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VOXX INTERNATIONAL CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge) Forward-Looking Statements
Certain information in this Quarterly Report on Form 10-Q would constitute
forward-looking statements, including but not limited to, information relating
to the future performance and financial condition of the Company, the plans and
objectives of the Company's management and the Company's assumptions regarding
such performance and plans that are forward-looking in nature and involve
certain risks and uncertainties. Actual results could differ materially from
such forward-looking information.
We begin Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") with an overview of the business. This is followed by a
discussion of the Critical Accounting Policies and Estimates that we believe are
important to understanding the assumptions and judgments incorporated in our
reported financial results. In the next section, we discuss our results of
operations for the three and nine months ended November 30, 2012 compared to the
three and nine months ended November 30, 2011. Next, we present adjusted EBITDA
and diluted adjusted EBITDA per common share for the three and nine months ended
November 30, 2012 compared to the three and nine months ended November 30, 2011
in order to provide a useful and appropriate supplemental measure of our
performance. We then provide an analysis of changes in our balance sheets and
cash flows, and discuss our financial commitments in the sections entitled
"Liquidity and Capital Resources." We conclude this MD&A with a discussion of
"Related Party Transactions" and "Recent Accounting Pronouncements."
Unless specifically indicated otherwise, all amounts and percentages presented
in our MD&A below are in thousands, except share and per share data.
Business Overview
Effective December 1, 2011, Audiovox Corporation changed its name to VOXX
International Corporation ("Voxx," "We," "Our," "Us" or the "Company"). The
Company believes that the name VOXX International would be a name that better
represents the widely diversified interests of the Company, and the more than 30
global brands 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. Voxx is a leading
international distributor in the accessory, mobile and consumer electronics
industries. On March 14, 2012, the Company acquired Car Communication Holding
GmbH and its worldwide subsidiaries, a recognized tier-1 supplier of
communications and infotainment solutions, primarily to the automotive industry.
We conduct our business through nineteen wholly-owned subsidiaries: American
Radio Corp., Audiovox Electronics Corporation ("AEC"), VOXX Accessories Corp.,
Audiovox Consumer Electronics, Inc. ("ACE"), Audiovox German Holdings GmbH
("Audiovox Germany"), Audiovox Venezuela, C.A., Audiovox Canada Limited,
Audiovox Hong Kong Ltd., Audiovox International Corp., Audiovox Mexico, S. de
R.L. de C.V. ("Audiovox Mexico"), Technuity, Inc., Code Systems, Inc., Oehlbach
Kabel GmbH ("Oehlbach"), Schwaiger GmbH ("Schwaiger"), Invision Automotive
Systems, Inc. ("Invision"), Klipsch Holding LLC ("Klipsch"), Car Communication
Holding GmbH ("Hirschmann"), Omega Research and Development, LLC ("Omega") and
Audiovox Websales LLC. We market our products under the Audiovox® brand name,
other brand names and licensed brands, such as Acoustic Research®, Advent®, Car
Link®, Code-Alarm®, Energy®, Excalibur®, Heco®, Hirschmann Car Communication®,
Incaar™, Invision®, Jamo®, Jensen®, Klipsch®, Mac Audio™, Magnat®, Mirage®,
Oehlbach®, Prestige®, RCA®, Schwaiger®, and Terk®, 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 and presently have one reportable segment (the "Electronics Group"),
which is organized by product category.
The Company currently reports sales data for the following two product
categories:
Electronics products include:
mobile multi-media video products, including in-dash, overhead and
headrest systems,
autosound products including radios, amplifiers and CD changers,
satellite radios including plug and play models and direct connect models,
automotive security and remote start systems,
automotive power accessories,
automotive antenna systems,
automotive digital TV tuner systems,
rear observation and collision avoidance systems,
home and portable stereos,
digital multi-media products such as personal video recorders and MP3
products,
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camcorders,
clock-radios,
digital voice recorders,
premium loudspeakers,
architectural speakers,
commercial speakers,
on-ear and in-ear headphones,
soundbars, and
portable DVD players.
Accessories products include:
High-Definition Television ("HDTV") antennas,
Wireless Fidelity ("WiFi") antennas,
High-Definition Multimedia Interface ("HDMI") accessories,
home electronic accessories such as cabling,
other connectivity products,
power cords,
performance enhancing electronics,
TV universal remotes,
flat panel TV mounting systems,
iPod specialized products,
wireless headphones,
wireless speakers,
rechargeable battery backups (UPS) for camcorders, cordless phones and
portable video (DVD) batteries and accessories,
power supply systems,
electronic equipment cleaning products,
personal sound amplifiers, and
set-top boxes.
