liabilities for operating leases, in addition to finance leases
already recorded.
(6) Long-term obligations include long-term debt, finance and operating lease obligations, deferred compensation,
deferred and other tax liabilities, as well as other long-term liabilities.
28
Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")
This section should be read in conjunction with the "Cautionary Statements" and "Risk Factors" in Item 1A of Part I,
and Item 8 of Part II, "Consolidated Financial Statements and Supplementary Data."
We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations with an
overview of the business, including our strategy to give the reader a summary of the goals of our business and the
direction in which our business is moving. This is followed by a discussion of the Critical Accounting Policies and
Estimates that we believe are important to understanding the assumptions and judgments incorporated in our
reported financial results. In the next section, we discuss our Results of Operations for the year ended February 28,
2021 compared to the years ended February 29, 2020 and February 28, 2019. Next, we present EBITDA, Adjusted
EBITDA, and Diluted Adjusted EBITDA per common share for the year ended February 28, 2021 compared to the
years ended February 29, 2020 and February 28, 2019 in order to provide a useful and appropriate supplemental
measure of our performance. We then provide an analysis of changes in our balance sheet and cash flows and
discuss our financial commitments in the sections entitled "Liquidity and Capital Resources." We conclude this
MD&A with a discussion of "Related Party Transactions" and "Recent Accounting Pronouncements."
Business Overview and Strategy
VOXX International Corporation is a leading international distributor, manufacturer and value-added service
provider in the automotive electronics, consumer electronics and biometrics industries. We conduct our business
through nineteen wholly-owned subsidiaries and one majority owned subsidiary. Voxx has a broad portfolio of
brand names used to market our products as well as private labels through a large domestic and international
distribution network. We also function as an OEM ("Original Equipment Manufacturer") supplier to several
customers, as well as market a number of products under exclusive distribution agreements.
In recent years, we have focused our attention on acquiring synergistic businesses with the addition of several new
subsidiaries. These subsidiaries have helped us to expand our core business and broaden our presence in the
accessory and OEM markets. Our acquisitions of Klipsch and Invision provided the opportunity to enter the
manufacturing arena, and our acquisition of a controlling interest in EyeLock Inc. and EyeLock Corporation allowed
us to enter the growing and innovative biometrics market. The Company has also made strategic asset purchases in
order to strengthen its product offerings and increase market share, such as the acquisition of certain assets and
assumption of certain liabilities of Rosen Electronics LLC in Fiscal 2018, Vehicle Safety Holding Corp. in Fiscal
2020, and Directed LLC and Directed Electronics Canada Inc. in Fiscal 2021. Our intention is to continue to pursue
business opportunities which will allow us to further expand our business model while leveraging overhead and
exploring specialized niche markets in the electronics industry. Notwithstanding the above acquisitions, if the
appropriate opportunity arises, the Company has been willing to explore the potential divestiture of a product line or
business, such as with the sale of the Company's Hirschmann subsidiary in Fiscal 2018.
The Company classifies its operations in the following three reportable segments: Automotive Electronics,
Consumer Electronics, and Biometrics. The characteristics of our operations that are relied on in making and
reviewing business decisions within these segments include the similarities in our products, the commonality of our
customers, suppliers and product developers across multiple brands, our unified marketing and distribution strategy,
our centralized inventory management and logistics, and the nature of the financial information used by our Chief
Operating Decision Maker ("CODM"). The CODM reviews the financial results of the Company based on the
performance of the Automotive Electronics, Consumer Electronics, and Biometrics segments.
The Company’s domestic and international business is subject to retail industry trends and conditions and the sales
of new and used vehicles. Worldwide economic conditions impact consumer spending and if the global
macroeconomic environment deteriorates, this could have a negative effect on the Company’s revenues and
earnings. In an attempt to offset any negative market conditions, the Company continues to explore strategies and
alternatives to reduce its operating expenses, such as the consolidation of facilities and IT systems, and has been
introducing new products to obtain a greater market share.
Although we believe our product groups have expanding market opportunities, there are certain levels of volatility
related to domestic and international markets, new car sales, increased competition by manufacturers, private labels,
technological advancements, discretionary consumer spending and general economic conditions. Also, all of our
products are subject to price fluctuations which could affect the carrying value of inventories and gross margins in
the future.
29
During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly
growing outbreak of COVID-19, which began spreading during the fourth quarter of our 2020 fiscal year. The
pandemic has significantly impacted the economic conditions in the United States, as federal, state, and local
governments have reacted to the public health crisis, creating significant uncertainties in the United States, as well as
the global economy. In the interest of public health and safety, U.S. jurisdictions (national, state, and local) where
our primary operations and those of many of our customers are located, required mandatory business closures and
capacity limitations during Fiscal 2021, or other restrictions for those that were permitted to continue to operate. As
of February 28, 2021, all of our operating locations were open, some of which were at a reduced in-office employee
presence.
As a result of these events, the Company has experienced certain adverse impacts on its revenues, results of
operations and cash flows during Fiscal 2021. The situation is still rapidly changing and additional impacts to the
Company’s business may arise that we are not aware of currently. We cannot predict whether, when, or the manner
in which the conditions surrounding COVID-19 will change, including the timing of the lifting of any restrictions or
closure requirements, or any subsequent re-impositions of restrictions. Due to the changing situation, the results of
the first quarter ending May 31, 2021 and the full fiscal year ending February 28, 2022 could be impacted in ways
we are not able to predict today, including, but not limited to, non-cash write-downs and impairments; foreign
currency fluctuations; potential adjustments to the carrying value of inventory; and the delayed collections of, or
inability to collect, accounts receivable. During April 2020, as a precautionary measure to ensure financial flexibility
and maintain maximum liquidity in response to the COVID-19 pandemic, the Company borrowed $20,000 from its
revolving credit facilities in the U.S. This borrowing was repaid in full during the third quarter of Fiscal 2021. As of
the date of this report, the Company continues to focus on cash flow and anticipates having sufficient resources to
operate during Fiscal 2022.
The Company also implemented a number of other measures to help mitigate the operating and financial impact of
the pandemic, including: (i) furloughing approximately 20% of its employees globally starting April 6, 2020; (ii)
implementing temporary salary and hour reductions for both management and non-management level employees
Company-wide, including its executive officers, and the Company’s board of directors; (iii) executing substantial
reductions in expenses, service provider costs, occupancy costs, capital expenditures and overall costs, including
through reduced inventory purchases; and (iv) working globally with management teams to actively explore and
identify all eligible government and other initiatives available to businesses or employees impacted by the COVID-
19 pandemic. As of the filing date of our report, less than 1% of our employees remain on furlough. The above
referenced salary and hour reductions were eliminated by the Company during the third quarter of Fiscal 2021, and
the salary reductions taken were repaid to all employees during the fourth quarter of Fiscal 2021.
Acquisitions and Dispositions
We have acquired and integrated several businesses, as well as divested certain businesses, the most recent of which
are outlined in the Acquisitions and Dispositions section of Part I and presented in detail in Note 2 to the Notes to
the Consolidated Financial Statements.
Net Sales Increase
Net sales over a five-year period have increased 10% from $514,530 for the year ended February 28, 2017 to
$563,605 for the year ended February 28, 2021. During this period, our sales were positively impacted by the
following items:
• The introduction of new products and product lines in the Automotive Electronics and Consumer
Electronics segments, such as: OEM rear seat entertainment; remote start and security products; premium
audio computer speaker systems; various premium and non-premium Bluetooth and wireless speaker
products; multi-room streaming audio solutions; neckband, on-ear, in-ear, and over-ear headphones;
nursery products; and karaoke products,
the acquisition of certain assets of Rosen Electronics LLC,
the acquisition of certain assets of Vehicle Safety Holdings Corp.,
the acquisition of certain assets of Directed LLC and Directed Electronics Canada Inc.,
the introduction of activity tracking band fulfillment programs and the increase in product offerings under
these programs,
•
•
•
•
30
•
•
international digital broadcasting upgrades necessitating the purchase of updated consumer accessory
products, and
successful marketing and promotional activity.
These items were partially offset by:
•
•
•
impacts of the COVID-19 pandemic, which caused nationwide and global business closures, including car
manufacturers, car dealerships, movie theaters, and other brick and mortar businesses where our products
are sold;
volatility in core Automotive Electronics and Consumer Electronics sales due to declines in global
automotive sales, increased competition, lower selling prices, changes in technology and demand, and the
volatility of the national and global economy;
the discontinuance and reduction of various high volume/low margin product lines such as clock radios,
digital players, digital voice recorders, and portable DVD players;
decreased box office sales affecting the Company's cinema audio products;
•
• weather factors resulting in changes in demand for aftermarket remote start products; and
•
the sale of certain branded product inventory of the Company to a third party in order to license the brand
name for a commission.
Critical Accounting Policies and Estimates (see Note 1 to the Consolidated Financial Statements)
General
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in
the United States of America. The preparation of these financial statements requires us to make certain estimates,
judgments, and assumptions that we believe are reasonable based upon the information available. These estimates
and assumptions can be subjective and complex and may affect the reported amounts of assets and liabilities,
revenues, and expenses reported in those financial statements. As a result, actual results could differ from such
estimates and assumptions. During Fiscal 2021, as well as subsequent to February 28, 2021, there has been
continuous and significant changes to the global economic situation as a consequence of the COVID-19 pandemic. It
is possible that this could cause changes to estimates as a result of the financial circumstances of the markets in
which the Company operates, the price of the Company’s publicly traded equity in comparison to the Company’s
carrying value, and the health of the global economy. Such changes to estimates could potentially result in impacts
that would be material to the consolidated financial statements, particularly with respect to the fair value of the
Company’s reporting units in relation to potential goodwill impairment and the fair value of long-lived assets in
relation to potential impairment.
The significant accounting policies and estimates which we believe are the most critical in fully understanding and
evaluating the reported consolidated financial results include the following:
Revenue Recognition
On March 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, and all the
related amendments (“ASC 606”), using the modified retrospective method. Most of the changes resulting from the
adoption of ASC Topic 606 on March 1, 2018 were changes in presentation within the Consolidated Balance Sheet,
and we made no changes to opening Retained Earnings. The impact of the adoption of ASC Topic 606 has been
immaterial to our net income; however, the adoption did increase the level of disclosure concerning our net sales.
The core principle of ASC 606 is that an entity recognizes revenue to depict the transfer of promised goods and
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods and services. We apply the FASB’s guidance on revenue recognition, which requires us to
recognize the amount of revenue and consideration that we expect to receive in exchange for goods and services
transferred to our customers. To do this, the Company applies the five-step model prescribed by the FASB, which
requires us to: (i) identify the contract with the customer; (ii) identify the performance obligations in the contract;
(iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract;
and (v) recognize revenue when, or as, we satisfy a performance obligation.
We account for a contract or purchase order when it has approval and commitment from both parties, the rights of
the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of
31
consideration is probable. Revenue is recognized when control of the product passes to the customer, which is upon
shipment, unless otherwise specified within the customer contract or on the purchase order as delivery, and is
recognized at the amount that reflects the consideration the Company expects to receive for the products sold,
including various forms of discounts. When revenue is recorded, estimates of returns are made and recorded as a
reduction of revenue.
Sales Incentives
Sales incentives are accounted for in accordance with ASC 606. We offer sales incentives to our customers in the
form of (1) co-operative advertising allowances; (2) market development funds; (3) volume incentive rebates;
and (4) other trade allowances. We accrue the cost of co-operative advertising allowances, volume incentive rebates,
and market development funds at the later of when the customer purchases our products or when the sales incentive
is offered to the customer. We record the provision for other trade allowances at the later of when the sales incentive
is offered or when the related revenue is recognized. Except for other trade allowances, all sales incentives require
the customer to purchase our products during a specified period of time. All sales incentives require customers to
claim the sales incentive within a certain time period (referred to as the "claim period"). All costs associated with
sales incentives are classified as a reduction of net sales.
Depending on the specific facts and circumstances, we utilize either the most likely amount or the expected value
methods to estimate the effect of uncertainty on the amount of variable consideration to which we would be entitled.
The most likely amount method considers the single most likely amount from a range of possible consideration
amounts, while the expected value method is the sum of probability-weighted amounts in a range of possible
consideration amounts. Both methods are based upon the contractual terms of the incentives and historical
experience with each customer. Although we make our best estimate of sales incentive liabilities, many factors,
including significant unanticipated changes in the purchasing volume and the lack of claims from customers could
have a significant impact on the liability for sales incentives and reported operating results. We record estimates for
cash discounts, promotional rebates, and other promotional allowances in the period the related revenue is
recognized (“Customer Credits”). The provision for Customer Credits is recorded as a reduction from gross sales
and reserves for Customer Credits are presented within accrued sales incentives on the Consolidated Balance Sheet.
Unearned sales incentives are volume incentive rebates where the customer did not purchase the required minimum
quantities of product during the specified time. Volume incentive rebates are reversed into income in the period
when the customer did not reach the required minimum purchases of product during the specified time. Unclaimed
sales incentives are sales incentives earned by the customer, but the customer has not claimed payment within the
claim period (period after program has ended). Unclaimed sales incentives are investigated in a timely manner after
the end of the program and reversed if deemed appropriate.
Accounts Receivable
We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and
current credit worthiness, as determined by a review of current credit information. We continuously monitor
collections from our customers and maintain a provision for estimated credit losses based upon historical experience
and any specific customer collection issues that have been identified. While such credit losses have historically
been within management's expectations and the provisions established, we cannot guarantee that we will continue to
experience the same credit loss rates that have been experienced in the past. Our five largest customer balances
comprise 25% of our accounts receivable balance as of February 28, 2021. A significant change in the liquidity or
financial position of any one of these customers could have a material adverse impact on the collectability of
accounts receivable and our results of operations.
On March 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which did not have a material impact
on our financial statements. Our financial instruments consist of trade receivables arising from revenue transactions
in the ordinary course of business. We extend credit to customers based on pre-defined criteria and trade receivables
are generally due within 30 to 60 days.
Inventory
We value our inventory at the lower of the actual cost to purchase or the net realizable value of the inventory. Net
realizable value is defined as estimated selling prices, less cost of completion, disposal, and transportation. We
regularly review inventory quantities on-hand and record a provision in cost of sales for excess and obsolete
32
inventory based primarily on selling prices, indications from customers based upon current price negotiations, and
purchase orders. The cost of the inventory is determined primarily on a weighted moving average basis, with a
portion valued at standard cost, which approximates actual costs on the first in, first out basis. Our industry is
characterized by rapid technological change and frequent new product introductions that could result in an increase
in the amount of obsolete inventory quantities on-hand. In addition, and as necessary, specific reserves for future
known or anticipated events may be established.
Estimates of excess and obsolete inventory may prove to be inaccurate, in which case we may have understated or
overstated the provision required for excess and obsolete inventory. Although we make every effort to ensure the
accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or
technological developments could have a significant impact on the carrying value of inventory and our results of
operations.
Long-Lived and Intangible Asset Impairments
As of February 28, 2021, intangible assets totaled $90,104 and property, plant and equipment totaled $52,026.
Management makes estimates and assumptions in preparing the consolidated financial statements for which actual
results will emerge over long periods of time. This includes the recoverability of long-lived assets employed in the
business, including assets of acquired businesses. These estimates and assumptions are closely monitored by
management and periodically adjusted as circumstances warrant. For instance, expected asset lives may be
shortened or an impairment recorded based upon a change in the expected use of the asset or performance of the
related asset group. At the present time, management intends to continue the development, marketing and selling of
products associated with its intangible assets, and there are no known restrictions on the continuation of their use.
In connection with the annual impairment test performed as of the last day of the fourth quarter of Fiscal 2021, the
Company determined that one of its trademarks in the Consumer Electronics segment was impaired. The impairment
was the result of shortfalls in sales due to reduced demand of the product category. As a result, an impairment
charge of $1,300 was recorded for the year ended February 28, 2021 (see Note 1(k)). Related long-lived assets were
tested for recoverability and determined to be recoverable and therefore no additional impairments related to long-
lived assets were recorded.
In connection with the annual impairment test performed as of the last day of the fourth quarter of Fiscal 2020, the
Company determined that several of its indefinite-lived trademarks in the Consumer Electronics segment, were
impaired. The impairments were the result of the Company being unable to secure product placement into customer
stores, anticipated shortfalls in sales due to economic uncertainty as a result of the COVID-19 pandemic, reduced
demand from a large traditional brick-and-mortar customer, along with continued declines in the German economy.
As a result, several indefinite-lived tradenames in the Consumer Electronics segment were impaired resulting in
impairment charges of $2,828 recorded for the year ended February 29, 2020 (see Note 1(k)). Related long-lived
assets were tested for recoverability and determined to be recoverable and therefore no additional impairments
related to long-lived assets were recorded in the Consumer Electronics segment.
In the Biometrics segment, in connection with the annual impairment test for Fiscal 2020, the Company determined
that its indefinite-lived trademark was impaired. The impairment of the trademark was the result of lack of customer
acceptance of the related technology, lower than anticipated results, adjusted expectations for demand and
anticipated delays of product deployment with target customers due to economic uncertainty given the COVID-19
pandemic. Related long-lived assets in the Biometrics segment were tested for recoverability and determined not to
be recoverable. The fair value of the long-lived assets that were not recoverable were estimated, and when compared
to their carrying value, were determined to also be impaired. As a result, total impairments in the Biometrics
segment of $27,402 for indefinite-lived and definite-lived intangible assets were recorded for the year ended
February 29, 2020 (see Note 1 (k)).
The combined impairment charges for both the Consumer Electronics segment and the Biometrics segment
aggregated $30,230 for fiscal year ended February 29, 2020.
During the second quarter of Fiscal 2019, the Company re-evaluated its projections for several brands in its former
Consumer Accessories and Automotive segments based on lower than anticipated results. Specifically, during the
second quarter of Fiscal 2019, the lower than anticipated results were due to reduced product load-ins, increased
competition for certain product lines, a streamlining of SKU’s, and a change in market strategy for one of its brands.
33
Accordingly, these were considered indicators of impairment requiring the Company to test the related indefinite-
lived tradenames for impairment as of August 31, 2018. The Company also tested its indefinite-lived intangible
assets as of February 28, 2019 as part of its annual impairment testing. During the fourth quarter, the Company
further streamlined its SKUs in conjunction with its corporate realignment and transformation initiatives, and
adjusted expectations for select customer demand, and the anticipated results from alternative sales channels for one
of its brands. As a result of these analyses, it was determined that several of the Company’s former Consumer
Accessories trademarks and one of the Automotive trademarks were impaired with total impairment charges of
$25,789 recorded for the year ended February 28, 2019 (see Note 1(k)).
Approximately 39% of our indefinite-lived trademarks ($24,432) are at risk of impairment as of February 28, 2021.
When testing indefinite-lived assets for impairment, we have the option to first assess qualitative factors to
determine whether the existence of events or circumstances leads to a determination that it is more likely than not
that the estimated fair value is less than its carrying amount. If we elect to perform a qualitative assessment and
determine that an impairment is more likely than not, we are then required to perform the quantitative impairment
test; otherwise, no further analysis is required. Under the qualitative assessment, we consider various qualitative
factors, including macroeconomic conditions, relevant industry and market trends, cost factors, overall financial
performance, other entity-specific events, and events affecting the indefinite-lived asset that could indicate a
potential change in the fair value of our indefinite-lived assets. We also considered the specific future outlook for the
indefinite-lived asset. We may also elect not to perform the qualitative assessment and instead, proceed directly to
the quantitative impairment test. The Company uses an income approach, based on the relief from royalty method,
to value the indefinite-lived trademarks as part of its quantitative impairment test. This impairment test involves the
use of accounting estimates and assumptions, changes in which could materially impact our financial condition or
operating performance if actual results differ from such estimates and assumptions. The critical assumptions in the
discounted cash flow model include revenues, long-term growth rates, royalty rates, and discount rates. Management
exercises judgment in developing these assumptions. Certain of these assumptions are based upon industry
projections, facts specific to the trademarks and consideration of our long-term view for the trademark and the
markets we operate in. If we were to experience sales declines, a significant change in operating margins which may
impact estimated royalty rates, an increase in our discount rates, and/or a decrease in our projected long-term growth
rates, there would be an increased risk of impairment of these indefinite-lived trademarks.
The cost of other intangible assets with definite lives and long-lived assets are amortized on an accelerated or
straight-line basis over their respective lives. Management has determined that the current lives of these assets are
appropriate.
Long-lived assets and certain identifiable intangibles are reviewed for impairment in accordance with ASC 360
whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying value of an asset to future
undiscounted net cash flows expected to be generated by the asset. If the carrying value of the long-lived assets are
not recoverable on an undiscounted basis, they are then compared to their estimated fair market value. If such assets
are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying
value of the assets exceeds the fair value of the assets.
The Company holds certain long-lived assets in Venezuela, which are held for investment purposes. During the
second quarter of Fiscal 2019, the Company assessed the recoverability of these properties as a result of the
country's continued economic deterioration, which included a significant currency devaluation in August of 2018.
The Company estimated the future undiscounted cash flows expected to be received from these properties. The
estimate of the future undiscounted cash flows considered the Company’s financial condition and its intent and
ability to retain its investments for a period of time sufficient to allow for the recovery of the carrying value. The
future undiscounted cash flows did not exceed the net carrying value for the long-lived assets. The estimated fair
value of the properties, which also considered the current conditions of the economy in Venezuela, the volatility of
the real estate market, and the significant political unrest, resulted in a full non-cash impairment charge of $3,473 for
the year ended February 28, 2019. The non-cash impairment charge is included in Other Income (Expense) on the
Consolidated Statements of Operations and Comprehensive (Loss) Income. The value of the Company's properties
held for investment purposes in Venezuela is $0 as of February 28, 2021.
Voxx’s goodwill totaled $58,311 as of February 28, 2021. Goodwill is tested for impairment as of the last day of
each fiscal year at the reporting unit level. When testing goodwill for impairment, we have the option to first assess
34
qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is
more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to
perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to
perform the quantitative impairment test; otherwise, no further analysis is required. Under the qualitative
assessment, we consider various qualitative factors, including macroeconomic conditions, relevant industry and
market trends, cost factors, overall financial performance, other entity-specific events, and events affecting the
reporting unit that could indicate a potential change in fair value of our reporting unit or the composition of its
carrying values. We also consider the specific future outlook for the reporting unit. We also may elect not to perform
the qualitative assessment and instead, proceed directly to the quantitative impairment test. Application of the
goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and
liabilities to reporting units, assignment of goodwill to reporting units, and estimation of the fair value of each
reporting unit. Based on the Company's goodwill impairment assessment, all the reporting units with goodwill had
estimated fair values as of February 28, 2021 that exceeded their carrying values. As a result of the annual
assessment, no impairment charges were recorded related to goodwill during Fiscal 2021, Fiscal 2020, or Fiscal
2019.
Goodwill allocated to our Klipsch, Invision, Rosen, VSM, and DEI reporting units was 79.8% ($46,533), 12.6%
($7,372), 1.5% ($880), 1.0% ($572 ), and 5.1% ($2,954), respectively. The fair values of the Klipsch and Invision
reporting units are greater than their carrying values by approximately 544.9% ($188,149) and 25.5% ($5,094),
respectively, as of February 28, 2021. The quantitative assessment utilizes either an income approach, a market
approach, or a combination of these approaches to determine the fair value of its reporting units. These approaches
have a degree of uncertainty. The income approach employs a discounted cash flow model to value the reporting
unit as part of its impairment test. This impairment test involves the use of accounting estimates and assumptions,
changes in which could materially impact our financial condition or operating performance if actual results differ
from such estimates and assumptions. The critical assumptions in the discounted cash flow model are revenues,
operating margins, working capital and a discount rate (developed using a weighted average cost of capital analysis).
Management exercises judgment in developing these assumptions. Certain of these assumptions are based upon
industry projections, facts specific to the reporting unit, market participant assumptions and data, and consideration
of our long-term view for the reporting unit and the markets we operate in. The market approach employs market
multiples from guideline public companies operating in our industry. Estimates of fair value are derived by applying
multiples based on revenue and earnings before interest, taxes, depreciation, and amortization (“EBITDA”) adjusted
for size and performance metrics relative to peer companies. If the Klipsch reporting unit were to experience sales
declines, sustained pricing pressures, unfavorable operating margins, lack of new product acceptance by consumers,
changes in consumer trends and preferred shopping channels, less than anticipated results for the holiday season, a
change in the peer group or performance of the peer companies, an increase to the discount rate, and/or a decrease in
our projected long-term growth rates used in the discounted cash flow model, there would be an increased risk of
goodwill impairment for the Klipsch reporting unit. If the Invision reporting unit experienced an increase to the
discount rate, a lack or delay in new product acceptance, cancellation, or reduction in projected volumes from OEM
customers, or a change in our projected long-term growth rates used in the discounted cash flow model, there would
be an increased risk of goodwill impairment for the Invision reporting unit. If the Rosen, VSM, and DEI reporting
units experienced an increase to the discount rate, sales declines, changes in consumer trends, or increases in cost
factors, there would be an increased risk of goodwill impairment for the Rosen, VSM, and DEI reporting units.
Warranties
We offer warranties of various lengths depending upon the specific product. Our standard warranties require us to
repair or replace defective product returned by both end users and customers during such warranty period at no cost.
We do not sell extended warranties. We record an estimate for warranty related costs in cost of sales, based upon
historical experience of actual warranty claims and current information on repair costs and contract terms with
certain manufacturers. While warranty costs have historically been within expectations and the provisions
established, we cannot guarantee that we will continue to experience the same warranty return rates or repair costs
that have been experienced in the past. A significant increase in product return rates, or a significant increase in the
costs to repair products, could have a material adverse impact on our operating results.
35
Stock-Based Compensation
We use the Black-Scholes option pricing model to compute the estimated fair value of stock-based awards. The
Black-Scholes option pricing model includes assumptions regarding dividend yields, expected volatility, expected
option term and risk-free interest rates. The assumptions used in computing the fair value of stock-based awards
reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are
outside of our control. We estimate expected volatility by considering the historical volatility of our stock, the
implied volatility of publicly traded stock options in our stock and our expectations of volatility for the expected
term of stock-based compensation awards. For restricted stock awards, the fair value of the award is the price on the
date of grant. As a result, if other assumptions or estimates had been used for restricted stock awards granted in the
current and prior periods, the total stock-based compensation expense for the current fiscal year of $1,749 could
have been materially different. Furthermore, if different assumptions are used in future periods, stock-based
compensation expense could be materially impacted in the future.
Income Taxes
We account for income taxes in accordance with the guidance issued under Statement ASC 740, "Income Taxes"
(“ASC 740”) with consideration for uncertain tax positions. We record a valuation allowance to reduce our deferred
tax assets to the amount of future tax benefit that is more likely than not to be realized.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying
values of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards.
In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider
all positive and negative evidence including the results of recent operations, scheduled reversal of deferred tax
liabilities, future taxable income, and tax planning strategies. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled (see Note 8). The effect on deferred tax assets and liabilities from a change in tax rates is
recognized in income in the period that includes the enactment date.
The Company accounts for uncertain tax positions in accordance with the authoritative guidance issued under ASC
740, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return
should be recorded in the financial statements. The Company may recognize the tax benefit from an uncertain tax
position only if it is more likely than not that the tax position will be sustained on examination by the taxing
authorities based on the technical merits of the position. The tax benefits recognized in the financial statements
from such position should be measured based on the largest benefit that has a greater than fifty percent likelihood of
being realized upon ultimate settlement. The Company provides loss contingencies for federal, state, and
international tax matters relating to potential tax examination issues, planning initiatives and compliance
responsibilities. The development of these reserves requires judgments about tax issues, potential outcomes, and
timing, which if different, may materially impact the Company's financial condition and results of operations. The
Company classifies interest and penalties associated with income taxes as a component of Income tax expense
(benefit) on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Results of Operations
Included in Item 8 of this annual report on Form 10-K are the Consolidated Balance Sheets as of February 28, 2021
and February 29, 2020 and the Consolidated Statements of Operations and Comprehensive Income (Loss),
Consolidated Statements of Stockholders’ Equity and Consolidated Statements of Cash Flows for the years ended
February 28, 2021, February 29, 2020 and February 28, 2019. In order to provide the reader meaningful
comparisons, the following analysis provides comparisons of the audited year ended February 28, 2021 with the
audited year ended February 29, 2020, and the audited year ended February 29, 2020 with the audited year ended
February 28, 2019. We analyze and explain the differences between periods in the specific line items of the
Consolidated Statements of Operations and Comprehensive Income (Loss).
36
Year Ended February 28, 2021 Compared to the Years Ended February 29, 2020 and February 28, 2019
Continuing Operations
The tables presented in this section set forth, for the periods indicated, certain Statement of Operations data for the
years ended February 28, 2021 ("Fiscal 2021"), February 29, 2020 ("Fiscal 2020") and February 28, 2019 ("Fiscal
2019").
Net Sales
Automotive Electronics
Consumer Electronics
Biometrics
Corporate
Total net sales
Fiscal 2021 compared to Fiscal 2020
Fiscal
2021
Fiscal
2020
Fiscal
2019
$
$
163,903 $
398,263
836
603
563,605 $
114,154 $
279,675
461
599
394,889 $
161,647
283,144
1,098
927
446,816
Automotive Electronics sales, which include both OEM and aftermarket automotive electronics, represented 29.1%
of the net sales for the year ended February 28, 2021, compared to 28.9% in the prior year. Sales in this segment
increased $49,749 for the year ended February 28, 2021, as compared to the prior year. The primary driver of sales
increases in this segment was sales of OEM and aftermarket products related to the Company’s VSM and DEI
subsidiaries, established in connection with the Company’s acquisitions in the fourth quarter of Fiscal 2020 and the
second quarter of Fiscal 2021, respectively. Sales from these two new subsidiaries totaled approximately $71,000
and comprised approximately 43% of the segment’s sales for the year ended February 28, 2021. In the prior year,
the Company’s VSM subsidiary contributed approximately $2,300 of sales to the Automotive Electronics segment.
The Company also saw an increase in sales of its aftermarket security and remote start products of approximately
$3,600 during the year ended February 28, 2021, partly due to a boost in demand following business re-openings
after the COVID-19 shut-downs, as purchases could not be made by customers during the shutdowns. Offsetting
these increases, the segment experienced sales declines in certain product lines during the year ended February 28,
2021 related to the COVID-19 pandemic, as well as certain other factors. The Company experienced a net decrease
in sales of OEM rear seat entertainment products totaling approximately $10,300 due to several automotive
manufacturing plant shut-downs beginning in March 2020 as a result of COVID-19, including Ford, GM, FCA, and
Subaru. Many plants began to gradually re-open during the second quarter of our fiscal year, and while some of the
programs have begun to ramp up production again, others have yet to return to pre-COVID levels, thus negatively
impacting sales for the year. Additionally, OEM rear seat entertainment sales were negatively impacted during the
year ended February 28, 2021 by the cancellation of a program with one of the Company’s larger customers that had
been in production during the prior year. This was partially offset by the successful launch of a new program with a
customer in October 2020. The Company’s OEM remote start sales decreased approximately $6,200 during the year
ended February 28, 2021 as a result of an increase in the use of Tier 1 factory installed remote start products by
many automotive manufacturers (which the Company does not sell) over accessory level remote starts. This has
negatively impacted the Company’s sales to certain of its OEM remote start customers. Sales of aftermarket rear
seat entertainment products also decreased during the year ended February 28, 2021 by approximately $2,700 due to
the COVID-19 related shutdowns of car dealerships and other brick and mortar businesses during the first quarter of
the year, followed by stock-outages of several products, which continued to negatively impact sales through the
remainder of the fiscal year. Finally, satellite radio fulfillment sales decreased approximately $900 during the year
ended February 28, 2021 both as a result of business shut-downs during COVID-19, as well as due to the fact that
most new vehicles include this product as a standard option.
Consumer Electronics sales represented 70.7% of net sales for the year ended February 28, 2021 as compared to
70.8% in the prior year. Sales increased $118,588 for the year ended February 28, 2021 as compared to the prior
year due primarily to the positive sales and promotion of several of the Company’s premium audio products. During
Fiscal 2021, the Company experienced greater consumer demand and achieved market share growth in its premium
home theater, subwoofer, and premium wireless categories, launching a new premium wireless computer speaker
37
system and selling many of its products through warehouse club channels, as well as through online platforms,
which resulted in an increase of approximately $118,400 in sales for the year ended February 28, 2021. The
Company’s newly formed subsidiary, 11 Trading Company LLC, also began selling Onkyo and Pioneer products
through new distribution agreements during the third quarter of the fiscal year, contributing to an increase of
approximately $13,700 in sales for the year ended February 28, 2021. Within Europe, the Company experienced
stronger online sales during year ended February 28, 2021 of approximately $6,300 due to many consumers
shopping from home during the COVID-19 pandemic, as well as an increase in sales in its Do It Yourself (“DIY”)
line of products, a new sales channel of discount retailers, and a shift in focus of premium audio products in Europe
from low margin to traditional home theater products. Offsetting these sales increases were decreases in sales related
to the COVID-19 pandemic, as well as other factors. The Company experienced decreases in sales of approximately
$12,200 in certain consumer electronic and accessory products for the year ended February 28, 2021, such as
reception products, remotes, wireless speakers, and other power products, primarily due to nationwide brick and
mortar business closures and delayed customer orders related to the COVID-19 pandemic, as well as due to the
Company’s continuing rationalization of SKUs for certain of these products, with the goal of limiting sales of lower
margin products. There was also a decrease in sales of the Company’s premium commercial speaker products of
approximately $3,100 due to the shut-down of cinemas during the pandemic. Additionally, the Company
experienced a decrease in sales of its motion products during the year ended February 28, 2021 of approximately
$2,700, as one of the Company’s healthcare programs ended during the fiscal year, and there was a decrease in sales
of smart home security products of approximately $800, as the Company began exiting this category during Fiscal
2020. Finally, product sales in the Company’s rest of world locations declined approximately $700 as a result of the
COVID-19 pandemic due to overseas lockdowns and customer order delays and cancellations.
Biometrics represented 0.1% of our net sales for both of the years ended February 28, 2021 and February 29, 2020
and sales increased in the segment by $375 for the year ended February 28, 2021 as compared to the prior year. This
segment experienced an increase in product sales for the year ended February 28, 2021 due to increased sales of its
EXT outdoor perimeter access product, and the updated version of its Nano NXT perimeter access product, both of
which launched in the second quarter of Fiscal 2020. Additionally, the Company began selling its NIXT product
during the year ended February 28, 2021, which can be optionally fitted with iTEMP, a product that can take an
individual’s temperature before allowing iris access.
Fiscal 2020 compared to Fiscal 2019
Automotive Electronics sales, which include both OEM and aftermarket automotive electronics, represented 28.9%
of the net sales for the year ended February 29, 2020, compared to 36.2% in the prior year. Sales in this segment
decreased during the year ended February 29, 2020 as compared to the prior year due to various factors, including a
decline in sales of the Company’s EVO rear seat entertainment product line, which was due in part to slower sales
for certain programs that began in the prior year and the discontinuation of two planned programs, which is
attributable to a softening of global automotive industry sales during the year. The Company’s OEM and aftermarket
security and remote start sales also declined during the year ended February 29, 2020 as a result of competition due
in part to a shift in demand from analog to digital remote start products, as well as the discontinuation of passive
entry programs with certain customers. Sales of aftermarket satellite radio and headrest products have declined for
the year ended February 29, 2020 as compared to the prior year, as a result of an increase in standard factory
equipped vehicles with these options, as well as due to price competition and increased tariffs for aftermarket
headrest products. Additionally, during the year ended February 29, 2020, the Company made a non-refundable up-
front payment to one of its customers as consideration for a future OEM program award, which resulted in a
reduction of revenue. Offsetting the sales declines in this segment for the year ended February 29, 2020 were
increases in sales of certain aftermarket safety and security products as compared to the prior year, as well as sales
related to the Company’s newly acquired Vehicle Safety Holdings Corp. business in the fourth quarter.
Consumer Electronics sales represented 70.8% of net sales for the year ended February 29, 2020 as compared to
63.4% in the prior year. Sales decreased for the year ended February 29, 2020 as compared to the prior year due to
several factors. The Company experienced decreases in sales of certain products, such as in the Project Nursery line,
as a result of the elimination of baby video monitors; in wireless and bluetooth speakers, due a reduction in product
placement with one of the Company’s larger customers and the timing of annual orders from another; in sales of
smart home products, as the Company is exiting this category; and in karaoke products, due to a one time holiday
sale to one of the Company’s customers in the prior year that did not repeat in the current fiscal year. The Company
also continued to see a decline in sales of certain hook-up, power products, and headphones, as a result of changes in
38
customer demand and technology, and due to the Company’s continuing rationalization of SKUs in Fiscal 2020,
with the goal of limiting sales of lower margin products. Within Europe, the Company experienced decreases in
sales across all product lines, as well as in the DIY business during the year ended February 29, 2020 as a result of a
slowdown in the European market. Offsetting these decreases, the Company had an increase in sales within both of
its premium mobility and premium wireless and bluetooth speaker categories as a result of the launch of new lines of
soundbars, Bluetooth speakers, and wireless earbuds, as well as stronger sales of several existing products. The
Company’s premium home separate speaker product sales also increased as a result of the continued successful sales
of its new domestic product lines that launched during the second quarter of Fiscal 2019, and additional distribution
partners for the Company’s premium commercial speaker products had a favorable impact on sales for the year
ended February 29, 2020 as well. Additionally, reception product sales were up for the year ended February 29,
2020 as a result of expanded SKU offerings with certain customers and stronger market share, and sales of the
Company’s activity bands have increased year over year as a result of increased motion program participants, as
well as additional product offerings for participants, including the Apple watch and Fitbit.
Biometrics represented 0.1% of our net sales for the year ended February 29, 2020, compared to 0.2% in the prior
year. This segment experienced a decrease in product sales for the year ended February 29, 2020 as a result of its
product mix, as the Company was selling more of its higher dollar Hbox products during the year ended February
28, 2019. During the year ended February 29, 2020, the Company began selling its EXT outdoor perimeter access
product, as well as an updated version of its Nano NXT perimeter access product, which both sell at a lower price
point and have not yet achieved the sales volumes to surpass prior year sales dollars.
Gross Profit and Gross Margin Percentage
Automotive Electronics
Consumer Electronics
Biometrics
Corporate
Fiscal
2021
Fiscal
2020
Fiscal
2019
39,296
$
24.0%
118,866
29.8%
(191)
-22.8%
576
158,547
$
28.1%
23,131
$
20.3%
86,588
31.0%
(160)
-34.7%
217
109,776
$
27.8%
40,621
25.1%
82,230
29.0%
(1,082)
-98.5%
(352)
121,417
27.2%
$
$
Fiscal 2021 compared to Fiscal 2020
Gross margins in the Automotive Electronics segment increased 370 basis points for the year ended February 28,
2021. The primary driver of the margin increases in this segment has been sales of OEM and aftermarket products
related to the Company’s VSM and DEI subsidiaries, whose products have higher profit margins than those typically
achieved by the segment. DEI’s sales were not present in the prior year, and VSM contributed to sales for one month
of Fiscal 2020, or 2% of the segment’s sales. The increase in sales of higher margin aftermarket remote start and
security products also contributed positively to the segment’s margins during the year ended February 28, 2021.
Offsetting these positive impacts, the decline in sales of higher margin OEM security and remote start products
during the year ended February 28, 2021, due to the shift in demand from accessory level remote starts to production
level, factory installed remote starts, caused a decline in margins. In addition, there was a decline in aftermarket
headrest sales during the year ended February 28, 2021, which typically generate higher margins for the segment
and thus had a negative impact on margins for the year.
Gross margins in the Consumer Electronics segment decreased 120 basis points for the year ended February 28,
2021 compared to the prior year. Margin declines during the year ended February 28, 2021 were primarily driven by
the Company’s newest line of premium wireless computer speakers, as well as other premium audio products sold
through warehouse club channels, which have contributed positively to sales, but have been sold at lower margins
than those typically associated with the Company’s premium wireless speaker products. The Company’s premium
headphone margins also negatively impacted the segment’s overall margins during the year ended February 28,
2021 due to close out sales of certain older products in preparation for the launch of its newest line of wireless
39
earbuds, which contributed to an increase in sales of these product, but a decline in the margins. Additionally,
although sales in Europe have increased during the year ended February 28, 2021, the increase in sales generated
from a new sales channel of discount retail customers has generated lower margins and has had a negative impact on
the year. As an offset to these negative impacts, the segment has experienced margin increases during the year ended
February 28, 2021 due to factors including a shift in focus of premium audio products in Europe from low margin to
traditional home theater products. Additionally, while the Company experienced decreases in sales of certain
product lines during the year ended February 28, 2021, such as reception products and remotes, the margins earned
on these products improved as compared to the prior year due to the movement of production out of China.
Gross margins in the Biometrics segment improved for the year ended February 28, 2021 compared to the prior
year. The increase in margins for the year ended February 28, 2021 was primarily a result of prior year events that
negatively impacted the segment’s margins in Fiscal 2020. Certain tooling and defective repair costs incurred during
the year ended February 29, 2020, as well as the provision of beta samples to certain customers at no cost during the
prior year, negatively impacted Fiscal 2020 margins. A large sale made at a loss during the year ended February 29,
2020 also caused lower margins in the prior year. During the year ended February 28, 2021, the Company provided
more onsite and remote support to customers, which generates higher margins for the segment. Offsetting these
positive margin impacts for the year ended February 28, 2021 has been the reduction in pricing on certain products,
which has helped to drive higher sales in Fiscal 2021 but has resulted in lower margins for the segment. In addition,
the release of inventory reserves in the prior year had a positive impact on the segment’s gross margin in Fiscal
2020, thus negatively impacting the current year margin comparisons.
Fiscal 2020 compared to Fiscal 2019
Gross margins in the Automotive Electronics segment decreased 480 basis points for the year ended February 29,
2020. The decrease in margins was driven primarily by the declines in higher margin OEM security, remote start,
and rear seat entertainment sales, which also resulted in lower absorption of fixed overhead costs in the current year
periods, further decreasing margins for the segment. Additionally, slow moving write-off adjustments were made
during the fiscal year, in part due to the slower rear seat entertainment sales and the discontinuation of certain
programs. There was also a decline in aftermarket headrest product sales, which typically generate higher margins
for the segment. Margins were negatively affected further during the year ended February 29, 2020 by tariff
increases, as certain of the Company’s products are manufactured in China, while production of certain other
products were relocated to other countries with higher labor costs. During the year ended February 29, 2020, the
Company also made a non-refundable up-front payment to a customer as consideration for a future OEM program
award, which negatively impacted margins. As an offset to these margin declines during the year ended February 29,
2020, the Automotive Electronics segment experienced declines in satellite radio sales, which contribute lower
margins to the group, while increased sales of certain aftermarket security products and products related to the
newly acquired Vehicle Safety Holdings Corp. business contributed favorably to margins for the year.
Gross margins in the Consumer Electronics segment increased 200 basis points for the year ended February 29,
2020 compared to the prior year. Margin increases during the year ended February 29, 2020 were driven in part by
increased sales of the Company’s high margin premium wireless and bluetooth speakers, mobility products, home
separate, and commercial speakers, as well as the result of heavy discounts offered on older mobility products in the
prior year, such as wired headphones and neckbands, that did not repeat in the current year. Margins have been
negatively affected during the year ended February 29, 2020 by tariff increases, as certain of the Company’s
products are manufactured in China, while production of certain other products were relocated to other countries
with higher labor costs. The Company offset some of the effects of these tariff increases, where possible, with price
increases. Margin declines were also driven by declining sales of products with typically higher margins, such as
Project Nursery and karaoke products, as well as by sales declines within the European market and higher
warehousing costs incurred related to the use of a third party for warehousing services in Europe beginning during
the first quarter of Fiscal 2020.
Gross margins in the Biometrics segment increased for the year ended February 29, 2020 compared to the prior year.
These increases were primarily due to the write off slow moving inventory and parts in Fiscal 2019 related to its
myris product, which negatively impacted margins in the prior year. Offsetting these factors were sales of certain
inventory during the year ended February 28, 2019 that had been previously written off, and contributed positively
to margins in the prior year, as well as higher sales of licensing fees in the prior year, which earned higher margins
for the segment. Additionally, during the year ended February 29, 2020, the Company incurred certain tooling and
40
defective repair costs, as well as provided beta samples to certain customers and prospects at no charge, which
negatively impacted margins for the current fiscal year.
Operating Expenses
Operating Expenses:
Selling
General and administrative
Engineering and technical support
Intangible asset impairment charges
Restructuring expense
Total Operating Expenses
Fiscal 2021 compared to Fiscal 2020
Fiscal
2021
Fiscal
2020
Fiscal
2019
$
$
43,786 $
70,085
20,897
1,300
—
136,068 $
39,319 $
68,928
21,602
30,230
—
160,079 $
41,731
66,935
24,387
25,789
4,588
163,430
The Company experienced an overall decrease in operating expenses of $24,011 for Fiscal 2021 as compared to
Fiscal 2020; however, in the absence of intangible asset impairment charges in both years, operating expenses would
have increased by $4,919.
Selling expenses have increased $4,467 for the year ended February 28, 2021. This increase was primarily due to
increased commission expense of approximately $4,600 as a result of higher sales for the fiscal year. A net increase
in salary expense of approximately $1,200 was due to the additional headcount created by acquisitions resulting in
the establishment of the VSM and DEI subsidiaries in the fourth quarter of Fiscal 2020 and the second quarter of
Fiscal 2021, respectively, as well as additional hires related to the Company’s new 11 Trading Company subsidiary
related to distribution agreements for Onkyo and Pioneer products. This was slightly offset by the furlough of
certain employees during the fiscal year due to the COVID-19 pandemic. Web advertising and platform expenses
increased approximately $1,800 for the year ended February 28, 2021 due to an increase in online traffic, with many
consumers working and shopping from home during the mandatory quarantines and business shutdowns throughout
the country as a result of the pandemic. Additionally, credit card fees increased approximately $600 primarily as a
result of the Company’s DEI subsidiary, established in connection with the Company’s acquisition in the second
quarter of Fiscal 2021, whose subscription sales are transacted online. Offsetting these increases in selling expenses
for the year ended February 28, 2021 were decreases due to factors directly related to the COVID-19 pandemic,
which resulted in the temporary shut-down of many brick and mortar stores and mandatory quarantine orders during
the first quarter of our Fiscal 2021 year, with phased re-openings taking place beginning in the second quarter
through the remainder of our fiscal year. The elimination of all non-essential travel Company-wide resulted in a
decrease in travel and entertainment expenses of approximately $1,700. Additionally, trade show expenses
decreased approximately $1,800 as all events were either cancelled or held virtually due to COVID-19.
General and administrative expenses increased $1,157 during the year ended February 28, 2021. Increases in general
and administrative expenses were due in part to a net increase in salary expense of approximately $3,300 during the
fiscal year. Salary increases were due to higher bonus accruals as a result of the positive performance of the
Company for the year ended February 28, 2021, as well as due to increased headcount resulting from the Company’s
new DEI and VSM subsidiaries established in the fourth quarter of Fiscal 2020 and the second quarter of Fiscal
2021, respectively. This was offset by the furlough of certain employees during the year ended February 28, 2021,
as well as due to the prior year grant of 200,000 fully vested shares of Class A Common Stock to the Company’s
Chief Executive Officer in accordance with his employment agreement, which resulted in compensation expense of
approximately $800 for the year ended February 29, 2020 that did not repeat in the current fiscal year. Professional
fees also increased by approximately $1,300 as a result of acquisition-related services provided in connection with
the Company’s DEI and VSM subsidiaries and insurance expense increased approximately $400 as a result of the
deductible related to an IT security incident in the second quarter of the fiscal year, as well as due to the Company’s
new VSM, DEI, and 11 Trading Company LLC subsidiaries. As an offset to these general and administrative
expense increases were decreases related to the COVID-19 pandemic, as well as other factors. Depreciation and
amortization expense decreased approximately $1,300, net, for the year ended February 28, 2021 as a result of the
impairment of certain definite-lived intangible assets at EyeLock in Fiscal 2020, which reduced the amortizable base
of these assets. This was offset by increases in depreciation and amortization expense related to newly acquired
41
tangible and intangible assets within the VSM and DEI subsidiaries. Bad debt expense decreased approximately
$1,100 as a result of the prior year reserves of certain customers who filed bankruptcy, which did not repeat in the
current year, as well as due to the recovery of certain balances during the year ended February 28, 2021 that were
previously written off. The elimination of all non-essential travel as a result of the COVID-19 pandemic resulted in
travel and entertainment expense decreases of approximately $900 for the year ended February 28, 2021.
Additionally, office and occupancy expenses decreased approximately $700 due to lower overhead, as certain of the
Company’s offices were shut down during the first and second quarters of the fiscal year due to the COVID-19
pandemic, and many re-opened offices have remained at a reduced capacity through the remainder of the fiscal year.
Engineering and technical support expenses for the year ended February 28, 2021 declined $705 as compared to the
prior year. For the year ended February 28, 2021, furloughs and headcount reductions at many of the Company’s
locations related to the COVID-19 pandemic resulted in lower labor expenses of approximately $3,000. The
elimination of all non-essential travel as a result of the pandemic also resulted in travel and entertainment expense
decreases of approximately $500. These decreases were offset by increases in labor of approximately $2,600 as a
result of the Company’s new VSM and DEI subsidiaries established in connection with the Company’s acquisitions
in the fourth quarter of Fiscal 2020 and second quarter of Fiscal 2021, respectively.
In connection with its annual impairment test performed as of the last day of the fourth quarter of Fiscal 2021, the
Company determined that one of its trademarks in the Consumer Electronics segment was impaired. The impairment
was the result of shortfalls in sales due to reduced demand of the product category. As a result, an impairment
charge of $1,300 was recorded for the year ended February 28, 2021.
In connection with its annual impairment test performed as of the last day of the fourth quarter of Fiscal 2020, the
Company determined that several of its indefinite-lived intangible assets within the Consumer Electronics segment,
as well as certain indefinite-lived and definite-lived intangible assets within the Biometrics segment were impaired.
The impairments within the Consumer Electronics segment were the result of the Company being unable to secure
product placement into customer stores, anticipated shortfalls in sales due to economic uncertainty as a result of the
COVID-19 pandemic, reduced demand from a large traditional brick-and-mortar customer, along with continued
declines in the German economy. The impairments within the Biometrics segment were the result of lack of
customer acceptance of the related technology, lower than anticipated results, adjusted expectations for demand, and
anticipated delays of product deployment with target customers due to economic uncertainty related to the COVID-
19 pandemic. The Company recorded total impairment charges of $30,230 for the year ended February 29, 2020
related to these impairments.
Fiscal 2020 compared to Fiscal 2019
The Company experienced an overall decrease in operating expenses of $3,351 for Fiscal 2020 as compared to
Fiscal 2019.
Selling expenses have decreased for the year ended February 29, 2020 due to various factors, including headcount
reductions related to Fiscal 2019 restructuring activities, lower commissions as a result of the decline in sales for the
year, lower trade show expenses due to attending fewer shows, and lower advertising costs and display amortization
expense, due to cost cutting measures, as well as the fact that many displays and fixtures are fully amortized or have
been removed. These expense decreases were offset by salary increases resulting from transfers of certain
employees from general and administrative to selling in conjunction with restructuring activities taking place in
Fiscal 2019, and additional hires at the Company’s Klipsch, Oehlbach and Schwaiger subsidiaries, as well as higher
web fees as a result of an increase in the Company’s online platform activity and web advertising.
General and administrative expenses increased during the year ended February 29, 2020. During the year ended
February 29, 2020, the Company granted 200,000 fully vested common shares to the Company’s Chief Executive
Officer, as well as granted additional shares which vest on future dates in accordance with his employment
agreement signed in July 2019, resulting in an increase in compensation expense of approximately $1,700 for the
year ended February 29, 2020. Additionally, during the year ended February 28, 2019, the Company received
reimbursement of approximately $3,000 for certain professional fees and disbursements resulting from the favorable
outcome of a lawsuit, which did not occur during the year ended February 29, 2020. Disregarding these specific
items, general and administrative expenses would have decreased for the year. General and administrative expenses
were also higher during the year ended February 29, 2020 due to higher payroll expenses resulting from increased
medical claims as compared to the prior year. Offsetting the increases to general and administrative expenses
discussed above were decreases in salary expense during the year ended February 29, 2020 due to reductions in
42
headcount and the transfer of certain employees to selling in conjunction with Fiscal 2019 restructuring activities,
lower executive salaries due to salary and bonus structures under new employment agreements, as well as lower
office and equipment rental expenses as a result of cost containment measures and lease expirations that were not
renewed.
Engineering and technical support expenses for the year ended February 29, 2020 declined as compared to the prior
year. For the year ended February 29, 2020, expenses were down primarily due to headcount reduction at certain of
the Company’s subsidiaries, decreased research and development spending related to projects that were completed
during the current year period, as well as due to the movement of work related to certain projects utilizing outside
contractors to in-house employees at both EyeLock and Invision. These declines were partially offset by an increase
in research and development expenses related to the start of new projects and higher certification fees for certain
products under development, as well as salary and related expenses resulting from new hires at certain subsidiaries.
In connection with its annual impairment test performed as of the last day of the fourth quarter of Fiscal 2020, the
Company determined that several of its indefinite-lived intangible assets within the Consumer Electronics segment,
as well as certain indefinite-lived and definite-lived intangible assets within the Biometrics segment were impaired.
The impairments within the Consumer Electronics segment were the result of the Company being unable to secure
product placement into customer stores, anticipated shortfalls in sales due to economic uncertainty as a result of the
COVID-19 pandemic, reduced demand from a large traditional brick-and-mortar customer, along with continued
declines in the German economy. The impairments within the Biometrics segment were the result of lack of
customer acceptance of the related technology, lower than anticipated results, adjusted expectations for demand, and
anticipated delays of product deployment with target customers due to economic uncertainty related to the COVID-
19 pandemic. The Company recorded total impairment charges of $30,230 for the year ended February 29, 2020
related to these impairments.
Other (Expense)Income
Interest and bank charges
Equity in income of equity investee
Gain on sale of real property
Impairment of Venezuela investment properties
Impairment of notes receivable
Investment gain (loss)
Other, net
Total other (expense) income
Fiscal 2021 compared to Fiscal 2020
Fiscal
2021
Fiscal
2020
Fiscal
2019
$
$
(2,979) $
7,350
—
—
—
42
746
5,159 $
(2,975) $
5,174
4,057
—
—
775
2,332
9,363 $
(3,788)
6,618
—
(3,473)
(16,509)
(530)
732
(16,950)
Interest and bank charges represent expenses for the Company's bank obligations and supply chain financing
arrangements, interest related to finance leases, and amortization of deferred financing costs. Interest and bank
charges were relatively flat comparing the year ended February 28, 2021 to the prior year. During the second half of
Fiscal 2020, the Company repaid the entire outstanding balance of its asset-based lending facility in Germany, thus
eliminating the interest expense related to this obligation for the year ended February 28, 2021, which was offset by
interest paid on the $20,000 precautionary borrowing from the Company’s Credit Facility in Fiscal 2021, which was
outstanding from April 2020 through November 2020.
Equity in income of equity investee represents the Company's share of income from its 50% non-controlling
ownership interest in ASA Electronics, LLC ("ASA"). The increase in income for the year ended February 28, 2021
is due to an increase in ASA’s gross profit, lower overhead, and growth in the RV and marine markets.
On September 30, 2019, the Company, through its subsidiary Voxx German Holdings Gmbh (the “Seller”), sold its
real property in Pulheim, Germany to CLM S.A. RL (the “Purchaser”) for €10,920. Net proceeds received from the
transaction were approximately $9,500 after transactional costs and repayment of the outstanding mortgage.
Concurrently with the sale, the Seller entered into an operating lease arrangement with the Purchaser for a small
portion of the real property to continue to operate its sales office in Germany. The transaction qualified for sale
43
leaseback accounting in accordance with ASC 842 and the Company recognized a gain on the execution of the sale
transaction for the year ended February 29, 2020.
During Fiscal 2018, the Company sold its investment in RxNetworks, a non-controlled corporation, consisting of
shares of the investee’s preferred stock. Voxx recognized a gain during Fiscal 2018 for the sale of this investment;
however, a portion of the cash proceeds were subject to a hold-back provision, which was not included in the gain
recognized in Fiscal 2018. During the second quarter of Fiscal 2020, the hold-back provision expired, and the
Company received additional proceeds from the sale, recording an investment gain of $775 for the year ended
February 29, 2020. A final payout of $42 received in November 2020 was recorded as an investment gain for the
year ended February 28, 2021. During the fourth quarter of Fiscal 2019, all of the outstanding common stock of
Fathom Systems Inc., a non-controlled corporation in which Voxx was invested, were repurchased by the investee
for a price per share significantly below the value when issued. This resulted in a loss on Voxx's investment in
Fathom of $530 for the year ended February 28, 2019.
Other, net includes net foreign currency gains or losses, interest income, rental income, and other miscellaneous
income and expense. Other, net decreased for the year ended February 28, 2021. During the year ended February 28,
2021, interest income decreased $835 primarily as a result of lower interest rates applicable to the Company’s short
term money market investments and lower cash balances available for investment during the year. Additionally, the
Company had foreign currency losses of $(862) for the year ended February 28, 2021, as compared to foreign
currency gains of $405 for the year ended February 29, 2020.