We believe our product groups 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. Also, all of our products are subject to price fluctuations which
could affect the carrying value of inventories and gross margins in the future.
Our objective is to continue to grow our business by acquiring new brands,
embracing new technologies, expanding product development and applying this to a
continued stream of new products that should increase gross margins and improve
operating income. In addition, it is our intention to continue to acquire
synergistic companies that would allow us to leverage our overhead, penetrate
new markets and expand existing product categories through our business
channels.
Reportable Segments
We have determined that we operate in one reportable segment, the Electronics
Group, based on review of ASC 280, "Segment Reporting." The characteristics of
our operations that are relied on in making and reviewing business decisions
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 Executive
Officers. Management reviews the financial results of the Company based on the
performance of the Electronics Group.
Critical Accounting Policies and Estimates
The preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses reported in those financial statements. These judgments can be
subjective and complex, and consequently, actual results could differ from those
estimates. Our most critical accounting policies and estimates relate to revenue
recognition; sales incentives; accounts receivable reserves; inventory reserves;
goodwill and other intangible assets; warranties; stock-based compensation;
income taxes; and the fair value measurements of financial assets and
liabilities. A summary of the Company's significant accounting policies is
identified in Management's Discussion and Analysis of Financial Condition
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and Results of Operations in the Company's Form 10-K for the fiscal year ended
February 29, 2012. Since February 29, 2012, there have been no changes in our
critical accounting policies or changes to the assumptions and estimates related
to them.
The Company evaluates its indefinite lived intangible assets for impairment
triggering events at each reporting period in accordance with ASC 350. Based on
our evaluation, there were no triggering events and no impairment of indefinite
lived intangible assets in the quarter ended November 30, 2012. Due to the
continued economic volatility, including fluctuations in interest rates, growth
rates and changes in demand for our products, there could be a change in the
valuation of indefinite lived intangible assets when the Company conducts its
annual impairment test.
Results of Operations
As you read this discussion and analysis, refer to the accompanying consolidated
statements of operations and comprehensive income, which present the results of
our operations for the three and nine months ended November 30, 2012 and 2011.
The following tables set forth, for the periods indicated, certain statements of
operations data for the three and nine months ended November 30, 2012 and 2011.
Net Sales
November 30,
2012 2011 $ Change % Change
Three Months Ended:
Electronics $ 201,477 $ 165,947 $ 35,530 21.4 %
Accessories 41,559 40,856 703 1.7
Total consolidated net sales $ 243,036 $ 206,803 $ 36,233 17.5 %
Nine Months Ended:
Electronics $ 510,581 $ 424,957 $ 85,624 20.1 %
Accessories 118,206 105,508 12,698 12.0Total consolidated net sales $ 628,787 $ 530,465 $ 98,322 18.5 %
Electronic sales represented 82.9% and 81.2% of the net sales for the three and
nine months ended November 30, 2012, respectively, compared to 80.2% and 80.1%
in the respective prior year periods. For the three and nine months ended
November 30, 2012, approximately $39,465 and $115,658, respectively of the
increase in sales from this product group was the result of our recent
acquisition of Hirschmann. In addition, the electronics group experienced
increases in its OEM manufacturing lines in the three and nine months ended
November 30, 2012 due to the launch of new programs with Ford and Nissan in the
second quarter of Fiscal 2013, increased sales of on-ear and in-ear headphones
and soundbars, as well as new product offerings, such as the Tagg™ GPS pet
tracker. OEM increases were partially offset during the nine months ended
November 30, 2012 by decreases due to remote start sales, which were affected
early in the fiscal year by a warmer winter, as well as by the conclusion of
Ford's production program for headrest DVD systems in the first quarter of
Fiscal 2013. Electronic sales increases were also offset during the three and
nine months ended November 30, 2012 by a decline in sales of consumer
electronics products including camcorders and digital players as a result of
declines in demand and the exiting of certain products; a decline in satellite
fulfillment sales; slower car speaker sales in Europe; and a decline in our
audio product line. The audio decline is partially offset by sales related to
new product introductions, such as sales of slot machine speakers and mobile
iPod and iPad interfaces.
Accessory sales represented 17.1% and 18.8% of our net sales for the three and
nine months ended November 30, 2012, respectively, compared to 19.8% and 19.9%
in the respective prior year periods. The increase in the accessories group was
primarily related to sales of new wireless speaker products, increased sales of
antennas as a result of the Summer Olympics as well as changes in consumer
demand and increased sales of portable power lines and power supply systems due
to the growing predominance of electronic devices in consumer homes. These
increases were partially offset by a decrease in sales in our international
markets due primarily to the effect of European market conditions during the
fiscal year, which continued to slow down.