Fiscal 2020 compared to Fiscal 2019
Interest and bank charges represent expenses for the Company's bank obligations and supply chain financing
arrangements, interest related to finance leases, and amortization of deferred financing costs. During the second and
third quarters of Fiscal 2020, the Company temporarily suspended its domestic supply chain financing, thus
resulting in a reduction of the related fees. The Company also repaid two of its outstanding mortgages and the entire
outstanding balance of its asset-based lending obligation in Germany during the second half of Fiscal 2020, thus
reducing interest expense related to these obligations.
Equity in income of equity investee represents the Company's share of income from its 50% non-controlling
ownership interest in ASA Electronics, LLC ("ASA"). The decrease in income for the year ended February 29, 2020
is primarily a result of the impact of tariffs, increase in warranty costs, as well as due to certain product recall
expenses incurred during the year ended February 29, 2020 that were not present in the prior year.
On September 30, 2019, the Company, through its subsidiary Voxx German Holdings Gmbh (the “Seller”), sold its
real property in Pulheim, Germany to CLM S.A. RL (the “Purchaser”) for €10,920. Net proceeds received from the
transaction were approximately $9,500 after transactional costs and repayment of the outstanding mortgage.
Concurrently with the sale, the Seller entered into an operating lease arrangement with the Purchaser for a small
portion of the real property to continue to operate its sales office in Germany. The transaction qualified for sale
leaseback accounting in accordance with ASC 842 and the Company recognized a gain on the execution of the sale
transaction for the year ended February 29, 2020.
During Fiscal 2018, the Company sold its investment in RxNetworks, a non-controlled corporation, consisting of
shares of the investee’s preferred stock. Voxx recognized a gain of $1,416 during Fiscal 2018 for the sale of this
investment; however, a portion of the cash proceeds were subject to a hold-back provision, which was not included
in the gain recognized in Fiscal 2018. During the second quarter of Fiscal 2020, the hold-back provision expired,
and the Company received the remaining proceeds from the sale, recording an investment gain of $775 for the year
ended February 29, 2020. During the fourth quarter of Fiscal 2019, all of the outstanding common stock of Fathom
Systems Inc., a non-controlled corporation in which Voxx was invested, were repurchased by the investee for a price
per share significantly below the value when issued. This resulted in a loss on Voxx's investment in Fathom of $530
for the year ended February 28, 2019.
Other, net includes net foreign currency gains or losses, interest income, rental income, and other miscellaneous
income and expense. Other, net increased for the year ended February 29, 2020. During the year ended February 29,
2020, the Company received the proceeds from a key man life insurance policy in the amount of $1,000, related to a
former employee of Klipsch Group, Inc. that Voxx became the beneficiary of in conjunction with the acquisition of
Klipsch in Fiscal 2012. As an offset to this income, the Company incurred a charge of $804 during the year ended
44
February 29, 2020 for a payment made to TE Connectivity Ltd. in final settlement of the working capital calculation
related to the Fiscal 2018 sale of Hirschmann Car Communication GmbH.
Income Tax Provision
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted in
response to the COVID-19 pandemic. Under ASC 740, the effects of changes in tax rates and laws are recognized
in the period in which the new legislation is enacted. The CARES Act made various tax law changes including
among other things (i) increased the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional
expensing of interest; (ii) enacted technical correction so that qualified improvement property can be immediately
expensed under IRC Section 168(k) (iii) made modifications to the federal net operating loss rules including
permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding
taxable years in order to generate a refund of previously paid income taxes, and (iv) enhanced recoverability of
alternative minimum credit carryforwards. The CARES Act did not have a material impact on the income tax
provision.
During Fiscal 2021, the Company recorded an income tax provision of $4,272 related to federal, state, and foreign
taxes. The Company's effective tax rate of 15.5% differs from the statutory rate of 21% primarily related to (i)
partial release of its valuation allowance as a result of recent profitability for which certain of the Company’s
deferred tax assets became realizable on a more-likely-than-not basis; (ii) permanent differences, including the non-
controlling interest and a global intangible low tax income (“GILTI”) inclusion; and (iii) state and local taxes. As of
February 28, 2021, the Company continued to maintain a valuation allowance against certain U.S. and foreign
deferred tax assets as the Company could not conclude that such assets will be realized on a more-likely-than-not
basis. Any decline in the valuation allowance could have a favorable impact on our income tax provision and net
income in the period in which such determination is made.
The effective tax rate of (2.2)% in Fiscal 2020 differs from the statutory rate of 21% primarily related to (i) current
year losses for which limited tax benefit was provided; (ii) permanent differences, including the non-controlling
interest and a global intangible low tax income (“GILTI”) inclusion; and (iii) an increase in the valuation allowance
recorded against foreign deferred tax assets. During Fiscal 2020, the Company maintained a partial and full
valuation allowance against certain U.S. and foreign deferred tax assets as the Company could not conclude that
such assets will be realized on a more-likely-than-not basis. Any decline in the valuation allowance could have a
favorable impact on our income tax provision and net income in the period in which such determination is made.
The effective tax rate of 10.4% in Fiscal 2019 differs from the statutory rate of 21% primarily related to current year
losses for which limited tax benefit was provided. During Fiscal 2019, the Company maintained a partial valuation
allowance against certain U.S. and foreign deferred tax assets as the Company could not conclude that such assets
will be realized on a more-likely-than-not basis. Any decline in the valuation allowance could have a favorable
impact on our income tax provision and net income in the period in which such determination is made.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are not financial measures recognized by GAAP. EBITDA represents net income
(loss), computed in accordance with GAAP, before interest expense and bank charges, taxes, and depreciation and
amortization. Adjusted EBITDA represents EBITDA adjusted for stock-based compensation expense, life insurance
proceeds, certain settlements, gains and losses, impairment charges, restructuring charges, and environmental
remediation charges. Depreciation, amortization, stock-based compensation, and impairment charges are non-cash
items.
We present EBITDA and Adjusted EBITDA in this Form 10-K because we consider them to be useful and
appropriate supplemental measures of our performance. Adjusted EBITDA helps us to evaluate our performance
without the effects of certain GAAP calculations that may not have a direct cash impact on our current operating
performance. In addition, the exclusion of certain costs or gains relating to certain events that occurred during the
periods presented allows for a more meaningful comparison of our results from period-to-period. These non-GAAP
measures, as we define them, are not necessarily comparable to similarly entitled measures of other companies and
may not be an appropriate measure for performance relative to other companies. EBITDA and Adjusted EBITDA
should not be assessed in isolation from, are not intended to represent, and should not be considered to be more
meaningful measures than, or alternatives to, measures of operating performance as determined in accordance with
GAAP.
45
Reconciliation of GAAP Net Income Attributable to VOXX International Corporation to EBITDA and
Adjusted EBITDA
Net income (loss) attributable to VOXX International Corporation
Adjustments:
Fiscal
2021
Fiscal
2020
Fiscal
2019
$
26,767 $
(26,443) $
(46,091)
Interest expense and bank charges (1)
Depreciation and amortization (1)
Income tax expense (benefit)
EBITDA
Adjustments:
Stock-based compensation
Life insurance proceeds
Gain on sale of real property
Settlement of Hirschmann working capital
Impairment of investment properties in Venezuela
Impairment of notes receivable
Investment (gain) loss
Environmental remediation charges
Restructuring charges
Intangible asset impairment charges (1)
Adjusted EBITDA
$
2,404
10,907
4,272
44,350
1,749
(420)
—
—
—
—
(42)
—
—
1,300
46,937 $
2,476
11,175
882
(11,910)
2,223
11,112
(6,131)
(38,887)
2,282
(1,000)
(4,057)
804
—
—
(775)
—
—
19,543
4,887 $
551
—
—
—
3,473
16,509
530
454
4,588
25,789
13,007
(1) For purposes of calculating Adjusted EBITDA for the Company, interest expense, bank charges, depreciation
and amortization, and intangible asset impairment charges added back to net income (loss) have been adjusted
in order to exclude the minority interest portion of these expenses attributable to EyeLock LLC.
Liquidity and Capital Resources
Cash Flows, Commitments and Obligations
As of February 28, 2021, we had working capital of $172,543 which includes cash and cash equivalents of $59,404
compared with working capital of $146,798 at February 29, 2020, which included cash and cash equivalents of
$37,425. We plan to utilize our current cash position as well as collections from accounts receivable, the cash
generated from our operations, when applicable, and the income on our investments to fund the current operations of
the business. However, we may utilize all or a portion of current capital resources to pursue other business
opportunities, including acquisitions, or to further pay down our debt. The following table summarizes our cash
flow activity for all periods presented:
Year
Ended
February 28,
2021
Year
Ended
February 29,
2020
Year
Ended
February 28,
2019
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents $
$
36,611 $
(13,865)
(1,940)
1,173
21,979 $
(1,009) $
(6,709)
(12,593)
(500)
(20,811) $
22,562
(11,037)
(924)
(4,105)
6,496
46
Net cash used in/provided by operating activities:
Operating activities provided cash of $36,611 for Fiscal 2021, due to factors including sales increases, as well as
increases in accounts payable, accrued expenses, and accrued sales incentives. This was offset by increases in
inventory and accounts receivable, which were driven by the increases in sales during the fiscal year, as well as due
to losses incurred by EyeLock LLC.
During Fiscal 2020, operating activities used cash of $1,009, due to factors including sales declines and losses
incurred by EyeLock LLC, as well as decreases in accounts payable, accrued expenses, and accrued sales incentives.
This was offset by decreases in inventory and accounts receivable, which were driven by the decreases in sales.
During Fiscal 2019, operating activities provided cash of $22,562, partially due to a decrease in inventory, as the
Company purchases its inventory in line with sales levels, which have declined in the current fiscal year, as well as a
decrease in prepaid expenses and other assets. This was offset by lower earnings achieved by the Company in Fiscal
2019, driven in part by sales declines and losses incurred by EyeLock LLC. The Company also had a decrease in
accounts receivable, directly resulting from lower sales in the fiscal year.
Net cash used in/provided by investing activities:
Investing activities used cash of $13,865 during Fiscal 2021, primarily due to the acquisition of DEI in July 2020
(see Note 2), as well as capital additions made by the Company.
Investing activities used cash of $6,709 during Fiscal 2020, primarily due to the acquisition of VSM in January 2020
(see Note 2), as well as capital additions made by the Company. This was offset by the proceeds received from the
sale of the Company’s real property in Pulheim, Germany (see Note 11).
Investing activities used cash of $11,037 during Fiscal 2019, primarily as a result of the issuance of notes receivable
to 360fly, Inc. (see Note 1(f)), as well as capital additions made by the Company.
Net cash used in/provided by financing activities:
Financing activities used cash of $1,940 during Fiscal 2021, primarily due to the repayment of the Company’s
precautionary borrowing of $20,000 from the Credit Facility, payments on the Florida Mortgage, repayments of
finance leases, and the payment of deferred finance fees related to the amendment of the Credit Facility in Fiscal
2021, offset by the precautionary borrowing of $20,000 made in April 2020.
During Fiscal 2020, financing activities used cash of $12,593, primarily due to the repayment of outstanding bank
obligations, including the entire outstanding balance of Voxx Germany’s Euro asset-based lending facility, and the
repurchase of shares of the Company’s Class A common stock.
During Fiscal 2019, financing activities used cash of $924 primarily due to the repayment of outstanding bank
obligations, which include mortgages, capital leases, and an asset-based lending facility in Germany, offset by
borrowings related to the German asset-based lending facility.
The Company has a senior secured credit facility (the "Credit Facility") that provides for a revolving credit facility
with committed availability of up to $127,500. The Credit Facility also includes a $30,000 sublimit for letters of
credit and a $15,000 sublimit for swingline loans. The availability under the revolving credit line within the Credit
Facility is subject to a borrowing base, which is based on eligible accounts receivable, eligible inventory and certain
real estate, subject to reserves as determined by the lender, and is also limited by amounts outstanding under the
Florida Mortgage (see Note 7(b)). As of February 28, 2021, there was no balance outstanding under the revolving
credit facility. The availability under the revolving credit line of the Credit Facility was $96,745 as of February 28,
2021.
All amounts outstanding under the Credit Facility will mature and become due on April 26, 2022; however, it is
subject to acceleration upon the occurrence of an Event of Default (as defined in the Credit Agreement). The
Company may prepay any amounts outstanding at any time, subject to payment of certain breakage and
redeployment costs relating to LIBOR Rate Loans. The commitments under the Credit Facility may be irrevocably
reduced at any time, without premium or penalty, as set forth in the Credit Facility.
47
Generally, the Company may designate specific borrowings under the Credit Facility as either Base Rate Loans or
LIBOR Rate Loans, except that swingline loans may only be designated as Base Rate Loans. Loans under the Credit
Facility designated as LIBOR Rate Loans shall bear interest at a rate equal to the then-applicable LIBOR Rate plus a
range of 2.00% - 2.50%. Loans under the Credit Facility designated as Base Rate Loans shall bear interest at a rate
equal to the applicable margin for Base Rate Loans of 1.00% - 1.50%, as defined in the Credit Facility.
Provided that the Company is in a Compliance Period (the period commencing on that day in which Excess
Availability is less than 20% of the Maximum Revolver Amount and ending on a day in which Excess Availability
is equal to or greater than 20% for any consecutive 30-day period thereafter), the Credit Facility requires compliance
with a financial covenant calculated as of the last day of each month, consisting of a Fixed Charge Coverage Ratio.
The Credit Facility also contains covenants, subject to defined carveouts, that limit the ability of the loan parties and
certain of their subsidiaries which are not loan parties to, among other things: (i) incur additional indebtedness; (ii)
incur liens; (iii) merge, consolidate or dispose of a substantial portion of their business; (iv) transfer or dispose of
assets; (v) change their name, organizational identification number, state or province of organization or
organizational identity; (vi) make any material change in their nature of business; (vii) prepay or otherwise acquire
indebtedness; (viii) cause any Change of Control; (ix) make any Restricted Junior Payment; (x) change their fiscal
year or method of accounting; (xi) make advances, loans or investments; (xii) enter into or permit any transaction
with an Affiliate of any Borrower or any of their Subsidiaries; (xiii) use proceeds for certain items; (xiv) issue or sell
any of their stock; or (xv) consign or sell any of their inventory on certain terms. In addition, if excess availability
under the Credit Facility were to fall below certain specified levels, as defined in the agreement, the lenders would
have the right to assume dominion and control over the Company's cash. As of February 28, 2021, the Company was
not in a Compliance Period.
The obligations under the Credit Facility are secured by a general lien on and security interest in substantially all of
the assets of the borrowers and certain of the guarantors, including accounts receivable, equipment, real estate,
general intangibles, and inventory. The Company has guaranteed the obligations of the borrowers under the Credit
Facility.
On April 19, 2021, the Company amended the Credit Facility. Under the amendment, the committed availability of
the revolving credit facility was revised to $140,000 and the maturity date of the facility was extended to April 19,
2026 (see Note 17).
The Company has a Euro asset-based loan facility in Germany with a credit limit of €8,000 that expires on July 31,
2023. The Company's subsidiaries Voxx German Holdings GmbH, Oehlbach Kabel GmbH, and Schwaiger GmbH
are authorized to borrow funds under this facility for working capital purposes.
The Company also utilizes supply chain financing arrangements and factoring agreements from time to time as a
component of its financing for working capital, which accelerates receivable collection and helps to better manage
cash flow. Under these agreements, the Company has agreed from time to time to sell certain of its accounts
receivable balances to banking institutions who have agreed to advance amounts equal to the net accounts receivable
balances due, less a discount as set forth in the respective agreements (see Note 1(h)). The balances under these
agreements are accounted for as sales of accounts receivable, as they are sold without recourse. Cash proceeds from
these agreements are reflected as operating activities included in the change in accounts receivable in the Company's
Consolidated Statements of Cash Flows. Fees incurred in connection with the agreements are recorded as interest
expense by the Company. During Fiscal 2020, the Company temporarily suspended its domestic supply chain
financing activities; however, the Company has resumed its activities under all supply chain financing arrangements
during Fiscal 2021 in response to general economic concerns related to the COVID-19 pandemic.
As noted elsewhere in this report, we expect the COVID-19 pandemic may continue to have an adverse effect on our
business. Federal, state, and local governments have taken a variety of actions to contain the spread of COVID-19.
Many jurisdictions required mandatory business closures or imposed capacity limitations and other restrictions
affecting our operations during Fiscal 2021. We have proactively taken steps to increase available cash including,
but not limited to, utilizing existing supply chain financing agreements that had previously been suspended during
Fiscal 2020 as noted above, and utilizing funds available under our existing Credit Facility. In April 2020, the
Company borrowed $20,000 from its available Credit Facility funds, which was subsequently repaid in November
2020. As further noted in Item 7 and elsewhere in this report, the Company also implemented a number of other
measures to help preserve liquidity in response to the COVID-19 pandemic.
48
Certain contractual cash obligations and other commitments will impact our short and long-term liquidity. At
February 28, 2021, such obligations and commitments are as follows:
Contractual Cash Obligations
Finance lease obligations (1)
Operating lease obligations (1)
Total contractual cash obligations
Other Commitments
Bank obligations (2)
Stand-by letters of credit (3)
Other (4)
Pension obligation (5)
Unconditional purchase obligations (6)
Total commercial commitments
Total Commitments
Amount of Commitment Expiration per Period
1-3
4-5
Total
$
Less than
1 Year Years
418 $
1,119
1,537 $
720 $
4,701
5,421 $
302 $
1,581
1,883 $
$
Years
After
5 Years
—
1,089
1,089
— $
912
912 $
$
— $
19,656
7,114
827
— $
19,656
500
—
158,886 158,886
$ 186,483 $ 179,042 $
$ 191,904 $ 180,579 $
— $
—
1,000
—
—
1,000 $
2,883 $
— $
—
1,000
—
—
1,000 $
1,912 $
—
—
4,614
827
—
5,441
6,530
(1) Represents total principal payments due under finance and operating lease obligations. Total current balances
(included in other current liabilities) due under finance and operating leases are $418 and $1,119, respectively,
at February 28, 2021. Total long-term balances due under finance and operating leases are $302 and $3,582,
respectively at February 28, 2021.
(2) Represents amounts outstanding under the Company’s domestic Credit Facility and the VOXX Germany asset-
based lending facilities at February 28, 2021.
(3) We issue standby letters of credit to secure certain purchases and insurance requirements. These letters of credit
are issued during the ordinary course of business through major domestic banks as requested by certain
suppliers.
(4) This amount represents the outstanding balance of the mortgage for our manufacturing facility in Florida.
(5) Represents the liability for an employer defined benefit pension plan covering certain eligible current and
former employees of VOXX Germany.
(6) Open purchase obligations represent inventory commitments. These obligations are not recorded in the
consolidated financial statements until commitments are fulfilled and such obligations are subject to change
based on negotiations with manufacturers.
We regularly review our cash funding requirements and attempt to meet those requirements through a combination
of cash on hand, cash provided by operations, available borrowings under bank lines of credit and possible future
public or private debt and/or equity offerings. At times, we evaluate possible acquisitions of, or investments in,
businesses that are complementary to ours, which transactions may require the use of cash. We believe that our
cash, other liquid assets, operating cash flows, credit arrangements, and access to equity capital markets, taken
together, provides adequate resources to fund ongoing operating expenditures for the next twelve months, including
the intercompany loan funding we provide to our majority owned subsidiary, EyeLock LLC. In the event that they
do not, we may require additional funds in the future to support our working capital requirements, or for other
purposes, and may seek to raise such additional funds through the sale of public or private equity and/or debt
financings, as well as from other sources. No assurance can be given that additional financing will be available in
the future or that if available, such financing will be obtainable on terms favorable when required.
For further information about COVID-19, refer to “Item 1A. Risk Factors,” “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations," and Note 17, “Subsequent Events,” of the
Notes to the Consolidated Financial Statements included in “Item 8. Consolidated Financial Statements and
Supplementary Data,” of this Annual Report on Form 10-K.
49
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements, transactions, obligations, or other relationships with
unconsolidated entities that would be expected to have a material current or future effect upon our financial
condition or results of operations.
Impact of Inflation and Currency Fluctuation
Inflation did not have a material impact on our operations for the years ended February 28, 2021, February 29, 2020
or February 28, 2019. Severe increases in inflation, however, could affect the global and U.S. economies and could
have an adverse impact on our business, financial condition, and results of operations. Discussion of the impact of
foreign currency fluctuations is included in Item 7A.
In accordance with the guidelines in ASC 830, Venezuela is 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 our local subsidiary in Venezuela
to record all transactions as if they were denominated in U.S. dollars. Net currency exchange gains (losses) of $37
and $(2) were recorded for the years ended February 28, 2021 and February 29, 2020, respectively. All currency
exchange gains and losses are included in Other (Expense) Income on the Consolidated Statements of Operations
and Comprehensive Income (Loss).
The Company has certain U. S. dollar denominated assets and liabilities in its Venezuelan subsidiary, including our
U.S. dollar denominated intercompany debt, which has been subject to currency fluctuations associated with the
devaluation of the Sovereign Bolivar. The Company also has certain long-lived assets in Venezuela, which are held
for investment purposes. During the second quarter of Fiscal 2019, the Company assessed the recoverability of these
properties as a result of the country's continued economic deterioration, which included a significant currency
devaluation in August of 2018. The Company estimated the future undiscounted cash flows expected to be received
from these properties. The estimate of the future undiscounted cash flows considered the Company’s financial
condition and its intent and ability to retain its investments for a period of time sufficient to allow for the recovery of
the carrying value. The future undiscounted cash flows did not exceed the net carrying value for the long-lived
assets. The estimated fair value of the properties, which also considered the current conditions of the economy in
Venezuela, the volatility of the real estate market, and the significant political unrest, resulted in a full non-cash
impairment charge of $3,473 for the year ended February 28, 2019. This non-cash impairment charge is included in
Other (expense) income on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Seasonality
We typically experience seasonality in our operations. Our business is significantly impacted by the holiday season,
as we generally sell a substantial amount of our products during September, October, and November due to
increased promotional and advertising activities during the holiday season.
Related Party Transactions
None noted.
Recent Accounting Pronouncements
We are required to adopt certain new accounting pronouncements. See Note 1(w) of the Notes to the Consolidated
Financial Statements of this Annual Report on Form 10-K.
50
Item 7A-Quantitative and Qualitative Disclosures about Market Risk
The market risk inherent in our financial instruments and positions is the potential loss arising from adverse changes
in marketable equity security prices, interest rates and foreign currency exchange rates.
Marketable Securities
Marketable securities at February 28, 2021, which are related to the Company's deferred compensation plan, are
recorded at fair value of $1,777 and have exposure to price fluctuations. This risk is estimated as the potential loss in
fair value resulting from a hypothetical 10% adverse change in prices quoted by stock exchanges and amounts to
$178 as of February 28, 2021. Actual results may differ.
Interest Rate Risk
Our earnings and cash flows are subject to fluctuations due to changes in interest rates on investments of available
cash balances in money market funds and investment grade corporate and U.S. government securities. In addition,
our bank loans expose us to changes in short-term interest rates since interest rates on the underlying obligations are
either variable or fixed. In connection with our Florida Mortgage, we have debt outstanding in the amount of $7,114
at February 28, 2021. Interest on the Florida Mortgage is charged at 70% of 1-month LIBOR plus 1.54%. We have
an interest rate swap for the Florida Mortgage with a notional amount of $7,114 at February 28, 2021 which locks
the interest rate at 3.48% (inclusive of credit spread) through the mortgage end date of March 2026.
Foreign Exchange Risk
Voxx conducts business in various non-U.S. countries including Germany, Canada, China, Denmark, the
Netherlands, and France and thus is exposed to market risk for changes in foreign currency exchange rates. As a
result, we have exposure to various foreign currency exchange rate fluctuations for revenues generated by our
operations outside of the U.S., which can adversely impact our net income and cash flows. A hypothetical 10%
adverse change in the foreign currency rates for our international operations would have resulted in a negative
impact on sales and net income of approximately $9,190 and $1,010, respectively, for the year ended February 28,
2021.
While the prices we pay for products purchased from our suppliers are principally denominated in United States
dollars, price negotiations depend in part on the foreign currency of foreign manufacturers, as well as market, trade,
and political factors. The Company also has exposure related to transactions in which the currency collected from
customers is different from the currency utilized to purchase the product sold in its foreign operations, and U. S.
dollar denominated purchases in its foreign subsidiaries. The Company enters forward contracts to hedge certain
Euro-related transactions. The Company minimizes the risk of nonperformance on the forward contracts by
transacting with major financial institutions. During Fiscal 2021, 2020, and 2019, the Company held forward
contracts specifically designated for hedging (see Note 1(e) of the Notes to Consolidated Financial Statements). As
of February 28, 2021 and February 29, 2020, unrealized (losses) gains of $(720) and $331, respectively, were
recorded in other comprehensive income associated with these contracts. A hypothetical 10% adverse change in the
fair value of our forward exchange contracts would have resulted in a negative impact of $32 on the fair value of our
forward exchange contracts at February 28, 2021. There were no foreign currency hedge contracts outstanding at
February 29, 2020.
We are also subject to risk from changes in foreign currency exchange rates from the translation of financial
statements of our foreign subsidiaries and for long-term intercompany loans with foreign subsidiaries. These
changes result in cumulative translation adjustments, which are included in accumulated other comprehensive (loss)
income. At February 28, 2021, we had translation exposure to various foreign currencies with the most significant
being the Euro, Canadian Dollar, and Mexican Peso. A hypothetical 10% adverse change in the foreign currency
exchange rates would result in a negative impact of $124 on Other comprehensive (loss) income for the year ended
February 28, 2021.
51
The Company continues to monitor the political and economic climate in Venezuela. The Company did not have
any sales in Venezuela for the year ended February 28, 2021 and had no significant cash related assets subject to
government foreign exchange controls. The Company has certain long-lived assets in Venezuela, which are held for
investment purposes. During the second quarter of Fiscal 2019, the Company assessed the recoverability of these
properties as a result of the country's continued economic deterioration, which included a significant currency
devaluation in August of 2018. The Company concluded that these properties were fully impaired as of its second
quarter ended August 31, 2018 and recorded an impairment charge of $3,473 for the year ended February 28, 2019.
The non-cash impairment charge is included in Other (expense) income on the Consolidated Statements of
Operations and Comprehensive (Loss) Income. The Company's properties held for investment purposes in
Venezuela had no value as of February 28, 2021.
Item 8-Consolidated Financial Statements and Supplementary Data
The information required by this item begins on page 58 of this Annual Report on Form 10-K and is incorporated
herein by reference.
Item 9-Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A-Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to
be disclosed in the reports that the Company files or submits under the Securities and Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in accordance with the SEC's rules and
regulations, and that such information is accumulated and communicated to the Company’s management, including
its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
financial disclosures.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and
with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to
Securities and Exchange Act Rule 13a-15. Based upon this evaluation as of February 28, 2021, the Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were deemed
to be effective and adequately designed.
Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as
such term is defined in the Securities and Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the Company are being made only in accordance with authorizations of management and directors of the
Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on the financial statements.
52
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Under the supervision, and with the participation of the Company’s management, including the Chief Executive
Officer and Chief Financial Officer, the Company evaluated the effectiveness of the Company’s internal control
over financial reporting as of February 28, 2021 based on the framework set forth by the 2013 Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the
"2013 COSO Framework"). Based on that evaluation, management concluded that the Company's internal control
over financial reporting was effective as of February 28, 2021 based on the criteria established in the 2013 COSO
Framework.
The certifications of the Company’s Chief Executive Officer and Chief Financial Officer included in Exhibits 31.1
and 31.2 to this Annual Report on Form 10-K includes, in paragraph 4 of such certifications, information concerning
the Company’s disclosure controls and procedures and internal control over financial reporting. Such certifications
should be read in conjunction with the information contained in this Item 9A. Controls and Procedures for a more
complete understanding of the matters covered by such certifications.
The effectiveness of the Company’s internal control over financial reporting as of February 28, 2021 has been
audited by Grant Thornton LLP, an independent registered public accounting firm who also audited the Company’s
Consolidated Financial Statements. Grant Thornton LLP’s report on the effectiveness of the Company’s internal
control over financial reporting is included below.
53
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
VOXX International Corporation
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of VOXX International Corporation (a Delaware corporation) and
subsidiaries (the “Company”) as of February 28, 2021, based on criteria established in the 2013 Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of February 28, 2021, based on
criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company as of and for the year ended February 28, 2021, and our report
dated May 13, 2021 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Melville, New York
May 13, 2021
54
Changes in Internal Control Over Financial Reporting
There were no material changes in our internal control over financial reporting (as such term is defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) during the most recently completed fiscal fourth quarter ended February 28,
2021 covered by this report that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Item 9B - Other Information
Not Applicable
PART III
The information required by Item 10 (Directors, Executive Officers and Corporate Governance), Item 11 (Executive
Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters), Item 13 (Certain Relationships and Related Transactions, and Director Independence) and
Item 14 (Principal Accountant Fees and Services) of Form 10-K, will be included in our Proxy Statement for the
Annual Meeting of Stockholders, which will be filed on or before June 17, 2021, and such information is
incorporated herein by reference.
Item 15-Exhibits and Financial Statement Schedules
PART IV
(1 and 2) Financial Statements and Financial Statement Schedules. See Index to Consolidated Financial
Statements attached hereto.
(3) Exhibits. A list of exhibits is included subsequent to Schedule II on page S-1.
55
VOXX INTERNATIONAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statements:
Report of Independent Registered Public Accounting Firm ......................................................................
Consolidated Balance Sheets as of February 28, 2021 and February 29, 2020 ............................................
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended February
28, 2021, February 29, 2020, and February 28, 2019 ...............................................................................
Consolidated Statements of Stockholders’ Equity for the years ended February 28, 2021, February 29,
2020, and February 28, 2019 .................................................................................................................
Consolidated Statements of Cash Flows for the years ended February 28, 2021, February 29, 2020,
and February 28, 2019 ..........................................................................................................................
Notes to Consolidated Financial Statements............................................................................................
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts....................................................................................
Page
57
59
60
61
62
63
112
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
VOXX International Corporation
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of VOXX International Corporation (a Delaware corporation)
and subsidiaries (the “Company”) as of February 28, 2021 and February 29, 2020, the related consolidated statements of
operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended
February 28, 2021, and the related notes and financial statement schedule included under Item 15 (collectively referred to as the
“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of February 28, 2021 and February 29, 2020, and the results of its operations and its cash flows for each of the three
years in the period ended February 28, 2021, in conformity with accounting principles generally accepted in the United States of
America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of February 28, 2021, based on criteria established in the
2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”), and our report dated May 13, 2021 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Goodwill and Indefinite-lived Intangible Assets Impairment Assessment
As described further in Note 1 to the financial statements, goodwill and indefinite-lived intangible assets are tested for
impairment at least annually in the fourth quarter. We identified the valuation of the Invision reporting unit and the Invision and
RCA Accessories indefinite-lived trademarks as a critical audit matter.
Our audit procedures related to the valuation of the Invision reporting unit and the Invision and RCA Accessories indefinite-lived
trademarks included the following, among others:
• We tested the design and operating effectiveness of management’s controls over the Company’s budgeting process and
management’s review of the data used in the valuation models.
• We compared the significant assumptions included in the budget to current industry and economic trends, the
Company’s historical results and other guideline companies within the same industry and assessed consistency of
assumptions with other areas of the audit.
57
• We assessed the historical accuracy of management’s estimates and assessed the reasonableness of significant
assumptions to evaluate the impact to the fair value of the Invision reporting unit and the Invision and RCA
Accessories indefinite-lived trademarks resulting from changes in these assumptions.
• We used valuation specialists to assist with assessing the appropriateness of the valuation methodology, testing the
reasonableness of discount rates and royalty rates and comparing management’s calculation of implied multiples of the
reporting units to guideline companies.
Accounting for Sales Incentives
As described in Note 1 to the financial statements, the Company offers various sales incentives to its customers, which constitute
variable consideration and are recorded as a reduction of revenue. The Company has accrued $25.3 million of sales incentives as
of February 28, 2021. Depending on the specific facts and circumstances, the Company utilizes either the most likely amount or
expected value methods to estimate the effect of uncertainty on the amount of variable consideration to which the Company
would be entitled.
Our audit procedures related to the accounting for sales incentives included the following, among others:
• We tested the design and operating effectiveness of management’s controls over the Company’s sales incentive process
and management’s review of the completeness and accuracy of estimated variable consideration.
• We gained an understanding of the Company’s sales incentive programs as well as tested the accuracy and
completeness of the underlying data used in the calculations and evaluated the significant assumptions used by
management to estimate its accrual.
• We tested gross sales using both analytical procedures and by examining a sample of individual sales incentive
transactions. When analytical procedures were performed, we predicted sales incentives based on the relationship of
historical information of sales incentives to gross sales. When individual sales incentive transactions were examined,
we obtained evidence of the sales incentive agreement with the customer and the amount expected to be realized by the
customer.
• We tested claims made subsequent to year-end by comparing actual promotional claims to management’s historical
estimate to validate whether the accrued sales incentives as of February 28, 2021 were reasonable.
/s/ GRANT THORNTON LLP
We have served as the Company's auditor since 2003.
Melville, New York
May 13, 2021
58
VOXX International Corporation and Subsidiaries
Consolidated Balance Sheets
February 28, 2021 and February 29, 2020
(In thousands, except share data)
February 28,
2021
February 29,
2020
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventory, net
Receivables from vendors
Prepaid expenses and other current assets
Income tax receivable
Total current assets
Investment securities
Equity investments
Property, plant and equipment, net
Operating lease, right of use asset
Goodwill
Intangible assets, net
Deferred income tax assets
Other assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Income taxes payable
Accrued sales incentives
Contract liabilities, current
Current portion of long-term debt
Total current liabilities
Long-term debt, net of debt issuance costs
Finance lease liabilities, less current portion
Operating lease liabilities, less current portion
Deferred compensation
Deferred income tax liabilities
Other tax liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 15)
Redeemable equity (Note 1(u))
Stockholders' equity:
Preferred stock:
No shares issued or outstanding (Note 9)
Common stock:
Class A, $.01 par value; 60,000,000 shares authorized, 24,416,194 and 24,306,194
shares issued and 21,666,976 and 21,556,976 shares outstanding at February 28, 2021
and February 29, 2020, respectively
Class B Convertible, $.01 par value, 10,000,000 shares authorized, 2,260,954 shares
issued and outstanding
Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Less: Treasury stock, at cost, 2,749,218 shares of Class A Common Stock at both February
28, 2021 and February 29, 2020
Less: Redeemable equity
Total VOXX International Corporation stockholders' equity
Non-controlling interest
Total stockholders' equity
Total liabilities and stockholders' equity
$
$
$
$
59,404 $
106,165
130,793
277
22,266
434
319,339
1,777
23,267
52,026
4,572
58,311
90,104
99
1,323
550,818 $
61,826 $
53,392
1,587
25,313
4,178
500
146,796
5,962
302
3,582
1,777
6,645
1,170
5,255
171,489
3,260
37,425
69,714
99,110
230
10,885
456
217,820
2,282
21,924
51,424
3,143
55,000
88,288
52
1,638
441,571
22,096
34,046
1,523
12,250
—
1,107
71,022
6,099
720
2,391
2,282
3,828
1,225
3,294
90,861
2,481
—
—
245
22
300,402
148,906
(14,977)
(23,918)
(3,260)
407,420
(31,351)
376,069
550,818 $
244
22
299,228
122,139
(19,055)
(23,918)
(2,481)
376,179
(27,950)
348,229
441,571
See accompanying notes to consolidated financial statements.
59
VOXX International Corporation and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss)
Years Ended February 28, 2021, February 29, 2020, and February 28, 2019
(In thousands, except share and per share data)
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling
General and administrative
Engineering and technical support
Intangible asset impairment charges (Note 1(k))
Restructuring expense
Total operating expenses
Operating income (loss)
Other (expense) income:
Interest and bank charges
Equity in income of equity investee
Gain on sale of real property (Note 11)
Impairment of Venezuela investment properties (Note 1(p))
Impairment of notes receivable (Note 1(f))
Investment gain (loss) (Note 1(f))
Other, net
Total other income (expense), net
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Less: net loss attributable to non-controlling interest
Net income (loss) attributable to VOXX International Corporation
$
$
Other comprehensive income (loss):
Foreign currency translation adjustments
Derivatives designated for hedging, net of tax
Pension plan adjustments, net of tax
Unrealized holding gain on available-for-sale investment securities arising
during the period, net of tax
Other comprehensive income (loss), net of tax
Comprehensive income (loss) attributable to VOXX International Corporation $
Year Ended
February 28,
2021
Year Ended
February 29,
2020
Year Ended
February 28,
2019
$
563,605 $
405,058
158,547
394,889 $
285,113
109,776
446,816
325,399
121,417
43,786
70,085
20,897
1,300
—
136,068
22,479
(2,979)
7,350
—
—
—
42
746
5,159
27,638
4,272
23,366 $
(3,401)
26,767 $
4,365
(305)
18
-
4,078
30,845 $
39,319
68,928
21,602
30,230
—
160,079
(50,303)
(2,975)
5,174
4,057
—
—
775
2,332
9,363
(40,940)
882
(41,822) $
(15,379)
(26,443) $
(1,517)
(505)
(89)
-
(2,111)
(28,554) $
41,731
66,935
24,387
25,789
4,588
163,430
(42,013)
(3,788)
6,618
—
(3,473)
(16,509)
(530)
732
(16,950)
(58,963)
(6,131)
(52,832)
(6,741)
(46,091)
(3,195)
461
(12)
24
(2,722)
(48,813)
Net income (loss) per common share attributable to VOXX International
Corporation - basic
$
1.11 $
(1.08) $
(1.89)
Net income (loss) per common share attributable to VOXX International
Corporation - diluted
$
1.09 $
(1.08) $
(1.89)
Weighted-average common shares outstanding (basic)
24,201,221
24,394,663
24,355,791
Weighted-average common shares outstanding (diluted)
24,650,106
See accompanying notes to consolidated financial statements.
24,394,663
24,355,791
60
VOXX International Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years Ended February 28, 2021, February 29, 2020, and February 28, 2019
(In thousands, except share data)
Class A
and Class
B
Common
Stock
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Non-
controlling
Interests
Treasury
Stock
Redeemable
Equity
Total
Stock-
holders'
Equity
Balances at February 28,
$
2018
Net loss
Other
comprehensive loss,
net of tax
Adjustment to
common stock
Stock-based
compensation
expense
Balances at February 28,
2019
Net loss
Other
comprehensive loss,
net of tax
Reclassification of
stockholders' equity
to redeemable equity
(Note 1(u))
Repurchase of
581,124 shares of
common stock
Stock-based
compensation
expense
Balances at February 29,
2020
Net income (loss)
Other
comprehensive
income, net of tax
Settlement of SERP
restricted stock units
Stock-based
compensation
expense
Balances at February 28,
$
2021
278 $296,395 $ 194,673 $
— (46,091)
—
(14,222) $
—
(5,830) $ (21,176) $
—
(6,741)
— $450,118
— (52,832)
—
(14)
—
—
—
—
(2,722)
—
—
—
—
—
—
(2,722)
—
(14)
—
551
—
—
—
—
—
551
264 296,946 148,582
— (26,443)
—
(16,944)
—
(12,571) (21,176)
—
(15,379)
- 395,101
— (41,822)
—
—
—
(2,111)
—
—
—
(2,111)
—
—
—
—
—
—
(745)
(745)
—
—
—
—
—
(2,742)
—
(2,742)
2
2,282
—
—
—
—
(1,736)
548
266 299,228 122,139
— 26,767
—
(19,055)
—
(27,950) (23,918)
—
(3,401)
(2,481) 348,229
— 23,366
—
—
—
(575)
—
—
4,078
—
—
—
—
—
—
4,078
—
(575)
1
1,749
—
—
—
—
(779)
971
267 $300,402 $ 148,906 $
See accompanying notes to consolidated financial statements.
(14,977) $
(31,351) $ (23,918) $
(3,260) $376,069
61
VOXX International Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended February 28, 2021, February 29, 2020, and February 28, 2019
(Amounts in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Year Ended
February 28,
2021
Year Ended
February 29,
2020
Year Ended
February 28,
2019
$
23,366 $
(41,822 ) $
(52,832 )
Depreciation and amortization
Amortization of deferred financing costs
Intangible asset impairment charges
Bad debt (recovery) expense
Reduction in the carrying amount of the right of use asset
Impairment of notes receivable
Loss (gain) on forward contracts
Equity in income of equity investee
Distribution of income from equity investees
Deferred income tax expense (benefit), net
(Loss) gain on disposal of property, plant and equipment
Non-cash compensation adjustment
Non-cash stock-based compensation expense
(Gain) loss on investment
Impairment of Venezuela investment properties
Changes in operating assets and liabilities (net of assets and liabilities) acquired):
Accounts receivable
Inventory
Receivables from vendors
Prepaid expenses and other
Investment securities-equity
Accounts payable, accrued expenses, accrued sales incentives and other current liabilities
Income taxes receivable/payable
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Proceeds from sale of long-term investment
Issuance of notes receivable
Purchase of acquired businesses, less cash acquired (Note 2)
Net cash used in investing activities
Cash flows from financing activities:
Borrowings from bank obligations
Repayments on bank obligations
Principal payments on finance lease obligations
Deferred financing costs
Settlement of restricted stock units
Purchase of treasury stock
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental Cash Flow Information:
Non-cash investing and financing activities:
$
Adjustments to goodwill due to measurement period adjustments, net
Settlement of debt with receivables
Capital expenditures funded by long-term obligations
Issuance of redeemable equity
Reclassification of stockholders' equity to redeemable equity
Acquisition of patents
Right of use assets obtained in exchange for operating lease obligations
Property, plant, and equipment obtained in exchange for finance lease obligations
Right of use assets recorded in exchange for operating lease obligations upon the adoption of ASC 842
$
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Cash paid during the period for:
Interest, excluding bank charges
Income taxes (net of refunds)
$
$
11,033
623
1,300
(316 )
1,169
-
224
(7,350 )
6,009
2,653
-
(505 )
1,749
(42 )
-
(29,602 )
(22,735 )
(44 )
(10,753 )
505
59,414
(87 )
36,611
(2,907 )
-
42
-
(11,000 )
(13,865 )
20,000
(20,500 )
(605 )
(260 )
(575 )
-
(1,940 )
1,173
21,979
37,425
59,404 $
21 $
607
-
779
-
-
772
-
—
1,169 $
28
605
1,101 $
1,807
12,398
822
30,230
720
880
-
(491 )
(5,174 )
5,136
(1,337 )
(3,791 )
(320 )
2,282
(775 )
-
5,692
9,571
777
423
576
(17,378 )
572
(1,009 )
(2,914 )
11,930
775
-
(16,500 )
(6,709 )
-
(9,205 )
(646 )
-
-
(2,742 )
(12,593 )
(500 )
(20,811 )
58,236
37,425 $
— $
-
-
1,736
745
-
1,312
1,024
2,227
880 $
47
646
1,034 $
1,551
12,344
822
25,789
507
-
16,509
7
(6,618 )
6,594
(7,110 )
106
(896 )
551
530
3,473
5,600
13,912
(521 )
4,917
762
480
(2,364 )
22,562
(4,761 )
78
-
(6,354 )
-
(11,037 )
1,958
(2,480 )
(402 )
-
-
-
(924 )
(4,105 )
6,496
51,740
58,236
—
-
360
-
-
2,600
-
-
—
—
—
—
1,728
3,212
See accompanying notes to consolidated financial statements.
62
VOXX International Corporation and Subsidiaries
Notes to Consolidated Financial Statements
February 28, 2021
(Amounts in thousands, except share and per share data)
1)
Description of Business and Summary of Significant Accounting Policies
a)
Description of Business
VOXX International Corporation ("Voxx," "We," "Our," "Us" or the “Company") is a leading
international manufacturer and distributor in the Automotive Electronics, Consumer Electronics,
and Biometrics industries. The Company has widely diversified interests, with more than 30
global brands that it has acquired and grown throughout the years, achieving a powerful
international corporate image, and creating a vehicle for each of these respective brands to emerge
with its own identity. We conduct our business through nineteen wholly-owned subsidiaries:
Audiovox Atlanta Corp., VOXX Electronics Corporation, VOXX Accessories Corp., VOXX
German Holdings GmbH ("Voxx Germany"), Audiovox Canada Limited, Voxx Hong Kong Ltd.,
Audiovox International Corp., Audiovox Mexico, S. de R.L. de C.V. ("Voxx Mexico"), Code
Systems, Inc., Oehlbach Kabel GmbH ("Oehlbach"), Schwaiger GmbH ("Schwaiger"), Invision
Automotive Systems, Inc. ("Invision"), Premium Audio Company LLC ("Klipsch"), Omega
Research and Development, LLC ("Omega"), Voxx Automotive Corp., Audiovox Websales LLC,
VSM-Rostra LLC (“VSM”), VOXX DEI LLC, and VOXX DEI Canada LLC (collectively, with
VOXX DEI LLC, “DEI”), as well as a majority-owned subsidiary, EyeLock LLC ("EyeLock").
We market our products under the Audiovox® brand name, other brand names and licensed
brands, such as 808®, Acoustic Research®, Advent®, Avital®, Car Link®, Chapman®,
Clifford®, Code-Alarm®, Crimestopper™, Discwasher®, Energy®, Heco®, Invision®, Jamo®,
Klipsch®, Mac Audio™, Magnat®, Mirage®, myris®, Oehlbach®, Omega®, Prestige®, Project
Nursery®, Python®, RCA®, RCA Accessories®, Rosen®, Rostra®, Schwaiger®, Smart Start®,
Terk®, Vehicle Safety Automotive, Viper®, and Voxx Automotive, as well as private labels
through a large domestic and international distribution network. We also function as an OEM
("Original Equipment Manufacturer") supplier to several customers, as well as market a number of
products under exclusive distribution agreements, such as SiriusXM satellite radio products and
Onkyo and Pioneer products in North America.
The Company's fiscal year ends on the last day of February.
b)
Principles of Consolidation, Reclassifications and Accounting Principles
The consolidated financial statements and accompanying notes include the financial statements of
VOXX International Corporation and its wholly and majority-owned subsidiaries and have been
prepared pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”), as defined in the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 270, and in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). All significant intercompany balances and
transactions have been eliminated in consolidation. Certain amounts in the prior years have been
reclassified to conform to the current year presentation. During the year ended February 28, 2021,
as a result of the acquisition of certain assets of Directed LLC and Directed Electronics Canada
Inc. and the increase in web-based sales, the Company reviewed its operating and non-operating
expenses to determine whether amounts reported were in line with industry practice. As a result of
this review, the Company determined it is appropriate to present credit card fees within Selling
expenses. These fees, which are not material to the Company’s consolidated financial statements,
were previously presented within Other (expense) income during the years ended February 29,
2020 and February 28, 2019 and have been reclassified.
The Company follows FASB ASC 810-10-45-21 to report a non-controlling interest in the
consolidated balance sheets within the equity section, separately from the Company’s retained
earnings. Non-controlling interest represents the non-controlling interest holder’s proportionate
63
share of the equity of the Company’s majority-owned subsidiary, EyeLock. Non-controlling
interest is adjusted for the non-controlling interest holder’s proportionate share of the earnings or
losses and other comprehensive income (loss), if any, and the non-controlling interest continues to
be attributed its share of losses even if that attribution results in a deficit non-controlling interest
balance.
Equity investments in which the Company exercises significant influence but does not control and
is not the primary beneficiary are accounted for using the equity method. The Company's share of
its equity method investee's earnings or losses is included in Other (expense) income in the
accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). The
Company eliminates its pro rata share of gross profit on sales to its equity method investee for
inventory on hand at the investee at the end of the year. Investments in which the Company does
not exercise significant influence over the investee, and which do not have readily determinable
fair values, are accounted for under the cost method.
c)
Use of Estimates
The preparation of these consolidated financial statements requires the Company to make
estimates and assumptions that affect reported amounts of assets, liabilities, revenue, and
expenses. Such estimates include revenue recognition; accrued sales incentives; the allowance for
doubtful accounts; inventory valuation; valuation of long-lived assets; valuation and impairment
assessment of goodwill, trademarks, and other intangible assets; warranty reserves; stock-based
compensation; recoverability of deferred tax assets; and the reserve for uncertain tax positions at
the date of the consolidated financial statements. Actual results could differ from those estimates.
d)
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits with banks and highly liquid money market
funds with original maturities of three months or less when purchased. Cash and cash equivalents
amounted to $59,404 and $37,425 at February 28, 2021 and February 29, 2020, respectively. The
Company places its cash and cash equivalents in institutions and funds of high credit quality. As
many of our balances are in excess of government insurance, we perform periodic evaluations of
these institutions and funds. Cash amounts held in foreign bank accounts amounted to $2,213 and
$3,396 at February 28, 2021 and February 29, 2020, respectively, none of which would be subject
to United States federal income taxes if made available for use in the United States. The Tax Cuts
and Jobs Act provides a 100% participation exemption on dividends received from foreign
corporations after January 1, 2018 as the United States has moved away from a worldwide tax
system and closer to a territorial system for earnings of foreign corporations.
e)
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.
64
At February 28, 2021 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).
The following table presents assets and liabilities measured at fair value on a recurring basis at
February 28, 2021:
Cash and cash equivalents:
Cash and money market funds
Derivatives
Designated for hedging
Investment securities:
Mutual funds
Total investment securities
Fair Value Measurements at
Reporting Date Using
Carrying
Value
Level 1
Level 2
$
59,404 $
59,404 $
—
$
(765) $
— $
(765)
$
$
1,777 $
1,777 $
1,777 $
1,777 $
—
—
The following table presents assets and liabilities measured at fair value on a recurring basis at
February 29, 2020:
Cash and cash equivalents:
Cash and money market funds
Derivatives
Designated for hedging
Investment securities:
Mutual funds
Total investment securities
Fair Value Measurements at
Reporting Date Using
Carrying
Value
Level 1
Level 2
$
37,425 $
37,425 $
—
$
$
$
(476) $
— $
(476)
2,282 $
2,282 $
2,282 $
2,282 $
—
—
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 than market rates.
Non-financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain long-lived non-financial assets and liabilities may be required to be measured at fair value
on a nonrecurring basis in certain circumstances, including when there is evidence of impairment.
These non-financial assets and liabilities may include assets acquired in a business combination or
property and equipment that are determined to be impaired. As of February 28, 2021 and February
29, 2020, certain non-financial assets were measured at fair value subsequent to their initial
recognition. See Note 1(k) for the discussion of the impairment of certain intangible assets.
Derivative Instruments
The Company's derivative instruments include forward foreign currency contracts and an interest
rate swap agreement. The forward foreign currency contracts are utilized to hedge a portion of its
65
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). Open foreign currency contracts are classified in the
balance sheet according to their terms. The duration of open forward foreign currency contracts
ranged from 1 month to 12 months at February 28, 2021. The Company’s interest rate swap
agreement hedges interest rate exposure related to the forecasted 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 mortgage.
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. The interest rate swap is
classified in the balance sheet as either an asset or a liability based on the fair value of the
instrument at the end of the period.
Financial Statement Classification
The Company holds derivative instruments that are designated as hedging instruments. The
following table discloses the fair value as of February 28, 2021 and February 29, 2020 for
derivative instruments:
Derivative Assets and Liabilities
Account
Prepaid expenses and other
current assets
Accrued expenses and other
current liabilities
Other long-term liabilities
Fair Value
February 28,
2021
February 29,
2020
$
412 $
(731)
(446)
$
(765) $
—
-
(476)
(476)
Designated derivative instruments
Foreign currency contracts
Interest rate swap
Total derivatives
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
to separately measure and report hedge
ineffectiveness. For derivative instruments that are designated and qualify as a cash flow hedge,
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.
the requirement
During Fiscal 2021, the Company entered into forward foreign currency contracts which have a
current notional value of $11,600 and are designated as cash flow hedges at February 28, 2021.
The current outstanding notional value of the Company's interest rate swap at February 28, 2021 is
$7,114. For cash flow hedges, the effective portion of 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 gain recognized in Other
comprehensive (loss) income for foreign currency contracts is expected to be recognized in cost of
66
sales within the next fifteen months. No amounts were excluded from the assessment of hedge
effectiveness during the respective periods. During the years ended February 28, 2021 and
February 29, 2020, no contracts originally designated for hedge accounting were de-designated.
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 February 28, 2021, no contracts originally designated
for hedge accounting were terminated.
Activity related to cash flow hedges recorded during the twelve months ended February 28, 2021
and February 29, 2020 was as follows:
February 28, 2021
February 29, 2020
Gain (Loss)
Recognized
in Other
Comprehensive
Income
Loss
Reclassified
from
Accumulated
Other
Comprehensive
Income
Gain (Loss)
Recognized
in Other
Comprehensive
Income
Gain
Reclassified
from
Accumulated
Other
Comprehensive
Income
$
$
(720) $
30 $
(238) $
— $
331 $
(392) $
428
—
Cash flow hedges
Foreign currency contracts
Interest rate swaps
f)
Investment Securities
As of February 28, 2021 and February 29, 2020, the Company had the following investments:
Investment Securities
Marketable Equity Securities
Mutual funds
Total Marketable Equity Securities
Total Investment Securities
Investment Securities
Marketable Equity Securities
Mutual funds
Total Marketable Equity Securities
Total Investment Securities
Long-Term Investments
Equity Securities
February 28, 2021
Carrying Value
$
$
1,777
1,777
1,777
February 29, 2020
Carrying Value
$
$
2,282
2,282
2,282
Marketable equity securities are measured and recorded at fair value with changes in fair value
recorded in the Consolidated Statements of Operations and Comprehensive Income (Loss).
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.
67
Changes in fair value of equity securities are recorded within the Consolidated Statements of
Operations and Comprehensive Income (Loss).
Investments Held at Cost, Less Impairment
During Fiscal 2018, RxNetworks, a Canadian company in which Voxx held a cost method
investment consisting of shares of the investee's preferred stock, was sold to a third party. In
consideration for its holdings in RxNetworks, Voxx received cash, as well as a proportionate share
of the value (consisting of common stock) in Fathom Systems Inc. ("Fathom"), a subsidiary of
RxNetworks. As a result of this transaction, Voxx recognized a gain on the investment in Fiscal
2018; however, a portion of the cash proceeds was subject to a hold-back provision, which was
not included in the calculation of this gain in Fiscal 2018. During Fiscal 2019, Fathom
repurchased all of the outstanding common stock of its shareholders for a price per share
significantly below the value when issued. This resulted in a loss on Voxx's investment in Fathom
of $530 for the year ended February 28, 2019. Voxx had no remaining investment or ownership in
Fathom Systems Inc. subsequent to February 28, 2019. In Fiscal 2020, the Company received a
portion of the proceeds that were held back in the Fiscal 2018 transaction to sell the RxNetworks
investment, as the hold-back provision expired, and certain cash proceeds were released to Voxx.
The Company recorded an investment gain of $775 for the year ended February 29, 2020 for these
proceeds received. During the third quarter of Fiscal 2021, a final disbursement of all remaining
proceeds related to the sale of the RxNetworks investment was received in the amount of $42,
which was recorded as an investment gain for the year ended February 28, 2021.
The Company held various notes receivable from 360fly, Inc. ("360fly"), designers and creators of
360° cameras and technology, aggregating $17,242 principal amount at February 28, 2019. Of the
$17,242 notes receivable, $14,107 were convertible into preferred stock of 360fly, Inc. These
notes receivable were senior secured notes and were collateralized by the intangible and tangible
assets of 360fly, Inc. The notes bore interest at 8% per annum and were due on January 19, 2019.
As all of the notes receivable were due from the same debtor, all the notes were deemed to have
the same credit quality. The notes receivable were on a non-accrual status during the year ended
February 28, 2019, as payment of interest was not reasonably assured. The credit quality of the
notes receivable was previously deemed to not present a significant risk of loss or default of the
principal payments based upon on-going business developments. During the fourth quarter of
Fiscal 2019, the credit quality of the debtor deteriorated.
On January 23, 2019, the Company, as Collateral Agent for the senior secured lenders, and for
itself, provided a Notice of Maturity, Default and Acceleration to 360fly, Inc., indicating that: (i)
all the unpaid principal and accrued interest owed under all the outstanding notes with the
Company became due as a result of uncured defaults in payment under the notes; and (ii) the
Company, as Collateral Agent, would proceed with foreclosure of collateral, securing the notes,
with a scheduled auction date of March 5, 2019. Notice of the auction was provided through
public advertisement and online posting during the month of February 2019.
Prior to February 28, 2019, the Company was in negotiations with other senior secured lenders of
360fly, seeking to establish a new company with the senior secured lenders ("Newco") for the
purposes of acquiring 360fly's assets through a credit bid at the foreclosure sale. If the credit bid
was successful, the Company planned to provide funding to Newco to maintain sufficient staff and
related expenses to continue to develop products and associated technology for anticipated sales to
prospective customers. 360fly was not able to secure any additional funding, meet its projections
for January or February 2019, provide any assurances that the missed projections would be
achieved or of further development with prospective customers, and ultimately ceased normal
business operations. In addition, negotiations with other potential investors to purchase a portion
of the Company's notes ceased.
Based on the above events and conditions present at February 28, 2019, the Company determined
that the notes receivable were uncollectible. As a result, the Company recorded an impairment
charge for the year ended February 28, 2019 of $16,509 (net of reserves) as it was probable that
the Company would not be, and was not, paid in accordance with the contractual terms of the
notes, as all amounts were due on January 19, 2019. As the notes were collateral dependent notes,
68
the estimated fair value of the collateral was compared to the carrying value of the notes. The fair
value of the collateral, less cost to sell, was deemed to be zero at February 28, 2019, after
consideration of the absence of potential bidders in the auction process, costs to sell the collateral
at a future date, prospects for future revenue streams related to the collateral barring additional
development expenditures, and the speculative nature of proceeds from a future sale.