During the three and nine months ended November 30, 2012, the release of
unearned or unclaimed sales incentives was not material. We believe the reversal
of earned but unclaimed or unearned sales incentives upon expiration of the
claim period is a disciplined, rational, consistent, and systematic method of
reversing these claims. These sales incentive programs are expected to continue
and will either increase or decrease based upon competition and customer
demands.
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Gross Profit
November 30,
2012 2011 $ Change % Change
Three Months Ended:
Gross profit $ 69,949 $ 59,843 $ 10,106 16.9 %
Gross margin percentage 28.8 % 28.9 %
Nine Months Ended:
Gross profit $ 175,131 $ 147,393 $ 27,738 18.8 %
Gross margin percentage 27.9 % 27.8 %
Gross margins for the three months ended November 30, 2012 decreased by 10 basis
points primarily as a result of unfavorable swings between hedged costs and
related sales, as well as decreased sales of higher margin car speakers at
Audiovox Germany, offset by sales as a result of the Hirschmann acquisition, and
the exiting of certain lower margin products and promotion of higher margin
products within consumer accessories, such as wireless bluetooth speakers and
on-ear and in-ear headphones and soundbars. Gross margins for the nine months
ended November 30, 2012 increased by 10 basis points primarily due to increased
sales in OEM related products, increased sales in higher margin consumer
products, such as bluetooth speakers and on-ear and in-ear headphones and
soundbars, as well as sales as a result of the Hirschmann acquisition. These
increases were partially offset by the unfavorable swings between hedged costs
and related sales, as well as increased freight costs, decreases in sales of
higher margin car speakers at Audiovox Germany and the cost of shifting
warehouse facilities in Asia.
Operating Expenses and Operating Loss
November 30,
2012 2011 $ Change % Change
Three Months Ended:
Operating expenses:
Selling $ 13,515 $ 12,620 $ 895 7.1 %
General and administrative 29,650 24,740 4,910 19.8Engineering and technical support 6,938 4,021 2,917
72.5
Acquisition-related costs 56 25 31 124.0
Total operating expenses $ 50,159 $ 41,406 $ 8,753 21.1 %
Operating income $ 19,790 $ 18,437 $ 1,353 7.3 %
Nine Months Ended:
Operating expenses:
Selling $ 38,227 $ 35,723 $ 2,504 7.0 %
General and administrative 84,466 68,159 16,307 23.9Engineering and technical support 21,042 11,839 9,203
77.7
Acquisition-related costs 1,707 1,607 100 6.2
Total operating expenses $ 145,442 $ 117,328 $ 28,114 24.0 %
Operating income (loss) $ 29,689 $ 30,065 $ (376 ) (1.3 )%
Operating expenses increased $8,753 and $28,114 for the three and nine months
ended November 30, 2012, respectively, from $41,406 and $117,328 in the
comparable prior year periods. As a percentage of net sales, operating expenses
increased to 20.6% and 23.1% as compared to 20.0% and 22.1% for the comparable
prior year period. The increase in total operating expenses was due primarily to
our recent acquisition of Hirschmann which accounted for $10,872 and $32,106
during the three and nine months ended November 30, 2012, respectively, as well
as increases in advertising expense Company-wide of approximately $200 and $900
for the three and nine months ended November 30, 2012, respectively, not
including Hirschmann. Not taking into account
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the acquisition of Hirschmann, the increases in operating expenses were
partially offset by reductions in depreciation expense, headcount reductions in
select groups, reductions of commissions as a result of lower net sales, reduced
occupancy costs due to the purchase of the Klipsch headquarters in Indianapolis,
IN, which had previously been leased, as well as lower professional fees, as a
result of the conclusion of the MPEG lawsuit in June 2012.
Other Income (Expense)
November 30,
2012 2011 $ Change % Change
Three Months Ended:
Interest and bank charges $ (2,286 ) $ (1,371 ) $ (915 ) 66.7 %
Equity in income of equity investees 1,180 1,236 (56 ) (4.5 )
Other, net 776 (3,308 ) 4,084 123.5
Total other (expense) income $ (330 ) $ (3,443 ) $ 3,113 90.4 %
Nine Months Ended:
Interest and bank charges $ (6,223 ) $ (4,246 ) $ (1,977 ) 46.6 %
Equity in income of equity investees 3,730 3,255 475 14.6
Other, net (9,223 ) (4,054 ) (5,169 ) 127.5
Total other (expense) income $ (11,716 ) $ (5,045 ) $ (6,671 ) 132.2 %
Interest and bank charges represent expenses for bank obligations of VOXX
International Corporation and Audiovox Germany, interest for capital leases and
amortization of the debt discount on our credit facility. The increase in these
expenses for the three and nine months ended November 30, 2012 is primarily due
to interest expense, fees and amortization of deferred financing costs related
to the Amended Credit Facility entered into on March 14, 2012 primarily to fund
our Hirschmann acquisition.