On March 5, 2019, the Company, as Collateral Agent, was the only bidder at the auction with a
credit bid of $1,000 and was awarded the collateral. In late March 2019, the Company and the
other secured lenders determined they would not attempt to continue the development of 360fly
with the intangible assets acquired at auction.
g)
Revenue Recognition
On March 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with
Customers, and all the related amendments (“ASC Topic 606”), using the modified retrospective
method. In addition, we elected to apply certain of the permitted practical expedients within the
revenue recognition guidance and make certain accounting policy elections, including those
related to significant financing components, sales taxes and shipping and handling activities.
Revenue from Contracts with Customers
The core principle of ASC Topic 606 is that an entity recognizes revenue to depict the transfer of
promised goods and services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods and services. We apply the FASB’s
guidance on revenue recognition, which requires us to recognize the amount of revenue and
consideration that we expect to receive in exchange for goods and services transferred to our
customers. To do this, the Company applies the five-step model prescribed by the FASB, which
requires us to: (i) identify the contract with the customer; (ii) identify the performance obligations
in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the
performance obligations in the contract; and (v) recognize revenue when, or as, we satisfy a
performance obligation.
We account for a contract or purchase order when it has approval and commitment from both
parties, the rights of the parties are identified, payment terms are identified, the contract has
commercial substance and collectability of consideration is probable. Revenue is recognized when
control of the product passes to the customer, which is upon shipment, unless otherwise specified
within the customer contract or on the purchase order as delivery, and is recognized at the amount
that reflects the consideration the Company expects to receive for the products sold, including
various forms of discounts. When revenue is recorded, estimates of returns are made and recorded
as a reduction of revenue. Contracts with customers are evaluated to determine if there are
separate performance obligations related to timing of product shipment that will be satisfied in
different accounting periods. When that is the case, revenue is deferred until each performance
obligation is met. Within our Automotive Electronics segment, while the majority of the contracts
we enter into with Original Equipment Manufacturers (“OEM”) are long-term supply
arrangements, the performance obligations are established by the enforceable contract, which is
generally considered to be the purchase order. The purchase orders are of durations less than one
year. As such, the Company applies the practical expedient in ASC 606-10-50-14 and does not
disclose information about remaining performance obligations that have original expected
durations of one year or less, for which work has not yet been performed. The Company has also
elected the practical expedient in ASC 340-40-25-4, whereby the Company recognizes
incremental costs of obtaining contracts as an expense when incurred if the amortization period of
the assets the Company otherwise would have recognized is one year or less.
Certain taxes assessed by governmental authorities on revenue producing transactions, such as
value added taxes, are excluded from revenue, and recorded on a net basis.
69
Performance Obligations
The Company’s primary source of revenue is derived from the manufacture and distribution of
automotive electronic, consumer electronic, and biometric products. Our consumer electronic
products primarily consist of finished goods sold to retail and commercial customers, consisting of
premium audio and other consumer electronic products. Our automotive products are sold both to
OEM and aftermarket customers. Our biometric products are primarily sold to retail and
commercial customers. We recognize revenue for sales to our customers when transfer of control
of the related good or service has occurred. The majority of our revenue was recognized under the
point in time approach for the years ended February 28, 2021, February 29, 2020, and
February 28, 2019. Contract terms with certain of our OEM customers could result in products and
services being transferred over time as a result of the customized nature of some of our products,
together with contractual provisions in the customer contracts that provide us with an enforceable
right to payment for performance completed to date; however, under typical terms, we do not have
the right to consideration until the time of shipment from our manufacturing facilities or
distribution centers, or until the time of delivery to our customers. If certain contracts in the future
provide the Company with this enforceable right of payment, the timing of revenue recognition
from products transferred to customers over time may be slightly accelerated compared to our
right to consideration at the time of shipment or delivery.
Our typical payment terms vary based on the customer and the type of goods and services in the
contract or purchase order. The period of time between invoicing and when payment is due is not
significant. Amounts billed and due from our customers are classified as receivables on the
Consolidated Balance Sheet. As our standard payment terms are less than one year, we have
elected the practical expedient under ASC paragraph 606-10-32-18 to not assess whether a
contract has a significant financing component.
Our customers take delivery of goods, and they are recognized as revenue at the time of transfer of
control to the customer, which is usually at the time of shipment, unless otherwise specified in the
customer contract or purchase order. This determination is based on applicable shipping terms, as
well as the consideration of other indicators, including timing of when the Company has a present
right to payment, when physical possession of products is transferred to customers, when the
customer has the significant risks and rewards of ownership of the asset, and any provisions in
contracts regarding customer acceptance.
While unit prices are generally fixed, we provide variable consideration for certain of our
customers, typically in the form of promotional incentives at the time of sale. Depending on the
different facts and circumstances, we utilize either the most likely amount or the expected value
methods to estimate the effect of uncertainty on the amount of variable consideration to which we
would be entitled. The most likely amount method considers the single most likely amount from a
range of possible consideration amounts, while the expected value method is the sum of the
probability-weighted amounts in a range of possible consideration amounts. Both methods are
based upon the contractual terms of the incentives and historical experience with each customer.
We record estimates for cash discounts, promotional rebates, and other promotional allowances in
the period the related revenue is recognized (“Customer Credits”). The provision for Customer
Credits is recorded as a reduction from gross sales and reserves for Customer Credits are presented
within Accrued sales incentives on the Consolidated Balance Sheet. Actual Customer Credits have
not differed materially from estimated amounts for each period presented. Amounts billed to
customers for shipping and handling are included in net sales and costs associated with shipping
and handling are included in cost of sales. We have concluded that our estimates of variable
consideration are not constrained according to the definition within the standard. Additionally, the
Company applies the practical expedient in ASC paragraph 606-10-25-18B and accounts for
shipping and handling activities that occur after the customer has obtained control of a good as a
fulfillment activity, rather than a separate performance obligation.
Under ASC Topic 606, we present a refund liability and a return asset within the Consolidated
Balance Sheet. The changes in the refund liability are reported in net sales, and the changes in the
70
return asset are reported in cost of sales in the Consolidated Statements of Operations and
Comprehensive Income (Loss). See Note 14 for return asset and refund liability balances as of
February 28, 2021 and February 29, 2020.
We warrant our products against certain defects in material and workmanship, when used as
designed, for periods of time which primarily range from 30 days to 3 years. We offer limited
lifetime warranties on certain products, which limit the customer’s remedy to the repair or
replacement of the defective product or part for the original owner for the designated lifetime of
the product, or for the life of the vehicle, if it is an automotive product. We do not sell extended
warranties.
Contract Balances
Contract assets primarily relate to the Company’s rights to consideration for work completed but
not billed at the reporting date on contracts with customers. Contract assets are transferred to
receivables when the rights become unconditional. Contract liabilities primarily relate to contracts
where advance payments or deposits have been received, but performance obligations have not yet
been met, and therefore, revenue has not been recognized. See Note 14 for contract asset and
liability balances as of February 28, 2021 and February 29, 2020.
h)
Accounts Receivable
The majority of the Company's accounts receivable are due from companies in the retail, mass
merchant and OEM industries. Credit is extended based on an evaluation of a customer's financial
condition. Accounts receivable are generally due within 30 days to 60 days and are stated at
amounts due from customers, net of an allowance for credit losses. Accounts outstanding longer
than the contracted payment terms are considered past due.
Accounts receivable are comprised of the following:
Trade accounts receivable
Less:
Allowance for credit losses
Allowance for cash discounts
February 28,
2021
February 29,
2020
$
108,862 $
72,419
1,593
1,104
106,165 $
1,954
751
69,714
$
The Company performs ongoing credit evaluations of its customers and adjusts credit limits based
upon payment history and the customers' current credit worthiness, as determined by a review of
their current credit information. The Company continuously monitors collections and payments
from its customers and maintains a provision for estimated credit losses based upon historical
experience and any specific customer collection issues that have been identified. While such credit
losses have historically been within management's expectations and the provisions established, the
Company cannot guarantee it will continue to experience the same credit loss rates that have been
experienced in the past. The Company writes off accounts receivable balances when collection
efforts have been exhausted and deemed uncollectible. Our five largest customer balances
comprise 25% of our accounts receivable balance as of February 28, 2021. A significant change in
the liquidity or financial position of any one of these customers could have a material adverse
impact on the collectability of accounts receivable and our results of operations.
On March 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, “Financial
Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,”
which did not have a material impact on our financial statements. Our financial instruments
consist of trade receivables arising from revenue transactions in the ordinary course of business.
We extend credit to customers based on pre-defined criteria and trade receivables are generally
due within 30 to 60 days.
71
The Company has three supply chain financing agreements and factoring agreements with certain
financial institutions to accelerate receivable collection and better manage cash flow. Under the
agreements, the Company has agreed to sell these institutions certain of its accounts receivable
balances from time to time. For those accounts receivables tendered to the banks that the banks
choose to purchase, the banks have agreed to advance an amount equal to the net accounts
receivable balances due, less a discount or fee as set forth in the respective agreements. The
balances under these agreements are sold without recourse and are accounted for as sales of
accounts receivable. Cash proceeds from these agreements are reflected as operating activities
included in the change in accounts receivable in the Company's Consolidated Statements of Cash
Flows. Total balances sold under the agreements, net of discounts, for the years ended February
28, 2021, February 29, 2020, and February 28, 2019 were approximately $100,800, $79,100 and
$104,600, respectively. Fees incurred in connection with these agreements totaled approximately
$330, $370 and $930 for the years ended February 28, 2021, February 29, 2020 and February 28,
2019, respectively, and are recorded within Interest and bank charges in the Consolidated
Statements of Operations and Comprehensive Income (Loss). During Fiscal 2020, the Company
temporarily suspended two of its domestic supply chain finance arrangements, as the Company
had sufficient cash on hand for operations, as well as due to rising fees charged on factored
balances. During Fiscal 2021, the Company resumed its factoring activities under all of its
agreements in response to general economic concerns related to the COVID-19 pandemic. The
Company has the option to suspend and resume its activity under the existing arrangements at any
time.
i)
Inventory
The Company values its inventory at the lower of cost or net realizable value ("NRV"). NRV is
defined as estimated selling prices less costs of completion, disposal, and transportation. The cost
of inventory is determined primarily on an average basis with a portion valued at standard cost,
which approximates actual costs on the first-in, first-out basis. The Company regularly reviews
inventory quantities on-hand and records a provision for excess and obsolete inventory based
primarily on selling prices, indications from customers based upon current price negotiations and
purchase orders. The Company's industry is characterized by rapid technological change and
frequent new product introductions that could result in an increase in the amount of obsolete
inventory quantities on-hand. In addition, and as necessary, specific reserves for future known or
anticipated events may be established. The Company recorded inventory write-downs of $2,032,
$3,050 and $4,580 for the years ended February 28, 2021, February 29, 2020 and February 28,
2019, respectively.
Inventories by major category are as follows:
Raw materials
Work in process
Finished goods
Inventory, net
j)
Property, Plant and Equipment
February 28,
2021
February 29,
2020
$
$
21,228 $
1,732
107,833
130,793 $
29,115
2,366
67,629
99,110
Property, plant, and equipment are stated at cost less accumulated depreciation. Property under a
finance lease is stated at the present value of minimum lease payments. Major improvements and
replacements that extend service lives of the assets are capitalized. Minor replacements, and
routine maintenance and repairs are charged to expense as incurred. Upon retirement or disposal
of assets, the cost and related accumulated depreciation are removed from the Consolidated
Balance Sheets.
72
A summary of property, plant and equipment, net, is as follows:
Land
Buildings
Property under finance lease
Furniture and fixtures
Machinery and equipment
Construction-in-progress
Computer hardware and software
Automobiles
Leasehold improvements
Less accumulated depreciation and amortization
February 28,
2021
February 29,
2020
$
$
7,068 $
43,987
2,503
4,424
9,785
1,587
41,178
729
2,688
113,949
61,923
52,026 $
6,978
43,801
2,503
4,152
8,245
483
38,808
735
1,858
107,563
56,139
51,424
Depreciation is calculated on the straight-line method over the estimated useful lives of the assets
as follows:
Buildings and improvements
Furniture and fixtures
Machinery and equipment
Computer hardware and software
Automobiles
20 - 40 years
5 - 15 years
5 - 15 years
3 - 5 years
3 years
Leasehold improvements are depreciated over the shorter of the lease term or estimated useful life
of the asset. Assets acquired under finance leases are amortized over the term of the respective
lease. Accumulated amortization of assets under finance lease totaled $1,805 and $1,209 at
February 28, 2021 and February 29, 2020, respectively.
Depreciation and amortization of property, plant and equipment amounted to $5,607, $5,343 and
$5,360 for the years ended February 28, 2021, February 29, 2020 and February 28, 2019,
respectively. Included in depreciation and amortization expense is amortization of computer
software costs of $1,252, $1,474 and $1,537 for the years ended February 28, 2021, February 29,
2020 and February 28, 2019, respectively. Also included in depreciation and amortization expense
is $596, $684 and $491 of amortization expense related to property under finance leases for the
years ended February 28, 2021, February 29, 2020 and February 28, 2019, respectively.
See Note 11 for discussion of the sale of the Company’s real property in Pulheim Germany during
the year ended February 29, 2020 and the gain recognized of $4,057. See Note 1(p) for discussion
of long-lived asset impairment charges recorded for the year ended February 28, 2019 related to
real estate properties held by the Company's Venezuela subsidiary.
k)
Goodwill and Intangible Assets
Goodwill and other intangible assets consist of the excess over the fair value of net assets acquired
(goodwill) and other intangible assets (patents, contracts, trademarks/tradenames, developed
technology and customer relationships). Values assigned to the respective assets are determined in
accordance with ASC 805 "Business Combinations" ("ASC 805") and ASC 350 "Intangibles –
Goodwill and Other" ("ASC 350").
Goodwill is calculated as the excess of the cost of purchased businesses over the fair value of the
underlying net assets acquired. We use various valuation techniques to determine the fair value of
the assets acquired, with the primary techniques being the discounted future cash flow method,
relief from royalty method, and the multi-period excess earnings methods, which use significant
unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Inputs to these
73
valuation approaches that require significant judgment include: (i) forecasted sales, growth rates
and customer attrition rates, (ii) forecasted operating margins, (iii) royalty rates and discount rates
used to present value future cash flows, (iv) the amount of synergies expected from the
acquisition, (v) the economic useful life of assets, and (vi) the evaluation of historical tax
positions. In certain instances, historical data is limited so we base our estimates and assumptions
on budgets, business plans, economic projections, anticipated future cash flows and marketplace
data.
The guidance in ASC 350, including management’s business intent for its use; ongoing market
demand for products relevant to the category and their ability to generate future cash flows; legal,
regulatory, or contractual provisions on its use or subsequent renewal, as applicable; and the cost
to maintain or renew the rights to the assets, are considered in determining the useful life of all
intangible assets. If the Company determines that there are no legal, regulatory, contractual,
competitive, economic, or other factors which limit the useful life of the asset, an indefinite life
will be assigned and evaluated for impairment as indicated below. Goodwill and other intangible
assets that have an indefinite useful life are not amortized. Intangible assets that have a definite
useful life are amortized on either an accelerated or a straight-line basis over their estimated useful
lives.
ASC 350 requires that goodwill and intangible assets with indefinite useful lives be tested for
impairment at least annually or more frequently if an event occurs or circumstances change that
could more likely than not reduce the fair value of a reporting unit below its carrying
value. Intangible assets with estimable useful lives are required to be amortized over their
respective estimated useful lives and reviewed for impairment if indicators of impairment exist. To
determine the fair value of goodwill and intangible assets, there are many assumptions and
estimates used that directly impact the results of the testing. Management has the ability to
influence the outcome and ultimate results based on the assumptions and estimates chosen. If a
significant change in these assumptions and/or estimates occurs, the Company could experience
impairment charges, in addition to those noted below, in future periods.
Goodwill and indefinite-lived intangible assets are tested annually for impairment on the last day
of the Company’s fiscal year, and at any time upon occurrence of certain events or changes in
circumstances. When testing goodwill and/or indefinite-lived intangible assets for impairment, we
have the option to first assess qualitative factors to determine whether the existence of events or
circumstances leads to a determination that it is more likely than not that the estimated fair value
of a reporting unit or indefinite-lived intangible asset is less than its carrying amount. If we elect to
perform a qualitative assessment and determine that an impairment is more likely than not, we are
then required to perform a quantitative impairment test; otherwise, no further analysis is required.
Under
including
macroeconomic conditions, relevant industry and market trends, cost factors, overall financial
performance, other entity-specific events, and events affecting the reporting unit or indefinite-
lived intangible asset that could indicate a potential change in fair value of our indefinite-lived
intangible asset or reporting unit or the composition of its carrying values. We also consider the
specific future outlook for the reporting unit or indefinite-lived intangible asset. We also may elect
not to perform the qualitative assessment and instead, proceed directly to the quantitative
impairment test. Goodwill is considered impaired if the carrying value of the reporting unit's
goodwill exceeds its estimated fair value. Intangible assets with indefinite lives are considered
impaired if the carrying value exceeds the estimated fair value.
the qualitative assessment, we consider various qualitative
factors,
Voxx's reporting units that carry goodwill are Invision, Rosen, VSM, DEI, and Klipsch. The
Company has three operating segments based upon its products and internal organizational
structure (see Note 13). These operating segments are the Automotive Electronics, Consumer
Electronics, and Biometrics segments. The Invision, Rosen, VSM, and DEI reporting units are
located within the Automotive Electronics segment and the Klipsch reporting unit is located
within the Consumer Electronics segment.
The Company performed its annual impairment test for goodwill as of February 28, 2021. The
Company performed its annual impairment test for one of its reporting units qualitatively and
assessed whether it was more likely than not that the respective fair value of this reporting unit
was less than its carrying amount. The Company determined that impairment of goodwill was not
74
likely in this reporting unit and thus was not required to perform a quantitative analysis for this
reporting unit. For the remaining reporting units, the Company performed a quantitative analysis
and concluded that the fair values of the reporting units were in excess of their carrying value,
with no impairment indicated as of February 28, 2021. The discount rates (developed using a
weighted average cost of capital analysis) used in the goodwill quantitative test ranged from
12.8% to 14.0%. No goodwill impairment charges were recorded during the years ended February
28, 2021, February 29, 2020 and February 28, 2019. The goodwill balances of Invision, Klipsch,
Rosen, VSM, and DEI at February 28, 2021 are $7,372, $46,533, $880, $572, and $2,954,
respectively.
The Company also tested its indefinite-lived intangible assets as of February 28, 2021 as part of its
annual impairment testing. The Company performed its annual impairment test for one of its
indefinite-lived intangibles qualitatively and assessed whether it was more likely than not that the
respective fair value of this indefinite-lived intangible asset was less than its carrying amount. The
Company determined that impairment of this indefinite-lived intangible was not likely, and thus
was not required to perform a quantitative analysis for this indefinite-lived intangible asset. For
the remaining indefinite-lived assets, the Company performed a quantitative analysis and
concluded that one of the indefinite-lived assets in the Consumer Electronics segment was
impaired in the amount of $1,300. The impairment was the result of shortfalls in sales due to
reduced demand of the product category. The assessments on the remaining indefinite-lived
intangibles concluded that there was no impairment as of February 28, 2021. To perform these
quantitative impairment analyses, the respective fair values were estimated using a relief-from-
royalty method, applying royalty rates of 1.0% to 6.0% for the trademarks after reviewing
comparable market rates, the profitability of the products associated with relative intangible assets,
and other qualitative factors. We determined that risk-adjusted discount rates ranging from 12.8%
to 14.0% were appropriately developed using a weighted average cost of capital analysis. The
long-term growth rates ranged from 0% to 3.0%. Related long-lived assets were tested for
recoverability and determined to be recoverable and therefore no additional impairments related to
long-lived assets were recorded in the Consumer Electronics segment.
At February 29, 2020, several of the Company’s indefinite-lived intangible assets were determined
to be impaired as a result of the annual impairment analysis. Specifically, the Company
determined that several of its indefinite-lived trademarks in the Consumer Electronics segment
were impaired. The impairments were the result of the Company being unable to secure product
placement into customer stores, anticipated shortfalls in sales due to economic uncertainty as a
result of the COVID-19 pandemic, reduced demand from a large traditional brick-and-mortar
customer, along with continued declines in the German economy. As a result, several indefinite-
lived tradenames in the Consumer Electronics segment were impaired resulting in impairment
charges of $2,828 recorded for the year ended February 29, 2020. Related long-lived assets were
tested for recoverability and determined to be recoverable and therefore no additional impairments
related to long-lived assets were recorded in the Consumer Electronics segment. Additionally, in
the Biometrics segment, the Company determined that its indefinite-lived trademark was impaired.
The impairment of the trademark was the result of lack of customer acceptance of the related
technology, lower than anticipated results, adjusted expectations for demand and anticipated
delays of product deployment with target customers due to economic uncertainty given the
COVID-19 pandemic. Related long-lived assets in the Biometrics segment were tested for
recoverability and determined not to be recoverable. The fair value of the long-lived assets that
were not recoverable were estimated, and when compared to their carrying value, were determined
to also be impaired. As a result, total impairments in the Biometric segment of $27,402 for
indefinite-lived and definite-lived intangible assets were recorded for the year ended February 29,
2020.
The combined impairment charges for both the Consumer Electronics segment and the Biometrics
segment aggregated $30,230 for the year ended February 29, 2020.
During the second quarter of Fiscal 2019, the Company re-evaluated its projections for several
brands in its former Consumer Accessory and Automotive segments based on lower than
anticipated results. Specifically, during the second quarter of Fiscal 2019, the lower than
anticipated results were due to reduced product load-ins, increased competition for certain product
lines, a streamlining of SKUs, and a change in market strategy for one of its brands. Accordingly,
these were considered indicators of impairment requiring the Company to test the related
indefinite-lived trademarks for impairment as of August 31, 2018. As a result of this analysis, it
was determined that several of the Company’s former Consumer Accessory trademarks and one
75
Automotive trademark were impaired. During the fourth quarter, the Company further streamlined
its SKUs in conjunction with its corporate realignment and transformation initiatives, and adjusted
expectations for select customer demand and anticipated results from alternative sales channels for
one of its brands. As a result of this analysis, it was determined that two of the Company’s
Consumer Accessory trademarks were impaired. As a result of the second and fourth quarter tests,
the Company recorded total impairment charges of $25,629 and $160 during the year ended
February 28, 2019 for the former Consumer Accessory and Automotive segments, respectively.
No impairment charges were recorded related to indefinite-lived intangible assets for the year
ended February 28, 2019.
As a result of the Fiscal 2020 and 2019 indefinite-lived intangible asset impairments, the
Company evaluated the related long-lived assets at the lowest level for which there are separately
identifiable cash flows. For Fiscal 2020, impairments of $19,667 related to long-lived assets
associated with the Biometrics segment were recorded. For Fiscal 2019, no additional impairments
of the related long-lived assets were recorded as a result of these analyses. Additionally, no
impairment charges were recorded related to definite-lived intangible assets for the years ended
February 28, 2021 and February 28, 2019. Management determined that the current lives of its
long-lived assets are appropriate.
Approximately 39% ($24,432) of the carrying value of the Company's indefinite lived trademarks
are at risk of impairment and sensitive to changes and assumptions as of February 28, 2021. There
can be no assurance that our estimates and assumptions made for purposes of impairment testing
as of February 28, 2021 will prove to be accurate predictions of the future. Reduced demand for
our existing product offerings, reductions of product placement at our customers, less than
anticipated results, lack of acceptance of our new products, elimination of additional SKUs, the
inability to successfully develop our brands, or unfavorable changes in assumptions used in the
discounted cash flow model such as discount rates, royalty rates or projected long-term growth
rates, could result in additional impairment charges in the future.
Goodwill
The change in the carrying value of goodwill is as follows:
Beginning of period
Goodwill acquired (see Note 2)
Adjustments to goodwill acquired, net (see
Note 2)
End of period
Gross carrying value
Accumulated impairment charges
Net carrying value
February 28, 2021 February 29, 2020 February 28, 2019
54,785
$
—
55,000 $
3,290
54,785 $
215
$
$
$
21
58,311 $
90,474 $
(32,163)
58,311 $
—
55,000 $
87,163 $
(32,163)
55,000 $
—
54,785
86,948
(32,163)
54,785
76
Automotive Electronics
Beginning of period
Goodwill acquired (see Note 2)
Adjustments to goodwill acquired, net (see
Note 2)
End of period
Gross carrying value
Accumulated impairment charge
Net carrying value
Consumer Electronics
Beginning of period
Impairment charge
End of period
Gross carrying value
Accumulated impairment charge
Net carrying value
Total goodwill, net
February 28, 2021 February 29, 2020 February 28, 2019
$
$
$
$
$
$
$
$
$
8,467 $
3,290
21
11,778 $
11,778 $
—
11,778 $
46,533 $
—
46,533 $
78,696 $
(32,163)
46,533 $
8,252 $
215
—
8,467 $
8,467 $
—
8,467 $
46,533 $
—
46,533 $
78,696 $
(32,163)
46,533 $
8,252
—
—
8,252
8,252
—
8,252
46,533
—
46,533
78,696
(32,163)
46,533
58,311 $
55,000 $
54,785
Note: The Company's Biometrics segment did not carry a balance for goodwill at February 28, 2021, February 29,
2020, or February 28, 2019.
Intangible Assets
At February 28, 2021 and February 29, 2020, intangible assets consisted of the following:
Finite-lived intangible assets:
Customer relationships (4-15.5 years)
Trademarks/Tradenames (10 years)
Developed technology (7 years)
Patents (4-13 years)
License
Contracts
Total finite-lived intangible assets
Indefinite-lived intangible assets
Trademarks
Total intangible assets, net
February 28, 2021
Gross
Carrying
Value
Accumulated
Amortization
Total Net
Book
Value
$
$
54,688 $
5,545
14,144
6,736
1,400
1,556
84,069 $
36,412
811
12,516
4,629
1,400
1,556
57,324
$
$
18,276
4,734
1,628
2,107
-
-
26,745
63,359
90,104
77
Finite-lived intangible assets:
Customer relationships (4-15.5 years)
Trademarks/Tradenames (10 years)
Developed technology (7 years)
Patents (4-13 years)
License
Contracts
Total finite-lived intangible assets
Indefinite-lived intangible assets
Trademarks
Total intangible assets, net
February 29, 2020
Gross
Carrying
Value
Accumulated
Amortization
Total Net
Book
Value
$
$
51,491 $
1,045
14,144
5,651
1,400
1,556
75,287 $
31,880 $
437
12,244
3,691
1,400
1,556
51,208
$
19,611
608
1,900
1,960
-
-
24,079
64,209
88,288
The weighted-average remaining amortization period for amortizing intangibles acquired during
the year ended February 28, 2021 is approximately 10 years.
The Company expenses the renewal costs of patents as incurred. The weighted-average period
before the renewal of our patents is approximately 4 years.
Amortization expense for intangible assets amounted to $5,426, $7,010 and $6,984 for the years
ended February 28, 2021, February 29, 2020 and February 28, 2019, respectively. At February
28, 2021, the estimated aggregate amortization expense for all amortizable intangibles for each of
the succeeding five fiscal years is as follows:
Fiscal Year
2022
2023
2024
2025
2026
Amount
$
5,658
4,652
4,280
4,064
3,574
l)
Sales Incentives
The Company offers sales incentives to its customers in the form of (1) co-operative advertising
allowances; (2) market development funds; (3) volume incentive rebates; and (4) other trade
allowances. The Company accounts for sales incentives in accordance with ASC 606 "Revenue
from Contracts with Customers" ("ASC 606"). These sales incentives represent variable
consideration provided to customers. Depending on the specific facts and circumstances, we
utilize either the most likely amount or expected value methods to estimate the effect of
uncertainty on the amount of variable consideration to which we would be entitled. The most
likely amount method considers the single most likely amount from a range of possible
consideration amounts, while the expected value method is the sum of the probability-weighted
amounts in a range of possible consideration amounts. Both methods are based upon the
contractual terms of the incentives and historical experience with each customer. Except for other
trade allowances, all sales incentives require the customer to purchase the Company's products
during a specified period of time. All sales incentives require customers to claim the sales
incentive within a certain time period (referred to as the "claim period") and claims are settled
either by the customer claiming a deduction against an outstanding account receivable or by the
customer requesting a cash payout. All costs associated with sales incentives are classified as a
reduction of net sales. The following is a summary of the various sales incentive programs:
78
Co-operative advertising allowances are offered to customers as reimbursement towards their
costs for print or media advertising in which the Company’s product is featured on its own or in
conjunction with other companies' products. The amount offered is either a fixed amount or is
based upon a fixed percentage of sales revenue or a fixed amount per unit sold to the customer
during a specified time period.
Market development funds are offered to customers in connection with new product launches or
entrance into new markets. The amount offered for new product launches is based upon a fixed
amount or based upon a percentage of sales revenue or a fixed amount per unit sold to the
customer during a specified time period.
Volume incentive rebates offered to customers require minimum quantities of product to be
purchased during a specified period of time. The amount offered is either based upon a fixed
percentage of sales revenue to the customer or a fixed amount per unit sold to the customer. The
Company makes an estimate of the ultimate amount of the rebate their customers will earn based
upon past history with the customers and other facts and circumstances. The Company has the
ability to estimate these volume incentive rebates, as the period of time for a particular rebate to be
claimed is relatively short. Any changes in the estimated amount of volume incentive rebates are
recognized immediately using a cumulative catch-up adjustment. The Company accrues the cost
of co-operative advertising allowances, volume incentive rebates and market development funds at
the later of when the customer purchases our products or when the sales incentive is offered to the
customer.
Unearned sales incentives are volume incentive rebates where the customer did not purchase the
required minimum quantities of product during the specified time. Volume incentive rebates are
reversed into income in the period when the customer did not reach the required minimum
purchases of product during the specified time. Unclaimed sales incentives are sales incentives
earned by the customer, but the customer has not claimed payment within the claim period (period
after program has ended). Unclaimed sales incentives are investigated in a timely manner after the
end of the program and reversed if deemed appropriate. The Company believes the reversal of
earned but unclaimed sales incentives upon the expiration of the claim period is a systematic,
rational, consistent, and conservative method of reversing unclaimed sales incentives.
Other trade allowances are additional sales incentives the Company provides to customers
subsequent to the related revenue being recognized. The Company records the provision for these
additional sales incentives at the later of when the sales incentive is offered or when the related
revenue is recognized. Such additional sales incentives are based upon a fixed percentage of the
selling price to the customer, a fixed amount per unit, or a lump-sum amount.
Although the Company makes its best estimate of its sales incentive liability, many factors,
including significant unanticipated changes in the purchasing volume of its customers and the lack
of claims made by customers, could have a significant impact on the sales incentives liability and
reported operating results.
A summary of the activity with respect to accrued sales incentives is provided below:
Year
Ended
February 28,
2021
Year
Ended
February 29,
2020
Year
Ended
February 28,
2019
$
$
12,250 $
—
67,337
(54,102)
(172)
25,313 $
13,574 $
28
35,345
(36,583)
(114)
12,250 $
14,020
-
37,272
(37,516)
(202)
13,574
Accrued sales incentives, opening balance
Liabilities acquired during acquisition
Accruals
Payments and credits
Reversals for unearned sales incentives
Accrued sales incentives, ending balance
79
The majority of the reversals of previously established sales incentive liabilities pertain to sales
recorded in prior periods.
m)
Advertising
Excluding co-operative advertising as discussed in Note 1(l) above, the Company expensed the
cost of advertising, as incurred, of $4,605, $4,905 and $5,417 for the years ended February 28,
2021, February 29, 2020 and February 28, 2019, respectively.
n)
Research and Development
Expenditures for research and development are charged to expense as incurred. Such expenditures
amounted to $7,940, $7,748 and $9,169 for the years ended February 28, 2021, February 29, 2020
and February 28, 2019, respectively, net of customer reimbursement, of $120, $266 and $375,
respectively, and are included within Engineering and Technical Support expenses on the
Consolidated Statements of Operations and Comprehensive Income (Loss). Reimbursements 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.
o)
Product Warranties and Product Repair Costs
The Company generally warranties its products against certain manufacturing and other defects.
This warranty does not provide a service beyond assuring that the products comply with agreed-
upon specifications and is not sold separately. The Company provides warranties for all of its
products ranging primarily from 30 days to 3 years. The Company also provides limited lifetime
warranties for certain products, which limit the end user's remedy to the repair or replacement of
the defective product during its lifetime, as well as for certain vehicle security products for the life
of the vehicle for the original owner. Warranty expenses are accrued at the time the related
revenue is recognized, based on the Company's estimated cost to repair or replace expected
product returns for warranty matters. This liability is based primarily on historical experiences of
actual warranty claims as well as current information on repair costs and contract terms with
certain manufacturers. The warranty liability of $4,403 and $3,241 is recorded in Accrued
expenses and other current liabilities in the accompanying Consolidated Balance Sheets as of
February 28, 2021 and February 29, 2020, respectively. In addition, the Company records a
reserve for product repair or replace costs which is based upon the quantities of defective
inventory on hand and an estimate of the cost to repair such defective inventory. The reserve for
product repair costs of $887 and $1,507 is recorded as a reduction to inventory in the
accompanying Consolidated Balance Sheets as of February 28, 2021 and February 29, 2020,
respectively. Warranty claims and product repair costs expense for the years ended February 28,
2021, February 29, 2020 and February 28, 2019 were $3,065, $4,935 and $6,091, respectively.
Changes in the Company's accrued product warranties and product repair costs are as follows:
Beginning balance
Liabilities acquired during acquisitions
Accrual for warranties issued during the year and repair cost
Balances transferred (a)
Warranty claims settled during the year
Ending balance
Year
Ended
February 28,
2021
Year
Ended
February 29,
2020
Year
Ended
February 28,
2019
$
$
4,748 $
1,200
3,065
-
(3,723)
5,290 $
4,469 $
188
4,935
—
(4,844)
4,748 $
6,233
—
6,091
(832)
(7,023)
4,469
(a) In conjunction with the implementation of ASC Topic 606, "Revenue from Contracts with
Customers" (see Note 1(g)), the Company recorded a refund liability, representing the amount of
consideration received for products sold that the Company expects to refund to customers, as well
as a corresponding return asset that reflects the Company's right to receive goods back from
80
customers. The return asset is calculated as the carrying value of goods at the time of sale, less any
expected costs to recover the goods and any expected reduction in value and is included in Prepaid
expenses and other current assets on the Consolidated Balance Sheets at February 28, 2021 and
February 29, 2020. The balance above represents the amount that reduced the value of inventory
returned to the Company and was reclassified to the return asset in order to properly reflect the
value of the inventory the Company expects to receive back from customers.
p)
Foreign Currency
Assets and liabilities of subsidiaries located outside the United States whose cash flows are
primarily in local currencies have been translated at rates of exchange at the end of the period or
historical exchange rates, as appropriate in accordance with ASC 830, "Foreign Currency Matters"
("ASC 830"). Revenues and expenses have been translated at the weighted-average rates of
exchange in effect during the period. Gains and losses resulting from translation are recorded in
the cumulative foreign currency translation account in Accumulated other comprehensive loss. For
the years ended February 28, 2021, February 29, 2020 and February 28, 2019, the Company
recorded total net foreign currency transaction (losses) gains in the amount of $(862), $405 and
$220, respectively.
The Company has a subsidiary in Venezuela. Venezuela continues to experience significant
political and civil unrest and economic instability and has been troubled with various foreign
currency and price controls. 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. The Company applies hyper-inflationary accounting to Venezuela in
accordance with the guidelines in ASC 830, "Foreign Currency." A hyper-inflationary economy
designation occurs when a country has experienced cumulative inflation of approximately 100
percent or more over a 3-year period. The hyper-inflationary designation requires the local
subsidiary in Venezuela to record all transactions as if they were denominated in U.S. dollars.
The Venezuelan government has devalued the Bolivar Fuerte several times in an attempt to
address continuing hyperinflation. For the years ended February 28, 2021, February 29, 2020 and
February 28, 2019, total net currency exchange gains (losses) of $37, $(2) and $(6) were recorded,
respectively, related to Venezuela. All currency exchange gains and losses are included in Other
(expense) income on the Consolidated Statements of Operations and Comprehensive Income
(Loss).
The Company holds certain long-lived assets in Venezuela, which includes an office location for
local personnel, as well as other rental properties. The subsidiary’s automotive operations are
currently suspended, and all of these properties are held for investment purposes as of February
28, 2021. During the second quarter of Fiscal 2019, the Company assessed the recoverability of
these properties as a result of the country's continued economic deterioration, which included a
significant currency devaluation in August of 2018. The Company estimated the future
undiscounted cash flows expected to be received from these properties. The estimate of the future
undiscounted cash flows considered the Company’s financial condition and its intent and ability to
retain its investments for a period of time sufficient to allow for the recovery of the carrying value.
The future undiscounted cash flows did not exceed the net carrying value for the long-lived assets.
The estimated fair value of the properties, which also considered the current conditions of the
economy in Venezuela, the volatility of the real estate market, and the significant political unrest,
resulted in a full non-cash impairment charge of $3,473 for the year ended February 28, 2019,
which wrote off the remaining balance of the Company's property, plant, and equipment in
Venezuela. The non-cash impairment charge is included in Other (expense) income on the
Consolidated Statements of Operations and Comprehensive Income (Loss).
q)
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
81
financial statement carrying values of existing assets and liabilities and their respective tax basis
and operating loss and tax credit carryforwards. In evaluating our ability to recover our deferred
tax assets within the jurisdiction from which they arise, we consider all positive and negative
evidence including the results of recent operations, scheduled reversal of deferred tax liabilities,
future taxable income, and tax planning strategies. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled (see Note 8). The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date.
The Company made a policy election to treat the income tax with respect to GILTI as a period
expense when incurred.
Uncertain Tax Positions
The Company adopted guidance included in ASC 740 as it relates to uncertain tax positions. The
guidance addresses the determination of whether tax benefits claimed or expected to be claimed on
a tax return should be recorded in the financial statements. Under ASC 740, the Company may
recognize the tax benefit from an uncertain tax position only if it is more likely than not that the
tax position will be sustained on examination by the taxing authorities based on the technical
merits of the position. The tax benefits recognized in the financial statements from such position
should be measured based on the largest benefit that has a greater than fifty percent likelihood of
being realized upon ultimate settlement. ASC 740 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods and disclosure requirements.
Tax interest and penalties
The Company classifies interest and penalties associated with income taxes as a component of
Income tax expense (benefit) on the Consolidated Statements of Operations and Comprehensive
Income (Loss).
r)
Net Income (Loss) Per Common Share
Basic net income (loss) per common share, net of non-controlling interest, is based upon the
weighted-average number of common shares outstanding during the period. Diluted net income
(loss) 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 impacting the numerator of basic and diluted net income (loss) per
common share. A reconciliation between the denominator of basic and diluted net income (loss)
per common share is as follows:
Weighted-average common shares outstanding (basic)
Effect of dilutive securities:
Stock options, warrants and restricted stock
Weighted-average common and potential common shares
outstanding (diluted)
Year
Ended
February 28,
2021
Year
Ended
February 29,
2020
24,201,221 24,394,663 24,355,791
Year
Ended
February 28,
2019
448,885
-
—
24,650,106 24,394,663 24,355,791
Restricted stock totaling 12,757, 701,024 and 618,155 for the years ended February 28, 2021,
February 29, 2020 and February 28, 2019, respectively, were not included in the net income (loss)
per common share calculation because the settlement price of the restricted stock and stock grants
82
was greater than the average market price of the Company's common stock during these periods,
or because the inclusion of these components would have been anti-dilutive.
s)
Other (Expense) Income
Other (expense) income is comprised of the following:
Foreign currency (loss) gain
Interest income
Rental income
Miscellaneous
Total other, net
Year
Ended
February 28,
2021
Year
Ended
February 29,
2020
Year
Ended
February 28,
2019
$
$
(862) $
83
739
786
746 $
405 $
918
692
317
2,332 $
220
994
517
(999)
732
Interest income for the year ended February 28, 2021 decreased as compared to prior years as a
result of lower interest rates earned on the Company’s money market investments and a lower
balance of funds available to invest.
On August 31, 2017, the Company completed its sale of Hirschmann Car Communication GmbH
to a subsidiary of TE Connectivity Ltd. which was subject to an adjustment based on the final
working capital. Included within Miscellaneous for the year ended February 29, 2020 is a payment
of $804 made on November 11, 2019 in settlement of the final working capital calculation. Also
included within Miscellaneous for the year ended February 29, 2020 are proceeds from a key man
life insurance policy in the amount of $1,000 related to a former employee of Klipsch Group, Inc.
that Voxx became the beneficiary of in conjunction with the acquisition of Klipsch in Fiscal 2012.
At the time of acquisition, the individual was no longer employed by Klipsch and was never an
employee of Voxx; however, Voxx remained the beneficiary of the policy until the individual’s
death.
t)
Accounting for the Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangible assets are reviewed for impairment in
accordance with ASC 360 whenever events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying value of an asset to future undiscounted net cash flows expected
to be generated by the asset. Recoverability of long-lived assets is measured by comparing the
carrying value of the assets to their estimated fair market value. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying value
of the assets exceeds the fair value of the assets. See Note 1(k) for discussion of the impairment of
long-lived assets in connection with the Company’s annual intangible impairment testing for the
year ended February 29, 2020. See Note 1(p) for discussion of the impairment of long-lived assets
held in Venezuela for the year ended February 28, 2019. There were no impairments of long-lived
assets recorded during the year ended February 28, 2021.
u)
Accounting for Stock-Based Compensation
The Company has a stock-based compensation plan under which employees and non-employee
directors may be granted incentive stock options ("ISO's") and non-qualified stock options
("NQSO's") to purchase shares of Class A common stock. Under the plan, the exercise price of the
ISO's granted to a ten percent stockholder must equal 110% of the fair market value of the
Company's Class A common stock on the date of grant. The exercise price of all other options and
Stock Appreciation Right ("SAR") awards may not be less than 100% of the fair market value of
the Company's Class A common stock on the date of grant. If an option or SAR is granted
pursuant to an assumption of, or substitution for, another option or SAR pursuant to a Corporate
83
Transaction, and in a manner consistent with Section 409A of the Internal Revenue Code (the
“Code”), the exercise or strike price may be less than 100% of the fair market value on the date of
grant. The plan permits for options to be exercised at various intervals as determined by the Board
of Directors. However, the maximum expiration period is ten years from date of grant. The vesting
requirements are determined by the Board of Directors at the time of grant. Exercised options are
issued from authorized Class A common stock. As of February 28, 2021, approximately 1,244,000
shares were available for future grants under the terms of these plans.
Options are measured at the fair value of the award at the date of grant and are recognized as an
expense over the requisite service period. Compensation expense related to stock-based awards
with vesting terms are amortized using the straight-line attribution method. There were no stock
options granted during the years ended February 28, 2021, February 29, 2020, or February 28,
2019. During the years ended February 28, 2021, February 29, 2020 and February 28, 2019 there
were no stock-based compensation costs or professional fees recorded by the Company and the
Company had no unrecognized compensation costs at February 28, 2021 related to stock options
and warrants.
Restricted stock awards are granted pursuant to the Company’s 2012 Equity Incentive Plan (the
“2012 Plan”). A restricted stock award is an award of common stock that is subject to certain
restrictions during a specified period. Restricted stock awards are independent of option grants and
are subject to forfeiture if employment terminates for a reason other than death, disability, or
retirement, prior to the release of the restrictions. Shares under restricted stock grants are not
issued to the grantees before they vest. The Company’s Omnibus Equity Incentive Plan was
established in 2014 (the “2014 Plan”). Pursuant to the 2014 Plan, Restricted Stock Units
(“RSU’s”) may be awarded by the Company to any individual who is employed by, provides
services to, or serves as a director of, the Company or its affiliates. RSU’s are 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. The shares will also vest upon termination of the grantee's
employment by the Company without cause, provided that the grantee, at the time of termination,
has been employed by the Company for at least 10 years, or as a result of the sale of all of the
issued and outstanding stock, or all, or substantially all, of the assets of the subsidiary of which the
grantee serves as CEO and/or President. When vested shares are issued to the grantee, the awards
will be settled in shares or in cash, at the Company's sole option. The grantees 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 RSU’s on a straight-line basis over the requisite service period
of each employee. During the years ended February 28, 2021, February 29, 2020 and February 28,
2019, an additional 48,269, 71,352, and 188,245 RSU’s were granted under the 2014 Plan,
respectively. The fair market value of the RSU’s, $5.76, $4.65, and $5.50 for Fiscal 2021, Fiscal
2020, and Fiscal 2019, respectively, were determined based on the mean of the high and low price
of the Company's common stock on the grant dates.
84
Grant of Shares to Chief Executive Officer
On July 8, 2019, the Board of Directors approved a five-year Employment Agreement (the
“Employment Agreement”), effective March 1, 2019, by and between the Company and Patrick
M. Lavelle, the Company’s President and Chief Executive Officer. Under the terms of the
Employment Agreement, in addition to a $1,000 yearly salary and a cash bonus based on the
Company’s Adjusted EBITDA, Mr. Lavelle was granted the right to receive certain stock-based
compensation as discussed below:
-
-
-
An initial stock grant of 200,000 fully vested shares of Class A Common Stock issued under
the 2012 Plan. Compensation expense of $830 was recognized during the year ended
February 29, 2020 based upon the grant fair value of $4.15 per share.
Additional stock grants of 100,000 shares of Class A Common Stock to be issued on each of
March 1, 2020, March 1, 2021, and March 1, 2022 under the 2012 Plan. Compensation
expense of $409 and $679 was recognized during the years ended February 28, 2021 and
February 29, 2020, respectively, based upon the grant fair value of $4.15 per share using the
graded vesting attribution method.
Grant of market stock units (“MSU’s”) up to a maximum value of $5,000, based upon the
achievement of a 90-calendar day average stock price of no less than $5.49 over the
performance period ending on the third and fifth anniversary of the effective date of the
Employment Agreement. The value of the MSU award increases based upon predetermined
targeted 90-calendar day average stock prices with a maximum of $5,000 if the 90-calendar
day average high stock price equals or exceeds $15.00. The award is weighted toward
achievement of a significant increase in our stock price as half of the award will be granted to
Mr. Lavelle only if the 90-calendar day high stock price equals or exceeds $13.00. The
average stock price is calculated based on the highest average closing price of one share of
our Class A common stock, as reported on the NASDAQ Stock Market during any 90-
calendar day period prior to each measurement date. The number of shares to be issued under
the 2012 Plan related to the MSUs based upon achievement of the maximum award value of
$5,000, and if issued at $15.00 per share, is estimated at 333,333 shares. Actual results may
differ based upon when the high average stock price is achieved and settled. The Company
used a Monte Carlo simulation to calculate the fair value of the award on the grant date. A
Monte Carlo simulation requires the use of various assumptions, including the stock price
volatility and risk-free interest rate as of the valuation date. We recognized stock-based
compensation expense of $241 and $157 for the years ended February 28, 2021 and
February 29, 2020, respectively, related to these MSU’s using the graded vesting attribution
method over the performance period. As of February 28, 2021, all of the MSU’s remain
outstanding.
All stock grants under the Employment Agreement are subject to a hold requirement as specified
in the Employment Agreement. The Employment Agreement gave Mr. Lavelle, in certain limited
change of control situations, the right to require the Company to purchase the shares in connection
with the Employment Agreement, shares personally acquired by Mr. Lavelle, and shares issued to
him under other incentive compensation arrangements. Accordingly, the stock awards issued in
connection with the Employment Agreement are presented as redeemable equity on the
consolidated balance sheet at grant-date fair value. Shares previously held by Mr. Lavelle under
the 2014 Plan and those personally purchased by Mr. Lavelle have been reclassified from
permanent equity to redeemable equity. As the contingent events that would allow Mr. Lavelle to
redeem the shares are not probable at this time, remeasurement of the amounts in redeemable
equity have not been recorded. The Employment Agreement contains certain restrictive and non-
solicitation covenants.
85
The following table presents a summary of the activity related to the 2014 Plan and the initial
stock grant and additional stock grants under the Employment Agreement for the year ended
February 28, 2021:
Unvested share balance at February 28, 2018
Granted
Vested
Vested and settled
Forfeited
Unvested share balance at February 28, 2019
Granted
Vested
Vested and settled
Forfeited
Unvested share balance at February 29, 2020
Granted
Vested
Vested and settled
Forfeited
Unvested share balance at February 28, 2021
Weighted
Average
Grant Date Fair
Value
Number of shares
322,250 $
188,245
(39,688)
-
—
470,807 $
571,352
(127,007)
(200,000)
—
715,152 $
88,269
(99,697)
(100,000)
—
603,724 $
5.80
5.50
8.13
-
—
5.49
4.21
4.18
4.15
—
5.07
7.18
7.21
4.15
—
5.18
At February 28, 2021, there were 278,318 shares of vested and unissued shares under the 2014
Plan with a weighted average fair value of $7.71. During the year ended February 28, 2021, vested
RSU awards for two of the Company’s former employees, totaling 105,123 award units, were
settled in cash in an amount totaling $575.
During the years ended February 28, 2021, February 29, 2020 and February 28, 2019 the
Company recorded $1,749, $2,282 and $551, respectively, in stock-based compensation related to
the 2014 Plan, and the initial stock grant, additional stock grants, and MSU’s under the
Employment Agreement. As of February 28, 2021, unrecognized stock-based compensation
expense related to unvested RSU’s was approximately $1,470 and will be recognized over the
requisite service period of each employee.
86
v)
Accumulated Other Comprehensive Loss
Foreign
Currency
Translation
Losses
$
$
Balance at February 28, 2018
Other comprehensive income (loss) before
reclassifications
Reclassified from accumulated other
comprehensive income (loss)
Net current-period other comprehensive
(loss) income
Balance at February 28, 2019
Other comprehensive loss before
reclassifications
Reclassified from accumulated other
comprehensive income (loss)
Net current-period other comprehensive loss
Balance at February 29, 2020
$
Other comprehensive income (loss) before
reclassifications
Reclassified from accumulated other
comprehensive income (loss)
Net current-period other comprehensive
income (loss)
Balance at February 28, 2021
$
Unrealized
losses on
investments,
net of tax (a)
(24) $
Pension plan
adjustments,
net of tax
(786) $
(13,027) $
Derivatives
designated in
a
hedging
relationship,
net of tax
Total
(385) $(14,222)
(3,195)
—
(3,195)
(16,222) $
(1,517)
-
(1,517)
(17,739) $
4,365
-
4,365
(13,374) $
-
24
24
- $
-
-
-
- $
-
-
-
- $
(12)
—
(12)
(798) $
452
(2,755)
9
33
461
(2,722)
76 $(16,944)
(89)
(157)
(1,763)
-
(89)
(887) $
18
-
18
(869) $
(348)
(348)
(2,111)
(505)
(429) $(19,055)
(470)
3,913
165
165
(305)
4,078
(734) $(14,977)
(a) Pursuant to ASU 2016-01, adopted by the Company beginning on March 1, 2018, changes in
fair value of the Company's investments in equity securities are now recorded in earnings.
During the years ended February 28, 2021, February 29, 2020 and February 28, 2019, the
Company recorded other comprehensive income (loss), net of associated tax impact of $0 related
to unrealized losses on investments, $(74), $38 and $21, respectively, related to pension plan
adjustments, and $106, $35 and $(152), respectively, related to derivatives designated in a hedging
relationship.
The other comprehensive (loss) income before reclassification for foreign currency translation of
$4,365, $(1,517), and $(3,195), respectively, includes the remeasurement of intercompany
transactions of a long term investment nature of $(1,244), $(56) and $(1,064), respectively, with
certain subsidiaries whose functional currency is not the U.S. dollar, and $5,608, $(1,461) and
$(2,131), respectively, 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.
Intercompany loans and transactions that are of a long-term investment nature are remeasured and
resulting gains and losses shall be reported in the same manner as translation adjustments. Within
foreign currency translation gains (losses) in Other comprehensive (loss) income for the years
ended February 28, 2021, February 29, 2020 and February 28, 2019, the Company recorded total
gains (losses) of $4,136, $(1,435), and $(2,876), respectively, related to the Euro; $261, $(22), and
$(240), respectively, related to the Canadian Dollar; $(53), $(17) and $(18), respectively, for the
Mexican Peso, as well as $21, $(24) and $(61), respectively, for various other currencies. These
adjustments were caused by the strengthening/(weakening) of the U.S. Dollar against the Euro,
Canadian Dollar, and the Mexican Peso between -10% and 6% in Fiscal 2021, 2% and 4% in
Fiscal 2020, and 2% and 7% in Fiscal 2019.
87
w)
New Accounting Pronouncements
In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-14,
"Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20):
Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit
Plans." ASU 2018-14 removes certain disclosures that are not considered cost beneficial, clarifies
certain required disclosures and adds additional disclosures. This ASU is effective for public
companies for annual reporting periods and interim periods within those annual periods beginning
after December 15, 2020. The amendments in ASU 2018-14 must be applied on a retrospective
basis. The Company does not expect the adoption of ASU 2018-14 to have a significant impact
on the disclosures in its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income
Taxes.” This guidance removes certain exceptions related to the approach for intra-period tax
allocation, the methodology for calculating income taxes in an interim period, and the recognition
of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies
other areas of ASC 740. This guidance is effective for fiscal years beginning after December 15,
2020. The guidance in this update has various elements, some of which are applied on a
prospective basis and others on a retrospective basis with earlier application permitted. The
Company does not expect the adoption of ASU 2019-12 to have a material impact on the
Company’s consolidated financial statements.
In January 2020, the FASB issued ASU No. 2020-01, “Investments – Equity Securities (Topic
321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging
(Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The
ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase
comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to
accounting for financial instruments, including providing an entity the ability to measure certain
equity securities without a readily determinable fair value at cost, less any impairment, plus or
minus changes resulting from observable price changes in orderly transactions for the identical or
a similar investment of the same issuer. Among other topics, the amendments clarify that an entity
should consider observable transactions that require it to either apply or discontinue the equity
method of accounting. This ASU is effective for fiscal years beginning after December 15, 2020,
and interim periods within those fiscal years. The Company does not expect the adoption of ASU
2020-01 to have a material impact on its consolidated financial statements.
In March 2020 and January 2021, the FASB issued ASU No. 2020-04, “Reference Rate Reform
(Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” and
“Reference Rate Reform: Scope,” respectively. Together, these ASU’s provide optional
expedients and exceptions for applying U.S. GAAP to contract modifications and hedging
relationships that reference LIBOR or another reference rate expected to be discontinued because
of reference rate reform. ASU 2020-04 provides, among other things, guidance that modifications
of contracts within the scope of Topic 470, Debt, should be accounted for by prospectively
adjusting the effective interest rate; modifications of contracts within the scope of Topic 840,
Leases, should be accounted for as a continuation of the existing contract; and, changes in the
critical terms of hedging relationships caused by reference rate reform should not result in the de-
designation of the instrument, provided certain criteria are met. ASU 2021-01 clarifies the scope
and application of ASU 2020-04 and among other things, permits entities to elect certain optional
expedients and exceptions when accounting for derivative contracts and certain hedging
relationships affected by changes in the interest rates used for discounting cash flows. The
Company’s exposure to LIBOR rates includes its Credit Facility, as well as its Florida Mortgage
and related interest swap agreement. The amendments are effective as of March 12, 2020 through
December 31, 2022. Adoption is permitted at any time. The Company is currently evaluating the
impact this update may have on its consolidated financial statements.
88
2)
Acquisitions
Directed LLC and Directed Electronics Canada, Inc. Acquisition
On July 1, 2020, the Company completed the acquisition of certain assets and liabilities, which comprise
the aftermarket vehicle remote start and security systems and connected car solutions (telematics)
businesses of Directed LLC and Directed Electronics Canada Inc. (collectively, with Directed LLC,
“Directed”) via an asset purchase agreement. The acquired assets included inventory, accounts receivable,
certain fixed assets, IT systems, and intellectual property. The cash purchase price was $11,000. Net sales
from the Company’s newly formed subsidiaries, VOXX DEI LLC and VOXX DEI Canada, Ltd.
(collectively, with VOXX DEI LLC, “DEI”), included in our consolidated results for the year ended
February 28, 2021 represented approximately 8.4% of our consolidated net sales. DEI’s results of
operations are included in the consolidated financial statements of Voxx in our Automotive Electronics
segment. The purpose of this acquisition was to expand the Company’s market share within the automotive
electronics industry.
The following summarizes the allocation of the purchase price based upon the fair value of the assets
acquired and liabilities assumed at the date of acquisition:
Assets acquired:
Inventory
Accounts receivable
Other current assets
Property and equipment
Operating lease, right of use asset
Customer relationships
Trademarks
Patented technology
Goodwill
Total assets acquired
Liabilities assumed:
Accounts payable
Accrued expenses
Contract liabilities
Warranty accrual
Operating lease liability
Total
Total purchase price
July 1, 2020
Measurement
Period
Adjustments
July 1, 2020
(as adjusted)
$
$
$
$
7,054
5,173
160
2,815
1,771
2,600
4,500
1,030
3,290
28,393 $
8,144
1,406
4,872
1,200
1,771
17,393 $
11,000 $
52
214
-
-
-
(100)
-
-
(336)
(170) $
-
(181)
11
-
-
(170) $
- $
7,106
5,387
160
2,815
1,771
2,500
4,500
1,030
2,954
28,223
8,144
1,225
4,883
1,200
1,771
17,223
11,000
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 prior
to June 30, 2021. During Fiscal 2021, the Company recorded a cumulative net measurement period
adjustment that decreased goodwill by $336, as presented in the table above. The measurement period
adjustment would have resulted in an insignificant decrease in amortization expense related to the customer
relationships in the second quarter of the fiscal year. The Company made these measurement period
adjustments to reflect facts and circumstances that existed as of the acquisition date and did not result from
intervening events subsequent to such date. Goodwill was determined as the excess of the purchase price
over the fair value of the assets acquired (including the identifiable intangible assets) and represents
synergies expected.