Other, net, during the three months ended November 30, 2012 primarily included
net gains and losses due to foreign currency exchange and hedge accounting, and
income of approximately $200 related to a favorable legal settlement received by
Klipsch, as compared to the three months ended November 30, 2011, which included
a charge in connection to a patent lawsuit of approximately $2,600, as well as a
contingent consideration adjustment of approximately $500.
Other, net, during the nine months ended November 30, 2012 included charges in
connection with a patent suit of approximately $8,400, and losses on forward
exchange contracts of approximately $2,700 incurred in conjunction with the
Hirschmann acquisition and settled during the first quarter of Fiscal 2013.
These charges were partially offset by income recorded related to favorable
legal settlements received by Klipsch of approximately $1,000 during the first
and third quarters of Fiscal 2013. Other, net, for the nine months ended
November 30, 2011 included an other than temporary impairment charge of
approximately $1,200 relating to the Bliss-tel investment, as well as a charge
of approximately $2,600 related to a patent lawsuit and a contingent
consideration adjustment of approximately $1,500.
Income Tax Benefit/Provision
The effective tax rate for the three and nine months ended November 30, 2012 was
a provision for income taxes of 32.2% and 32.0% compared to a provision for
income taxes of 40.9% in both of the comparable prior periods. The effective tax
rate for the nine months ended November 30, 2012 is different than the statutory
rate primarily due to state and local taxes, differences between the U.S. and
foreign tax rates, Section 199 deductions and transaction costs associated with
Hirschmann.
Net Income
The following table sets forth, for the periods indicated, selected statement of
operations data beginning with net income and basic and diluted net income per
common share.
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Three Months Ended Nine Months Ended
November 30, November 30,
2012 2011 2012 2011
Net income $ 13,202 $ 8,858 $ 12,222 $ 14,783
Net income per common share:
Basic $ 0.56 $ 0.38 $ 0.52 $ 0.64
Diluted $ 0.56 $ 0.38 $ 0.52 $ 0.64
Net income for the three months ended November 30, 2012 increased versus the
prior year period as a result of the addition of our Hirschmann acquisition, as
well as due to charges related to a patent lawsuit that were incurred during the
third quarter of Fiscal 2012. Net income for the nine months ended November 30,
2012 decreased versus the prior year period primarily as a result of additional
expenses associated with the patent lawsuit incurred during the first quarter of
Fiscal 2013, as well as losses on forward exchange contracts and a decrease in
sales in the European markets, partially offset by decreased tax provisions, the
addition of our Hirschmann acquisition and an increase in sales in domestic
markets.
Adjusted EBITDA
Adjusted EBITDA and diluted adjusted EBITDA per common share are not financial
measures recognized by GAAP. Adjusted EBITDA represents net income, computed in
accordance with GAAP, before interest and bank charges, taxes, depreciation and
amortization, stock-based compensation expense, restructuring charges,
litigation settlements and costs and foreign exchange gains or losses relating
to our acquisitions. Depreciation, amortization, and stock-based compensation
expense are non-cash items. Diluted adjusted EBITDA per common share represents
the Company's diluted earnings per common share based on adjusted EBITDA.
We present adjusted EBITDA and diluted adjusted EBITDA per common share in this
Form 10-Q because we consider them to be useful and appropriate supplemental
measures of our performance. Adjusted EBITDA and diluted adjusted EBITDA per
common share help 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 costs relating to our
acquisitions, restructuring and litigation settlements 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 appropriate measures for
performance relative to other companies. Adjusted EBITDA should not be assessed
in isolation from or construed as a substitute for EBITDA prepared in accordance
with GAAP. Adjusted EBITDA and diluted adjusted EBITDA per common share are not
intended to represent, and should not be considered to be more meaningful
measures than, or alternatives to, measures of operating performance as
determined in accordance with GAAP.