89
Vehicle Safety Holdings Corp.
On January 31, 2020, Voxx acquired certain assets and assumed certain liabilities of Vehicle Safety
Holdings Corp. (“VSHC”) via an asset purchase agreement for a cash purchase price of $16,500. Results of
operations from the Company’s newly formed subsidiary, VSM-Rostra LLC (“VSM”), have been included
in the consolidated financial statements of Voxx, in our Automotive Electronics segment, from the date of
acquisition. Net sales and income before taxes from VSM included in our consolidated results for the fiscal
years ended February 28, 2021 and February 29, 2020 represented 4.2% and less than 1%, respectively, of
our consolidated results. The purpose of this acquisition was to expand the Company’s product offerings
and market share, as VSM is a leading developer, manufacturer, and distributor of safety electronics.
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:
Assets acquired:
Inventory
Accounts receivable
Right of use assets
Other current assets
Property and equipment
Customer relationships
Trademarks
Patented technology
Goodwill
Other non-current assets
Total assets acquired
Liabilities assumed:
Accounts payable
Accrued expenses
Lease liabilities
Warranty accrual
Total
Total purchase price
January
31, 2020
Measurement
Period
Adjustments
January
31, 2020
(as
adjusted)
$
$
$
$
6,982
3,415
483
145
714
5,460
560
280
215
3
18,257 $
757
329
483
188
1,757 $
16,500 $
(76)
(187)
-
-
-
-
-
-
357
-
94 $
-
94
-
-
94 $
- $
6,906
3,228
483
145
714
5,460
560
280
572
3
18,351
757
423
483
188
1,851
16,500
During Fiscal 2021, the Company recorded a cumulative net measurement period adjustment that increased
goodwill by $357, as presented in the table above. The measurement period adjustment had no impact on
the results of the previous periods. The Company made these measurement period adjustments to reflect
facts and circumstances that existed as of the acquisition date and did not result from intervening events
subsequent to such date. Goodwill was determined as the excess of the purchase price over the fair value of
the assets acquired (including the identifiable intangible assets) and represents synergies expected.
3)
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 “Consolidation,” an entity that holds a
variable interest in a VIE and meets certain requirements would be considered to be the primary beneficiary
of the VIE and required to consolidate the VIE in its consolidated financial statements. In order to be
90
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 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. The Company has issued
EyeLock LLC a promissory note for the purposes of repaying protective advances and funding working
capital requirements of the company. On April 5, 2021, this promissory note was amended and restated to
allow EyeLock LLC to borrow up to maximum of $64,600. Through March 1, 2019, interest on the
outstanding principal of the loan accrued at 10%. From March 1, 2019 forward, interest accrues at 2.5%.
The amended and restated promissory note is due on June 30, 2022. The outstanding principal balance of
this promissory note is convertible at the sole option of Voxx into units of EyeLock LLC. If Voxx chooses
not to convert into equity, the outstanding loan principal of the amended and restated promissory note will
be repaid at a multiple of 1.50 based on the repayment date. The agreement includes customary events of
default and is collateralized by all of the property of EyeLock LLC.
We 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
the loan agreement with EyeLock LLC, which has a total outstanding principal balance of $61,072
as of February 28, 2021.
We concluded that we became the primary beneficiary of EyeLock LLC on September 1, 2015 in
conjunction with the acquisition. This was the first date that we had the power to direct the activities of
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 EyeLock LLC.
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. and EyeLock Corporation were not required to be consolidated in our
consolidated financial statements, as we concluded that we were not the primary beneficiary of these
entities prior to that time.
91
Assets and Liabilities of EyeLock LLC
The following table sets forth the carrying values of assets and liabilities of EyeLock LLC that were
included on our Consolidated Balance Sheets as of February 28, 2021 and February 29, 2020:
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventory, net
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Intangible assets, net
Other assets
Total assets
Liabilities and Partners' Deficit
Current liabilities:
Accounts payable
Interest payable to VOXX
Accrued expenses and other current liabilities
Due to VOXX
Total current liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies
Partners' deficit:
Capital
Retained losses
Total partners' deficit
Total liabilities and partners' deficit
February 28,
2021
February 29,
2020
$
$
$
- $
167
2,245
30
2,442
39
2,329
60
4,870 $
1,396 $
11,453
824
61,072
74,745
1,200
75,945
-
147
2,052
313
2,512
69
2,600
76
5,257
2,086
9,994
252
54,074
66,406
1,200
67,606
41,416
(112,491)
(71,075)
4,870 $
41,416
(103,765)
(62,349)
5,257
$
The assets of EyeLock LLC can only be used to satisfy the obligations of EyeLock LLC.
92
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 and Comprehensive Income (Loss) for the years ended February 28,
2021, February 29, 2020, and February 28, 2019:
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling
General and administrative
Engineering and technical support
Intangible asset impairment charges (Note 1(k))
Total operating expenses
Operating loss
Other (expense) income:
Interest and bank charges
Other, net
Total other expense, net
Loss before income taxes
Income tax expense
Net loss
4)
Receivables from Vendors
Year
Ended
February
28, 2021
836 $
1,025
(189)
$
603
1,785
4,674
-
7,062
(7,251)
(1,475)
—
(1,475)
(8,726)
—
(8,726) $
$
Year Ended Year Ended
February 28,
2019
February 29,
2020
476 $
826
(350)
710
4,625
5,144
27,402
37,881
(38,231)
(1,279)
81
(1,198)
(39,429)
—
(39,429) $
668
309
359
1,160
4,986
7,487
-
13,633
(13,274)
(4,013)
—
(4,013)
(17,287)
—
(17,287)
The Company has recorded receivables from vendors in the amount of $277 and $230 as of February 28,
2021 and February 29, 2020, respectively. Receivables from vendors primarily represent prepayments on
product shipments and product reimbursements.
5)
Equity Investment
The Company has 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. ASC 810 requires the Company to evaluate non-consolidated entities
periodically, and as circumstances change, to determine if an implied controlling interest exists. During
Fiscal 2021, the Company evaluated this equity investment and concluded that ASA is not a variable
interest entity. ASA’s fiscal year end is November 30, 2020; however, the results of ASA as of and
through February 28, 2021 have been recorded in the consolidated financial statements.
The following presents summary financial information of ASA. Such summary financial information has
been provided herein based upon the individual significance of ASA to the consolidated financial
information of the Company.
93
Current assets
Non-current assets
Liabilities
Members' equity
Net sales
Gross profit
Operating income
Net income
February 28,
2021
February 29,
2020
$
49,956 $
4,757
8,179
46,534
47,738
5,453
9,343
43,848
Twelve
Months
Ended
February
28,
2021
Twelve
Months
Ended
Twelve
Months
Ended
February 29,
2020
February 28,
2019
$
95,866 $
24,124
12,938
14,700
98,632 $
21,342
10,014
10,348
101,675
24,991
13,027
13,236
The Company's share of income from ASA for the years ended February 28, 2021, February 29, 2020 and
February 28, 2019 was $7,350, $5,174 and $6,618, respectively. In addition, the Company received cash
distributions from ASA totaling $6,009, $5,136 and $6,594 during the years ended February 28, 2021,
February 29, 2020 and February 28, 2019, respectively.
Undistributed earnings from equity investments amounted to $17,941 and $16,598 at February 28, 2021
and February 29, 2020, respectively.
Net sales transactions between the Company and ASA were $260, $501 and $390 for the years ended
February 28, 2021, February 29, 2020 and February 28, 2019, respectively. Accounts receivable balances
from ASA were $37 and $96 as of February 28, 2021 and February 29, 2020, respectively.
6)
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
Commissions
Employee compensation
Professional fees and accrued settlements
Future warranty
Refund liability
Freight and duty
Royalties, advertising and other
Total accrued expenses and other current liabilities
February 28,
2021
February 29,
2020
$
$
971 $
18,283
922
4,403
5,145
11,134
12,534
53,392 $
601
10,060
1,703
3,241
3,779
5,140
9,522
34,046
During the year ended February 28, 2019, the Company realigned certain businesses within its former
Consumer Accessories and Premium Audio segments to lower and contain overhead costs, as well as
conducted an aggressive SKU rationalization program to streamline its consumer accessory product
offerings, which resulted in total restructuring expenses of $4,588 for the year ended February 28, 2019.
As of February 29, 2020, $637 of the Company's restructuring charges incurred had not yet been settled and
were included within Accrued expenses and other current liabilities within employee compensation. The
restructuring accrual consisted primarily of employee severance. During the year ended February 28, 2021,
94
$606 of the accrual was settled. At February 28, 2021, the restructuring accrual within Accrued expenses
and other current liabilities is $31, which is expected to be settled in Fiscal 2022.
Included in royalties, advertising, and other in the table above as of February 28, 2021 and February 29,
2020 are accrued environmental charges of $394 and $405, respectively, related to soil contamination at
one of the Company's operating facilities in Germany that remains in the process of being remediated at
February 28, 2021. Charges initially accrued during the year ended February 28, 2019 were estimated
based on assessments asserted by a local government authority and preliminary estimates provided by a
third-party engineering firm.
7)
Financing Arrangements
The Company has the following financing arrangements:
Domestic credit facility (a)
Florida mortgage (b)
Euro asset-based lending obligation - VOXX Germany (c)
Euro asset-based lending obligation - Magnat (d)
Total debt
Less: current portion of long-term debt
Long-term debt before debt issuance costs
Less: debt issuance costs
Total long-term debt
a)
Domestic Bank Obligations
February 28,
2021
February 29,
2020
$
$
—
7,114
—
—
7,114
500
6,614
652
5,962
$
$
—
7,614
—
607
8,221
1,107
7,114
1,015
6,099
The Company has a senior secured credit facility (the “Credit Facility") with Wells Fargo Bank,
N.A. (“Wells Fargo”) that provides for a revolving credit facility with committed availability of up
to $127,500. The Credit Facility also includes a $30,000 sublimit for letters of credit and a
$15,000 sublimit for swingline loans. The availability under the revolving credit line within the
Credit Facility is subject to a borrowing base, which is based on eligible accounts receivable,
eligible inventory and certain real estate, subject to reserves as determined by the lender, and is
also limited by amounts outstanding under the Florida Mortgage (see Note 7(b)). In April 2020, as
a precautionary measure to ensure financial flexibility and maintain maximum liquidity in
response to the COVID-19 pandemic, the Company borrowed $20,000 from the Credit Facility,
and in June 2020, the Company amended the Credit Facility primarily for the purpose of
extending the facility’s maturity date. The precautionary borrowing was repaid during the third
quarter of Fiscal 2021. As of February 28, 2021, there was no balance outstanding under the
revolving credit facility. The remaining availability under the revolving credit line of the Credit
Facility was $96,745 as of February 28, 2021.
Any amounts outstanding under the Credit Facility will mature and become immediately due on
April 26, 2022; however, the Credit Facility is subject to acceleration upon the occurrence of an
Event of Default (as defined in the Credit Agreement). The Company may prepay any amounts
outstanding at any time, subject to payment of certain breakage and redeployment costs relating to
LIBOR Rate Loans. Commitments under the Credit Facility may be irrevocably reduced at any
time, without premium or penalty as set forth in the Credit Facility.
95
Generally, the Company may designate specific borrowings under the Credit Facility as either
Base Rate Loans or LIBOR Rate Loans, except that swingline loans may only be designated as
Base Rate Loans. Loans under the Credit Facility designated as LIBOR Rate Loans shall bear
interest at a rate equal to the then-applicable LIBOR Rate plus a range of 2.00% - 2.50% (2.75% at
February 28, 2021). Loans under the Credit Facility designated as Base Rate Loans shall bear
interest at a rate equal to the applicable margin for Base Rate Loans of 1.00% - 1.50%, as defined
in the agreement and shall not be lower than 2.00% (4.25% at February 28, 2021).
Provided the Company is in a Compliance Period (the period commencing on the day in which
Excess Availability is less than 20% of the Maximum Revolver Amount and ending on a day in
which Excess Availability is equal to or greater than 20% for any consecutive 30-day period
thereafter), the Credit Facility requires compliance with a financial covenant calculated as of the
last day of each month consisting of a Fixed Charge Coverage Ratio. The Credit Facility also
contains covenants, subject to defined carveouts, that limit the ability of the loan parties and
certain of their subsidiaries which are not loan parties to, among other things: (i) incur additional
indebtedness; (ii) incur liens; (iii) merge, consolidate or dispose of a substantial portion of their
business; (iv) transfer or dispose of assets; (v) change their name, organizational identification
number, state or province of organization or organizational identity; (vi) make any material change
in their nature of business; (vii) prepay or otherwise acquire indebtedness; (viii) cause any change
of control; (ix) make any restricted junior payment; (x) change their fiscal year or method of
accounting; (xi) make advances, loans or investments; (xii) enter into or permit any transaction
with an affiliate of any borrower or any of their subsidiaries; (xiii) use proceeds for certain items;
(xiv) issue or sell any of their stock; (xv) consign or sell any of their inventory on certain terms. In
addition, if excess availability under the Credit Facility were to fall below certain specified levels,
as defined in the Credit Facility, the lenders would have the right to assume dominion and control
over the Company's cash. As of February 28, 2021, the Company was not in a Compliance Period.
The obligations under the Credit Facility are secured by a general lien on, and security interest in,
substantially all of the assets of the borrowers and certain of the guarantors, including accounts
receivable, equipment, real estate, general intangibles, and inventory. The Company has
guaranteed the obligations of the borrowers under the Credit Facility.
On April 19, 2021, the Company amended the Credit Facility. Under the amendment, the
committed availability of the revolving credit facility was increased to $140,000 and the maturity
date was extended to April 19, 2026 (see Note 17).
The Company has deferred financing costs related to the Credit Facility and previous amendments
and modifications of the Credit Facility. In conjunction with the amendment to its Credit Facility
in June 2020, the Company incurred additional financing fees of $260 that will be amortized over
the remaining term of the facility. The Company accounted for the June 2020 amendment to the
Credit Facility as a modification of debt; however, as there were certain changes to the syndicate
bank participation, unamortized deferred financing costs of $53 were written off and charged to
Interest and bank charges in the Consolidated Statements of Operations and Comprehensive
Income (Loss) for the year ended February 28, 2021. Deferred financing costs are included in
Long-term debt on the accompanying Consolidated Balance Sheets as a contra-liability balance
and are amortized through Interest and bank charges in the Consolidated Statements of Operations
and Comprehensive Income (Loss) over the remaining term of the Credit Facility. The Company
amortized $539 during the year ended February 28, 2021 and $791 during both of the years ended
February 29, 2020 and February 28, 2019.
Charges incurred on the unused portion of the Credit Facility and its predecessor revolving credit
facility during the years ended February 28, 2021, February 29, 2020 and February 28, 2019
totaled $504, $503 and $519, respectively, and are included within Interest and Bank Charges on
the Consolidated Statements of Operations and Comprehensive Income (Loss).
96
b)
Florida Mortgage
On July 6, 2015, VOXX HQ LLC, the Company’s wholly owned subsidiary, closed on a $9,995
industrial development revenue tax exempt bond under a loan agreement in favor of the Orange
County Industrial Development Authority (the “Authority”) to finance the construction of the
Company's manufacturing facility and executive offices in Lake Nona, Florida (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 during construction as a revolving loan,
which converted to a permanent mortgage upon completion of the facility in January 2016 (the
"Florida Mortgage"). The Company makes principal and interest payments to Wells Fargo, which
began March 1, 2016 and will continue through March of 2026. The Florida Mortgage bears
interest at 70% of 1-month LIBOR plus 1.54% (1.62% at February 28, 2021) and is secured by a
first mortgage on the property, a collateral assignment of leases and rents and a guaranty by the
Company. The Company is in compliance with the financial covenants of the Florida Mortgage,
which are as defined in the Company’s Credit Facility with Wells Fargo dated April 26, 2016.
The Company incurred debt financing costs totaling approximately $332 as a result of obtaining
the Florida Mortgage, which are recorded as deferred financing costs and included in Long-term
debt as a contra-liability balance on the accompanying Consolidated Balance Sheets and are being
amortized through Interest and bank charges in the Consolidated Statements of Operations and
Comprehensive Income (Loss) over the ten-year term of the Florida Mortgage. The Company
amortized $31 of these costs during each of the years ended February 28, 2021, February 29,
2020, and February 28, 2019.
On July 20, 2015, the Company entered into an interest rate swap agreement in order to hedge
interest rate exposure related to the Florida Mortgage and pays a fixed rate of 3.48% under the
swap agreement (see Note 1(e)).
c)
Euro Asset-Based Lending Obligation – VOXX Germany
Foreign bank obligations include a Euro Asset-Based Lending ("ABL") credit facility, which has a
credit limit of €8,000, for the Company's subsidiary, VOXX Germany, which expires on July 31,
2023. The rate of interest for the ABL is the three-month Euribor plus 2.30% (2.30% at February
28, 2021). As of February 28, 2021, there was no balance outstanding under this facility, as it was
repaid using the proceeds from the sale of the Company’s real property in Pulheim, Germany (see
Note 11).
d)
Euro Asset-Based Lending Obligation - Magnat
At February 29, 2020, foreign bank obligations also included an ABL credit facility for the
Company’s subsidiary Magnat. The rate of interest for the ABL was the three-month Euribor plus
2.10%. The facility expired on November 30, 2020 and was not renewed.
The following is a maturity table for debt and bank obligations outstanding at February 28, 2021 for each of
the following fiscal years:
2022
2023
2024
2025
2026
Thereafter
Total
$
$
500
500
500
500
500
4,614
7,114
97
The weighted-average interest rate on short-term debt was 3.48% for Fiscal 2021 and 2.72% for Fiscal
2020. Interest expense related to the Company's financing arrangements for the years ended February 28,
2021, February 29, 2020 and February 28, 2019 was $825, $799 and $951, respectively, of which $326 was
related to the Credit Facility for the year ended February 28, 2021. For the years ended February 29, 2020
and February 28, 2019, none of the Company’s interest expense was related to the Credit Facility, as there
was no outstanding balance during these years.
8)
Income Taxes
The components of income (loss) before the provision (benefit) for income taxes are as follows:
Domestic Operations
Foreign Operations
Year
Ended
February 28,
2021
Year
Ended
February 29,
2020
Year
Ended
February 28,
2019
$
$
24,485 $
3,153
27,638 $
(47,249) $
6,309
(40,940) $
(49,984)
(8,979)
(58,963)
The provision (benefit) for income taxes is comprised of the following:
Current (benefit) provision
Federal
State
Foreign
Total current provision
Deferred provision (benefit)
Federal
State
Foreign
Total deferred provision (benefit)
Total provision (benefit)
Federal
State
Foreign
Total provision (benefit)
Year
Ended
February 28,
2021
Year
Ended
February 29,
2020
Year
Ended
February 28,
2019
$
$
$
$
$
$
(10) $
1,172
496
1,658 $
3,362 $
(84)
(664)
2,614 $
3,352 $
1,088
(168)
4,272 $
(26) $
395
1,824
2,193 $
(1,850) $
(564)
1,103
(1,311) $
(1,876) $
(169)
2,927
882 $
(54)
(401)
1,392
937
(4,772)
(392)
(1,904)
(7,068)
(4,826)
(793)
(512)
(6,131)
98
The effective tax rate before income taxes varies from the current statutory U.S. federal income tax rate as
follows:
Tax benefit at Federal statutory rates $
State income taxes, net of Federal
benefit
Change in valuation allowance
Change in tax reserves
Non-controlling interest
US effects of foreign operations
Permanent differences and other
U.S. GILTI inclusion
Change in tax rate
Research & development credits
Effective tax rate
$
Year
Ended
February 28,
2021
5,804
21.0% $
Year
Ended
February 29,
2020
(8,598)
Year
Ended
February 28,
2019
21.0% $ (12,383)
21.0%
983
(3,365)
(311)
714
412
(192)
521
102
(396)
4,272
3.5
(12.2)
(1.1)
2.6
1.5
(0.7)
1.9
0.4
(1.4)
15.5% $
(611)
4,218
(52)
3,229
1,403
1,170
710
(151)
(436)
882
1.5
(10.3)
-
(7.9)
(3.4)
(2.9)
(1.7)
0.4
1.1
(2.2)% $
(809)
6,164
(697)
1,416
53
636
—
55
(566)
(6,131)
1.4
(10.5)
1.2
(2.4)
(0.1)
(1.1)
—
(0.1)
1.0
10.4%
The U.S. effects of foreign operations include differences in the statutory tax rates of the foreign countries
as compared to the statutory tax rate in the U.S.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying values of
assets and liabilities for financial reporting and tax purposes. Significant components of the Company's
deferred tax assets and liabilities are as follows:
Deferred tax assets:
Accounts receivable
Inventory
Property, plant and equipment
Operating lease
Accruals and reserves
Deferred compensation
Warranty reserves
Unrealized gains and losses
Partnership investments
Net operating losses
Foreign tax credits
Other tax credits
Deferred tax assets before valuation allowance
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Intangible assets
Prepaid expenses
Operating lease
Deferred financing fees
Total deferred tax liabilities
Net deferred tax liability
99
February 28,
2021
February 29,
2020
$
$
271 $
3,270
1,480
1,184
5,303
433
752
4,373
3,661
6,104
3,805
5,433
36,069
(22,845)
13,224
(16,948)
(1,588)
(1,152)
(82)
(19,770)
(6,546) $
266
1,764
1,554
773
2,641
556
698
4,103
5,142
15,011
3,805
5,098
41,411
(26,210)
15,201
(16,795)
(1,304)
(765)
(113)
(18,977)
(3,776)
In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-
not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income in those periods in which temporary
differences become deductible and/or net operating loss carryforwards can be utilized. We consider the
level of historical taxable income, scheduled reversal of temporary differences, tax planning strategies and
projected future taxable income in determining whether a valuation allowance is warranted. Significant
weight is given to positive and negative evidence that is objectively verifiable.
The Company evaluates the realizability of deferred tax assets on a jurisdictional basis at each reporting
date. Accounting for income taxes requires that a valuation allowance be established when it is more likely
than not that all or a portion of the deferred tax assets will not be realized. In circumstances where there is
sufficient negative evidence indicating that the deferred tax assets are not more likely than not realizable,
we establish a valuation allowance. During Fiscal 2020, the Company limited the tax benefit on current
year losses by increasing its U.S. valuation allowance recorded against U.S. deferred tax attributes with
limited carryforward periods. In addition, the Company maintains a valuation allowance against deferred
tax assets in certain foreign jurisdictions. The Company's valuation allowance decreased by $3,365 during
the year ended February 28, 2021 as a result of recent profitability for which the Company is able to utilize
net operating loss carryforwards. Any further increase or decrease in the valuation allowance could have a
favorable or unfavorable impact on our income tax provision and net income in the period in which such
determination is made.
Notwithstanding the U.S. taxation of the deemed repatriated foreign earnings as a result of the one-time
transition tax during Fiscal 2018, the Company intends to continue to invest these earnings indefinitely
outside the U.S. If these future earnings are repatriated to the U.S., or if the Company determines that such
earnings will be remitted in the foreseeable future, the Company may be required to accrue U.S. deferred
taxes (if any) and applicable withholding taxes. It is not practicable to estimate the tax impact of the
reversal of the outside basis difference, or the repatriation of cash due to the complexity of its hypothetical
calculation.
100
As of February 28, 2021, the Company had U.S. federal net operating losses of $8,042, with an indefinite
carryforward period which are only available to offset 80% of future taxable income. The Company has
capital loss carryforwards of approximately $14,056 which expire in 2024 which are only available to
offset capital gain income. The Company has foreign tax credits of $3,231 which expire in tax years 2025
through 2028. The Company has research and development tax credits of $3,461 which expire in tax years
2035 through 2041. The Company has various foreign net operating loss carryforwards, state net operating
loss carryforwards, and state tax credits that expire in various years and amounts through tax year 2040.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and
penalties, is as follows:
Balance at February 28, 2018
Additions based on tax positions taken in the current and prior years
Settlements
Decreases based on tax positions taken in the prior years
Other
Balance at February 28, 2019
Additions based on tax positions taken in the current and prior years
Settlements
Decreases based on tax positions taken in the prior years
Other
Balance at February 29, 2020
Additions based on tax positions taken in the current and prior years
Settlements
Decreases based on tax positions taken in prior years
Other
Balance at February 28, 2021
$
$
$
$
9,107
2,125
—
(1,923)
(227)
9,082
399
—
(2,107)
(139)
7,235
3
—
(490)
112
6,860
Of the amounts reflected in the table above at February 28, 2021, $6,860, if recognized, would reduce our
effective tax rate. If recognized, $5,916 of the unrecognized tax benefits are likely to attract a full valuation
allowance, thereby offsetting the favorable impact to the effective tax rate. Our unrecognized tax benefit
non-current consolidated balance sheet liability, including interest and penalties, is $1,170. The Company
records accrued interest and penalties related to income tax matters in the provision for income taxes in the
accompanying Consolidated Statements of Operations and Comprehensive (Loss) Income. For the years
ended February 28, 2021, February 29, 2020 and February 28, 2019, interest and penalties on unrecognized
tax benefits were $4, $15 and $(389), respectively. The balance as of February 28, 2021 and February 29,
2020 was $226 and $223, respectively. It is reasonably possible that unrecognized tax benefits will
decrease by approximately $100 within the next 12 months.
The Company, or one of its subsidiaries, files its tax returns in the U.S. and certain state and foreign income
tax jurisdictions with varying statutes of limitations. The earliest years' tax returns filed by the Company
that are still subject to examination by the tax authorities in the major jurisdictions are as follows:
Jurisdiction
U.S.
Netherlands
Germany
Tax Year
2017
2016
2015
101
9)
Capital Structure
The Company's capital structure is as follows:
Par
Value
$ 50.00
Security
Preferred Stock
Series Preferred
Stock
Class A Common
Stock
Class B Common
Stock
Shares Authorized
Shares Outstanding
February
28,
2021
February 29,
2020
February
28,
2021
February 29,
2020
Voting
Rights per
Share
Liquidation
Rights
50,000
50,000
$ 0.01 1,500,000
1,500,000
—
—
—
—
$ 0.01 60,000,000
60,000,000 21,666,976
21,556,976
one
$ 0.01 10,000,000
10,000,000 2,260,954
2,260,954
ten
— $50 per share
—
Ratably with
Class B
Ratably with
Class A
The holders of Class A and Class B common stock are entitled to receive cash or property dividends
declared by the Board of Directors. The Board of Directors can declare cash dividends for Class A common
stock in amounts equal to or greater than the cash dividends for Class B common stock. Dividends other
than cash must be declared equally for both classes. Each share of Class B common stock may, at any time,
be converted into one share of Class A common stock.
Stock held in treasury by the Company is accounted for using the cost method, which treats stock held in
treasury as a reduction to total stockholders' equity, and amounted to 2,749,218 shares at both February 28,
2021 and February 29, 2020. The cost basis for subsequent sales of treasury shares is determined using an
average cost method. In April 2019, the Company was authorized by the Board of Directors to increase the
number of Class A Common Stock available for repurchase in the open market to 3,000,000. During the
year ended February 29, 2020, the Company repurchased 581,124 shares of common stock for an aggregate
cost of $2,742. During the years ended February 28, 2021 and February 28, 2019, the Company
repurchased no shares. As of February 28, 2021, 2,418,876 shares of the Company's Class A common stock
are authorized to be repurchased in the open market.
10) Other Stock and Retirement Plans
a)
Supplemental Executive Retirement Plan
The Company has established a Supplemental Executive Retirement Plan ("SERP") to provide additional
retirement income to its Chairman and select executive officers. Subject to certain performance criteria,
service requirements and age restrictions, employees who participate in the SERP will receive restricted
stock awards pursuant to the 2014 Plan. The restricted stock awards vest on the later of three years from the
date of grant, or the grantee reaching the age of 65 years (see Note 1(u)).
As of February 28, 2021, approximately 1,244,000 shares of the Company's Class A common stock are
reserved for issuance under the Company's Restricted and Stock Option Plans.
b) Profit Sharing Plans
The Company has established two non-contributory employee profit sharing plans for the benefit of its
eligible employees in the United States and Canada. The plans are administered by trustees appointed by
the Company. No discretionary contributions were made during the years ended February 28, 2021,
February 29, 2020 and February 28, 2019. Contributions required by law to be made for eligible employees
in Canada were not material for all periods presented.
c)
401(k) Plans
The VOXX International Corporation 401(k) plan is for all eligible domestic employees. The Company
matches a portion of the participant's contributions after three months of service under a predetermined
formula based on the participant's contribution level. Shares of the Company's Common Stock are not an
investment option in the 401(k) plan and the Company does not use such shares to match participants'
102
contributions. During the years ended February 28, 2021, February 29, 2020 and February 28, 2019, the
Company contributed, net of forfeitures, $343, $359 and $378 to the 401(k) Plan.
d) Cash Bonus Profit Sharing Plan
The Company has a Cash Bonus Profit Sharing Plan that allows it to make profit sharing contributions for
the benefit of eligible employees for any fiscal year based on a pre-determined formula on the Company's
pre-tax profits. The size of the contribution is dependent upon the performance of the Company. A
participant’s share of the contribution is determined pursuant to the participant’s eligible wages for the
fiscal year as a percentage of total eligible wages for all participants. There were no contributions made to
the plan for the years ended February 28, 2021, February 29, 2020 and February 28, 2019.
e) Deferred Compensation Plan
A Deferred Compensation Plan (the “Plan”) was adopted by the Company in 1999 for Vice Presidents and
above. The Plan is intended to provide certain executives with supplemental retirement benefits as well as
to permit the deferral of more of their compensation than they are permitted to defer under the Profit
Sharing and 401(k) Plans. The Plan provides for a matching contribution equal to 25% of the employee
deferrals up to $20 to be made at the Company’s discretion. No matching contributions were made for the
years ended February 28, 2021, February 29, 2020 and February 28, 2019. The Plan is not intended to be a
qualified plan under the provisions of the Internal Revenue Code. All compensation deferred under the Plan
is held by the Company in an investment trust which is considered an asset of the Company. The Company
has the option of amending or terminating the Plan at any time.
The investments, which amounted to $1,777 and $2,282 at February 28, 2021 and February 29, 2020,
respectively, are classified as long-term marketable equity securities and are included in Investment
securities on the accompanying Consolidated Balance Sheets and a corresponding liability is recorded in
Deferred compensation, which is classified as a non-current liability. Unrealized gains and losses on the
marketable securities and corresponding deferred compensation liability net to zero in the accompanying
Consolidated Statements of Operations and Comprehensive Income (Loss).
11)
Lease Obligations
On March 1, 2019, ASU No. 2016-02, "Leases (Topic 842)," was adopted by the Company using the
modified retrospective approach. The Company adopted the package of practical expedients that allows
companies to not reassess historical conclusions related to contracts that contain leases, existing lease
classification, and initial direct costs. It did not adopt the hindsight practical expedient. Adoption of the
new standard resulted in the recording of additional lease assets and lease liabilities, which totaled $2,227
and $2,243, respectively, on March 1, 2019. The standard did not materially affect the Company's
consolidated financial position, results of operations, or cash flows, and did not have an impact on the
Company's debt-covenant compliance. The new guidance was applied to all operating and capital leases at
the date of initial application. Leases historically referred to as capital leases are now referred to as finance
leases under the new guidance.
We determine whether an arrangement is a lease at inception. This determination generally depends on
whether the arrangement conveys the right to control the use of an identified fixed asset explicitly or
implicitly for a period of time in exchange for consideration. Control of an underlying asset is conveyed if
we obtain the rights to direct the use of, and to obtain substantially all of the economic benefit from, the use
of the underlying asset. Some of our leases include both lease and non-lease components which are
accounted for as a single lease component, as we have elected the practical expedient in ASU 842-10-15-
37. Some of our operating lease agreements include variable lease costs, including taxes, common area
maintenance, or increases in rental costs related to inflation. Such variable payments, other than those
dependent upon a market index or rate, are expensed when the obligation for those payments is incurred.
Lease expense is recorded in operating expenses in the Consolidated Statements of Operations and
Comprehensive Income (Loss). The Company's lease agreements do not contain any material residual value
guarantees or material restrictive covenants. Leases with an initial term of 12 months or less which do not
include an option to purchase the underlying asset that the Company is reasonably certain to exercise are
considered short term leases and are not recorded on the balance sheet. The Company had no short term
leases during the year ended February 28, 2021.
103
Right-of-use assets and lease liabilities are recognized at each lease’s commencement date based on the
present value of its lease payments over its respective lease term. When a borrowing rate is not explicitly
available for a lease, our incremental borrowing rate is used based on information available at the lease’s
commencement date to determine the present value of its lease payments. Operating lease payments are
recognized on a straight-line basis over the lease term.
We have operating leases for office equipment, as well as offices, warehouses, and other facilities used for
our operations. We also have finance leases comprised primarily of computer hardware and machinery and
equipment. Our leases have remaining lease terms of less than 1 year to 10 years, some of which include
renewal options. We consider these renewal options in determining the lease term used to establish our
right-of-use assets and lease liabilities when it is determined that it is reasonably certain that the renewal
option will be exercised.
Refer to the Consolidated Statements of Cash Flows for supplemental cash flow information related to
leases.
On September 30, 2019, the Company, through its subsidiary Voxx German Holdings GmbH, executed a
sale leaseback transaction, selling its real property in Pulheim, Germany to CLM S.A. RL (the “Purchaser”)
for €10,920. Net proceeds received from the transaction were approximately $9,500 after transactional
costs of $270 and repayment of the outstanding mortgage, which was $2,104 on September 30, 2019. The
transaction qualified for sale leaseback accounting in accordance with ASC 842, “Leases.” Concurrently
with the sale, the Company entered into an operating lease arrangement (“lease”) with the Purchaser for a
small portion of the real property to continue to operate the combined Magnat/Klipsch sales office in
Germany, with an initial lease term of five years. The Company recognized a gain related to the execution
of the sale transaction of $4,057 for the year ended February 29, 2020, which is recorded in Other income
(expense) on the Consolidated Statements of Operations and Comprehensive Income (Loss).
The components of lease cost for the year ended February 28, 2021 were as follows:
Operating lease cost (a) (c)
Finance lease cost:
Amortization of right of use assets (a)
Interest on lease liabilities (b)
Total finance lease cost
February 28,
2021
February 29,
2020
$
1,169 $
596
28
624 $
$
880
684
47
731
(a) Recorded within Selling, general and administrative, Engineering, and technical support, and Cost of
sales on the Consolidated Statements of Operations and Comprehensive Income (Loss).
(b) Recorded within Interest and bank charges on the Consolidated Statements of Operations and
Comprehensive Income (Loss).
Includes immaterial amounts related to variable rent expense.
(c)
104
Supplemental balance sheet information related to leases is as follows:
Operating Leases
Operating lease, right of use assets
Total operating lease right of use assets
Accrued expenses and other current liabilities
Operating lease liabilities, less current portion
Total operating lease liabilities
Finance Leases
Property, plant and equipment, gross
Accumulated depreciation
Total finance lease right of use assets
Accrued expenses and other current liabilities
Finance lease liabilities, less current portion
Total finance lease liabilities
Weighted Average Remaining Lease Term
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Finance leases
February 28,
2021
February 29,
2020
$
$
$
$
$
$
$
$
4,572
4,572
1,119
3,582
4,701
$
$
$
$
2,503
$
(1,805)
$
698
418
$
302
720
$
3,143
3,143
784
2,391
3,175
2,503
(1,209)
1,294
613
720
1,333
6.0 years
1.8 years
4.4 years
3.9 years
4.49%
3.87%
5.98%
3.87%
At February 28, 2021, maturities of lease liabilities for each of the succeeding years were as follows:
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less imputed interest
Total
Operating Leases Finance Leases
428
1,299 $
$
228
1,039
79
759
—
586
—
425
—
1,168
735
5,276
15
575
720
4,701 $
$
As of February 28, 2021, the Company has not entered into any lease agreements that have not yet
commenced.
Rental expense for the Company’s operating lease agreements and other rental agreements on a month-to-
month basis was $883 for the year ended February 28, 2019.
The Company owns and occupies buildings as part of its operations. Certain space within these buildings
may, from time to time, be leased to third parties from which the Company earns rental income as lessor.
This leased space is recorded within property, plant and equipment and was not material to the Company's
Consolidated Balance Sheet at February 28, 2021. Rental income earned by the Company for the years
ended February 28, 2021, February 29, 2020, and February 28, 2019 was $739, $663, and $517,
respectively, which is recorded within Other income (expense).
105
12)
Financial Instruments
a)
Off-Balance Sheet Risk
Commercial letters of credit are issued by the Company during the ordinary course of business
through major domestic banks as requested by certain suppliers. The Company also issues standby
letters of credit principally to secure certain bank obligations and insurance policies. The
Company had no open commercial letters of credit at February 28, 2021. Standby letters of credit
amounted to $19,656 at February 28, 2021. The terms of these letters of credit are all less than
one year. No material loss is anticipated due to nonperformance by the counter parties to these
agreements. The fair value of the standby letters of credit is estimated to be the same as the
contract values based on the short-term nature of the fee arrangements with the issuing banks.
At February 28, 2021, the Company had unconditional purchase obligations for inventory
commitments of $158,886. These obligations are not recorded in the consolidated financial
statements until commitments are fulfilled and such obligations are subject to change based on
negotiations with manufacturers.
b)
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk,
consist principally of trade receivables. The Company's customers are located principally in the
United States, Canada, Europe, and Asia Pacific and consist of, among others, distributors, mass
merchandisers, warehouse clubs, major automobile manufacturers, and independent retailers. The
Company generally grants credit based upon analyses of customers' financial conditions and
previously established buying and payment patterns. For certain customers, the Company
establishes collateral rights in accounts receivable and inventory and obtains personal guarantees
from certain customers based upon management's credit evaluation. Certain customers in Europe
and Latin America have credit insurance equaling their credit limits.
At February 28, 2021 and February 29, 2020, the Company's five largest customer balances
accounted for approximately 25% and 24% of accounts receivable, respectively. One customer in
the Company’s Consumer Electronics segment accounted for 12% of the Company’s total
consolidated net sales during the year ended February 28, 2021. No single customer accounted for
more than 10% of net sales during the years ended February 29, 2020 or February 28, 2019. The
Company's five largest customers represented 30%, 24%, and 25% of net sales during the years
ended February 28, 2021, February 29, 2020, and February 28, 2019, respectively.
A portion of the Company's customer base may be susceptible to downturns in the retail economy,
particularly in the consumer electronics industry. Additionally, customers specializing in certain
automotive sound, security and accessory products may be impacted by fluctuations in automotive
sales.
13)
Financial and Product Information About Foreign and Domestic Operations
Segments
The Company classifies its operations in the following three reportable segments: Automotive Electronics,
Consumer Electronics, and Biometrics.
Our Automotive Electronics segment designs, manufactures, distributes and markets rear-seat
entertainment devices, remote start systems, automotive security, vehicle access systems, mobile interface
modules, mobile multimedia devices, aftermarket/OE-styled radios, car link-smartphone telematics
applications, driver distraction products, collision avoidance systems, location-based services, turn signal
switches, automotive lighting products, automotive sensing and camera systems, USB ports, cruise control
systems, heated seats, and satellite radio products.
Our Consumer Electronics segment designs, manufactures, distributes and markets home theater systems,
high-end loudspeakers, outdoor speakers, business music systems, cinema speakers, wireless and Bluetooth
speakers, soundbars, wired and wireless headphones and ear buds, DLNA (Digital Living Network
106
Alliance) compatible devices, remote controls, karaoke products, infant/nursery products, personal sound
amplifiers, as well as A/V connectivity, portable/home charging, reception and digital consumer products.
Our Biometrics segment designs, markets and distributes iris identification and biometric security related
products.
Each operating segment is individually reviewed and evaluated by our Chief Operating Decision Maker
(CODM), who allocates resources and assesses performance of each segment individually. The Company's
Chief Executive Officer has been identified as the CODM. The CODM evaluates performance and
allocates resources based upon a number of factors, the primary profit measure being income before
income taxes of each segment. Certain costs and royalty income are not allocated to the segments and are
reported as Corporate/Eliminations. Costs not allocated to the segments include professional fees, public
relations costs, acquisition costs and costs associated with executive and corporate management
departments, including salaries, benefits, depreciation, rent and insurance.
The segments share many common resources, infrastructures, and assets in the normal course of business.
Thus, the Company does not report assets or capital expenditures by segment to the CODM.
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:
Automotive
Electronics
Consumer
Electronics Biometrics
Corporate/
Eliminations Total
Fiscal Year Ended February 28, 2021
Net sales
Equity in income of equity investees
Interest expense and bank charges
Depreciation and amortization expense
Income (loss) before income taxes (a)
Fiscal Year Ended February 29, 2020
Net sales
Equity in income of equity investees
Interest expense and bank charges
Depreciation and amortization expense
(Loss) income before income taxes (b)
Fiscal Year Ended February 28, 2019
Net sales
Equity in income of equity investees
Interest expense and bank charges
Depreciation and amortization expense
Income (loss) before income taxes (c)
$
$
$
163,903 $
7,350
1,540
2,881
9,608
398,263 $
—
8,537
3,856
38,939
836 $
—
1,475
322
(8,726)
603 $563,605
—
7,350
(8,573)
2,979
3,974 11,033
(12,183) 27,638
114,154 $
5,174
436
878
(724)
279,675 $
—
9,482
4,390
9,385
461 $
—
1,279
3,136
(39,241)
599 $394,889
—
5,174
(8,222)
2,975
3,994 12,398
(10,360) (40,940)
161,647 $
6,618
868
1,002
13,842
283,144 $
—
10,191
4,419
(29,348)
1,098 $
—
4,013
3,158
(18,928)
—
(11,284)
927 $446,816
6,618
3,788
3,765 12,344
(24,529) (58,963)
(a)
Included within Income (loss) before income taxes for the year ended February 28, 2021 is an intangible
asset impairment charge of $1,300 within the Consumer Electronics segment (see Note 1(k)).
(b) Included within Income (loss) before income taxes for the year ended February 29, 2020 are intangible
asset impairment charges totaling $30,230 ($2,828 within the Consumer Electronics segment and $27,402
within the Biometrics segment) (see Note 1(k)). Also included within Income (loss) before taxes for the
107
year ended February 29, 2020 is the gain on the sale of real property in Pulheim, Germany of $4,057 within
the Consumer Electronics segment (see Note 11).
(c)
Included in income (loss) before income taxes for the year ended February 28, 2019 are intangible asset
impairment charges totaling $25,789 ($25,629 within the Consumer Electronics segment and $160 within
the Automotive Electronics segment) (see Note 1(k)), an impairment charge of $3,473 related to investment
properties in Venezuela within the Automotive Electronics segment (see Note 1(p)), as well as charges of
$16,509 within Corporate related to the write-off of uncollectible notes receivable (see Note 1(f)).
Geographic net sales information in the table below is based on the location of the selling entity. Long-
lived assets, consisting of fixed assets, are reported below based on the location of the asset.
Fiscal Year Ended February 28, 2021
Net sales
Long-lived assets
Fiscal Year Ended February 29, 2020
Net sales
Long-lived assets
Fiscal Year Ended February 28, 2019
Net sales
Long-lived assets
14)
Revenue from Contracts with Customers
United
States
Europe Other
Total
$ 477,608 $
46,614
82,134 $
3,569
3,863
1,843
$ 563,605
52,026
$ 322,612 $
48,111
69,755 $
3,099
2,522
214
$ 394,889
51,424
$ 393,834 $
48,870
49,970 $
11,533
3,012
70
$ 446,816
60,473
The Company operates in three reportable segments: Automotive Electronics, Consumer Electronics, and
Biometrics. ASC Topic 606 requires further disaggregation of an entity’s revenue. In the following table,
the Company's net sales are disaggregated by segments and product type for the years ended February 28,
2021, February 29, 2020 and February 28, 2019.
Year ended
February 28,
2021
Year ended
February 29,
2020
Year ended
February 28,
2019
$
46,170 $
117,733
163,903
49,673 $
64,481
114,154
90,844
70,803
161,647
299,908
98,355
398,263
170,762
108,913
279,675
158,436
124,708
283,144
836
836
603
461
461
599
1,098
1,098
927
$
563,605 $
394,889 $
446,816
Automotive Electronics Segment
OEM Products
Aftermarket Products
Total Automotive Electronics Segment
Consumer Electronics Segment
Premium Audio Products
Other Consumer Electronic Products
Total Consumer Electronics Segment
Biometrics Segment
Biometric Products
Total Biometrics Segment
Corporate/Eliminations
Total Net Sales
108
As of February 28, 2021 and February 29, 2020, the balance of the Company's return asset was $2,404 and
$1,544, respectively, and the balance of the refund liability was $5,145 and $3,779, respectively, which are
presented within Prepaid expenses and other current assets and Accrued expenses and other current
liabilities, respectively, on the Consolidated Balance Sheets.
The Company had current and non-current contract liability balances totaling $5,265 at February 28, 2021
related to telematic subscription services for the Company’s DEI subsidiary established in conjunction with
the Company’s acquisition in July 2020 (see Note 2). Revenue recognized for the year ended February 28,
2021 related to these services that had previously been deferred at the quarters ended August 31, 2020 and
November 30, 2020 was $4,557. The Company had no contract liability balances at February 29, 2020. The
Company had no contract asset balances at February 28, 2021 or February 29, 2020.
15)
Contingencies
The Company is currently, and has in the past, been a party to various routine legal proceedings incident to
the ordinary course of business. If management determines, based on the underlying facts and
circumstances of each matter, that it is probable a loss will result from a litigation contingency and the
amount of the loss can be reasonably estimated, the estimated loss is accrued for. The Company does not
believe that any current outstanding litigation will have a material adverse effect on the Company's
financial statements, individually or in the aggregate.
The products the Company sells are continually changing as a result of improved technology. As a result,
although the Company and its suppliers attempt to avoid infringing known proprietary rights, the Company
may be subject to legal proceedings and claims for alleged infringement by patent, trademark, or other
intellectual property owners. Any claims relating to the infringement of third-party proprietary rights, even
if not meritorious, could result in costly litigation, divert management’s attention and resources, or require
the Company to either enter into royalty or license agreements which are not advantageous to the Company
or pay material amounts of damages.
109
16)
Unaudited Quarterly Financial Data
Selected unaudited, quarterly financial data of the Company for the years ended February 28, 2021 and
February 29, 2020 appear below:
Quarters Ended
2021
Net sales
Gross profit
February 28,
2021
(a)
162,521 $
42,368
$
November
30,
2020
(b)
201,065 $
58,128
August 31,
2020
May 31,
2020
128,032 $
38,076
71,987
19,975
Net income (loss) attributable to Voxx International Corporation $
9,448 $
18,251 $
7,340 $
(8,272)
Income (loss) per share - basic: Attributable to VOXX
International Corporation
Income (loss) per share - diluted: Attributable to VOXX
International Corporation
$
$
0.39 $
0.75 $
0.30 $
(0.34)
0.38 $
0.74 $
0.30 $
(0.34)
Quarters Ended
2020
Net sales
Gross profit
February 29,
2020
(c)
101,077 $
28,534
$
November
30,
2019
(d)
110,112 $
31,464
August 31,
2019
(e)
90,246 $
23,769
May 31,
2019
93,454
26,009
Net (loss) income attributable to Voxx International Corporation $
(21,795) $
2,464 $
(5,964) $
(1,148)
(Loss) income per share - basic: Attributable to VOXX
International Corporation
(Loss) income per share - diluted: Attributable to VOXX
International Corporation
$
$
(0.90) $
0.10 $
(0.24) $
(0.05)
(0.90) $
0.10 $
(0.24) $
(0.05)
Net income per common share is computed separately for each quarter. Therefore, the sum of such
quarterly per share amounts may differ from the total for the years.
(a)
Included in the Net income attributable to VOXX International Corporation for the quarter ended
February 28, 2021 is an impairment charge of $1,300 related to indefinite-lived intangible assets (see
Note 1(k)).
(b) Included in the Net income attributable to VOXX International Corporation for the quarter ended
November 30, 2020 is the gain of $42 due to the hold-back release related to the Company’s
investment in RxNetworks (see Note 1(f)).
(c)
Included in the Net loss attributable to VOXX International Corporation for the quarter ended February
29, 2020 are impairment charges of $30,230 related to definite and indefinite lived intangible assets
(see Note 1(k)).
(d) Included in Net income attributable to VOXX International Corporation for the quarter ended
November 30, 2019 is the gain of $4,057 resulting from the sale of real property in Pulheim, Germany
(See Note 11).
110
(e)
Included in the Net loss attributable to VOXX International Corporation for the quarter ended August
31, 2019 is the gain of $775 due to the hold-back release related to the Company’s investment in
RxNetworks (see Note 1(f)).
17)
Subsequent Events
Wells Fargo Credit Facility
On April 19, 2021, the Company entered into Amendment No. 9 to the Credit Facility. Pursuant to the
terms thereof, the Credit Facility was amended primarily to: (i) provide for a Maximum Credit under the
Credit Facility of $140,000; (ii) extend the Maturity Date of the Credit Facility to April 19, 2026; (iii)
lower the Unused Line Fee to 0.65% per annum; (iv) provide for a Benchmark Replacement (SOFR) that
will replace the LIBOR Rate for all revolver usage; (v) increase the Real Property Availability by
reappraising the valuation of Real Property; and (vi) increase the Availability Concentrations for certain
customer accounts receivable balances. The Benchmark Replacement is subject to the occurrence of a
Benchmark Transition Event, as defined in the Second Amended and Restated Credit Agreement, and
becomes effective for the Company after a five-day transition period following the event.
Onkyo Home Entertainment Corporation Letter of Intent
On May 3, 2021, the Company signed a Letter of Intent to acquire the home audio/video business of Onkyo
Home Entertainment Corporation (“Onkyo”), along with Sharp Corporation (“Sharp”) as the Company’s
partner. The Company and Sharp have been granted exclusivity while discussions proceed. Voxx and Sharp
also entered into a binding agreement to move forward with the proposed acquisition and all parties are
working toward reaching a definitive agreement by May 20, 2021. If an agreement is reached, it will be
presented to Onkyo’s shareholders at its ordinary general meeting of shareholders scheduled for June 25,
2021.
EyeLock Distribution Agreement
On May 3, 2021, EyeLock entered into a four-year exclusive distribution agreement (the “Agreement”)
with GalvanEyes LLC (“GalvanEyes”), a Florida LLC managed by Voxx’s largest shareholder, Beat Kahli.
The Agreement provides that GalvanEyes will become the exclusive distributor of EyeLock products in the
EU, Switzerland, Puerto Rico, Malaysia, and Singapore with the exception of any existing customer
relationships. GalvanEyes was also granted exclusive distribution rights in the United States for the
residential real estate market and specific U.S. Government agencies, and non-exclusive distribution rights
in all other territories and verticals with the Company’s consent. In consideration of the grant of
exclusivity, GalvanEyes has agreed to pay EyeLock $10.0 million in the form of an annual fee of up to $5.0
million, with payments on a quarterly basis. Any gross profit generated by GalvanEyes on the sale of
EyeLock products by GalvanEyes will be deducted from the annual fee. The transaction is subject to
certain closing conditions, including formal approval by the Company’s Board of Directors and approval
by the Company’s shareholders at the Annual Meeting of Stockholders currently scheduled for July 29,
2021.
111
SCHEDULE II
VOXX INTERNATIONAL CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended February 28, 2021, February 29, 2020 and February 28, 2019
(In thousands)
Column A
Column B Column C
Column D
Column E
Description
Year ended February 28, 2021
Allowance for credit losses
Cash discount allowances
Sales return reserve
Year ended February 29, 2020
Allowance for credit losses
Cash discount allowances
Sales return reserve
Year ended February 28, 2019
Allowance for credit losses
Cash discount allowances
Sales return reserve
Gross
Amount
Charged to
Costs and
Expenses
Reversals of
Previously
Established
Accruals
Balance at
Beginning
of Year
Deductions
(a)
Balance
at End
of Year
$
$
$
1,954 $
751
3,779
(271) $
6,565
16,550
2,548 $
1,125
4,415
253 $
5,243
13,243
2,196 $
1,205
3,779
858 $
6,112
10,391
— $
—
—
— $
—
—
— $
—
—
90 $
6,212
15,184
1,593
1,104
5,145
847 $
5,617
13,879
1,954
751
3,779
506 $
6,192
9,755
2,548
1,125
4,415
(a) For the allowance for credit losses and cash discount allowances, deductions represent currency effects,
chargebacks and payments made or credits issued to customers.
112
Exhibit
Number Description
3.1
3.2
3.3
21
23
31.1
31.2
32.1
32.2
101
104
Amended and Restated Certificate of Incorporation of the Company as filed with the Delaware
Secretary of State on April 17, 2000 (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended November 30, 2000)
Certificate of Ownership and Merger (incorporated by reference to the Company's Form 8-K filed on
December 6, 2011)
Amended and Restated Bylaws of the Company (incorporated by reference to the Company's Form 8-K
filed on December 6, 2011)
Subsidiaries of the Registrant (filed herewith)
Consent of Grant Thornton LLP (filed herewith)
Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) and rule 15d-14(a) of the
Securities Exchange Act of 1934 (filed herewith)
Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) and rule 15d-14(a) of the
Securities Exchange Act of 1934 (filed herewith)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (furnished herewith)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (furnished herewith)
The following materials from VOXX International Corporation's Annual Report on Form 10-K for the
period ended February 28, 2021, formatted in Inline eXtensible Business Reporting Language (XBRL):
(i) the Consolidated Balance Sheets, (ii), the Consolidated Statements of Operations and Comprehensive
(Loss) Income, (iii) the Consolidated Statements of Stockholders' Equity, (iv) the Consolidated
Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.
The cover page from VOXX International Corporation’s Annual Report on Form 10-K for the period
ended February 28, 2021has been formatted in Inline XBRL.
All other schedules are omitted because the required information is shown in the financial statements or notes
thereto or because they are not applicable.
113
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VOXX INTERNATIONAL CORPORATION
May 13, 2021 By: /s/ Patrick M. Lavelle
Patrick M. Lavelle,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Patrick M. Lavelle
Patrick M. Lavelle
President; Chief Executive Officer
(Principal Executive Officer) and Director
May 13, 2021
/s/ Charles M. Stoehr
Charles M. Stoehr
/s/ John J. Shalam
John J. Shalam
/s/ John Adamovich, Jr.
John Adamovich, Jr.
/s/ Denise Gibson
Denise Gibson
/s/ Peter A. Lesser
Peter A. Lesser
/s/ Ari Shalam
Ari Shalam
Senior Vice President,
Chief Financial Officer (Principal
Financial and Accounting Officer) and Director
May 13, 2021
Chairman of the Board of Directors
May 13, 2021
May 13, 2021
May 13, 2021
May 13, 2021
May 13, 2021
Director
Director
Director
Director
114
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
Independent Auditors
Grant Thornton LLP
Melville, NY 11747
Legal Counsel
Levy, Stopol & Camelo, LLP
Uniondale, NY 11556
SHAREHOLDER INFORMATION
Corporate Office
VOXX International Corporation
2351 J Lawson Blvd.
Orlando, FL 32824
(800) 645-7750
Stock Exchange Listing
Nasdaq®
Ticker Symbol: “VOXX”
Transfer Agent and Registrar
Continental Stock Transfer and Trust Company
17 Battery Place, 8th Floor
New York, NY 10004
(212) 509-4000
Financial Public Relations
GW Communications
26 Sara Hill Road
Englewood Cliffs, NJ 07632
Attn: Glenn Wiener
(917) 887-8434
Form 10-K Exhibits
Copies of the exhibits to the corporation’s annual
report on Form 10-K are available from the Company’s
New York offices:
VOXX International Corporation
180 Marcus Blvd.
Hauppauge, NY 11788
Attn: Janine Russo
(631) 231 -7750
Website: www.voxxintl.com
CORPORATE INFORMATION
VOXX International Corporation
Board of Directors and Officers
DIRECTO RS
John J. Shalam
Chairman
Patrick M. Lavelle
President and Chief Executive Officer
Charles M. Stoehr
Senior Vice President and Chief Financial Officer
John Adamovich, Jr.
Peter A. Lesser
Denise Waund Gibson
Ari M. Shalam
OFFICERS
Patrick M. Lavelle
President and Chief Executive Officer
Charles M. Stoehr
Senior Vice President and
Chief Financial Officer
Loriann Shelton
Senior Vice President and
Chief Operating Officer
Ian Geise
President, VOXX Accessories Corp.
T. Paul Jacobs
President and Chief Executive Officer,
Klipsch Group, Inc.
Edward Mas
President and Chief Executive Officer,
VOXX Automotive Corp.
Oscar Bernardo
Chief Operating Officer ,
Klipsch Group, Inc.
Richard A. Maddia
Vice President, Management Information
Systems
Janine Russo
Corporate Secretary
(cid:3)