Reconciliation of GAAP Net Income to Adjusted EBITDA
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Three Months Ended Nine Months Ended
November 30, November 30,
2012 2011 2012 2011
Net income $ 13,202 $ 8,858 $ 12,222 $ 14,783
Adjustments:
Interest expense and bank charges 2,286 1,371 6,223 4,246
Depreciation and amortization 4,024 2,880 12,173 7,936
Income tax expense 6,258 6,136 5,751 10,237
EBITDA 25,770 19,245 36,369 37,202
Stock-based compensation 63 353 190 728
Net settlement charges related to MPEG suit - 2,596 8,365 2,596
Klipsch settlement recovery (215 ) - (1,015 ) -
Asia restructuring charges - - 789 -
Acquisition related costs 56 25 1,707 1,607
Loss on foreign exchange as a result of
Hirschmann acquisition - - 2,670 -
Adjusted EBITDA $ 25,674 $ 22,219 $ 49,075 $ 42,133
Diluted earnings per common share $ 0.56 $ 0.38 $ 0.52 $ 0.64
Diluted adjusted EBITDA per common share $ 1.09 $ 0.96 $ 2.08 $ 1.82
Liquidity and Capital Resources
Cash Flows, Commitments and Obligations
As of November 30, 2012, we had working capital of $215,739 which includes cash
and short-term investments of $18,193, compared with working capital of $182,985
at February 29, 2012, which included cash and short-term investments of
$13,606. The increase in cash is primarily due to draws on our amended credit
facility (a portion of which was used to fund the Hirschmann acquisition) and an
increase in accounts payable, partially offset by payments on the outstanding
line, the purchase and renovation of the Klipsch headquarters, an increase in
inventory and an increase in accounts receivable. We plan to utilize our
current cash position as well as collections from accounts receivable, the cash
generated from our operations 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.
Operating activities used cash of $6,397 for the nine months ended November 30,
2012 principally due to increased accounts receivables and inventory, partially
offset by an increase in accounts payable.
• The Company experienced increased accounts receivable turnover of 4.5
during the nine months ended November 30, 2012 compared to 4.3 during the
nine months ended November 30, 2011.
• Inventory turnover increased to 3.2 during the nine months ended
November 30, 2012 compared to 3.1 during the nine months ended
November 30, 2011.
Investing activities used cash of $121,795 during the nine months ended
November 30, 2012, primarily due to the Hirschmann acquisition, as well as the
purchase and renovation of the Klipsch headquarters facility and the Company's
system upgrade.
Financing activities provided cash of $134,733 during the nine months ended
November 30, 2012, primarily from borrowings on bank obligations used to finance
the Hirschmann acquisition, offset by repayments of those obligations.
On March 14, 2012, the Company amended and restated its revolving credit
facility (the "Amended Facility"). The Amended Facility provides for senior
secured credit facilities in an aggregate principal amount of $205 million,
consisting of a U.S. revolving credit facility of $80 million; a $50 million
multicurrency revolving facility, of which up to the equivalent of $50 million
is available only to VOXX International (Germany) GmbH in euros and the euro
equivalent of $15 million available to domestic borrowers; and a five year term
loan facility in the aggregate principal amount of $75 million. The Amended
Facility includes a $25 million sublimit for issuers of letters of credit for
domestic borrowings and a $10 million sublimit for Swing Loans. $60 million of
the U. S. revolving credit facility is available on a revolving basis for five
years from the closing date. An additional $20 million is available during the
three month periods from September 1, 2012 through November 30, 2012 and from
September 1, 2013 through November 30, 2013. Generally, the Company may
designate specific borrowings under the Amended Facility as either Alternate
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Base Rate Loans or LIBOR Rate Loans, except that Swing Loans may only be
designated as Alternate Base Rate Loans. VOXX International (Germany) GmbH may
only borrow euros, and only as LIBOR rate loans. Loans designated as LIBOR Rate
Loans shall bear interest at a rate equal to the then applicable LIBOR rate plus
a range of 1.25 - 2.25% based on excess availability in the borrowing base.
Loans designated as Alternate Base Rate loans shall bear interest at a rate
equal to the base rate plus an applicable margin ranging from 0.25 - 1.25% based
on excess availability in the borrowing base. On March 14, 2012, the Company
borrowed approximately $148 million under this amended credit facility as a
result of its stock purchase agreement related to Hirschmann and the repayment
of the former facility. As of November 30, 2012, the Company was in compliance
with all debt covenants related to the Amended Facility. Further details
regarding the facility are outlined in Note 15(a) of this report. At
November 30, 2012, the Company had $717 outstanding in standby letters of
credit. No commercial letters of credit were outstanding as of November 30,
2012.
Certain contractual cash obligations and other commercial commitments will
impact our short and long-term liquidity. At November 30, 2012, such obligations
and commitments are as follows:
Amount of Commitment Expiration per Period (9)
Less than 1-3 4-5 After
Contractual Cash Obligations Total 1 Year Years Years 5 Years
Capital lease obligation (1) $ 9,695 $ 574 $ 1,148 $ 1,978 $ 5,995
Operating leases (2) 20,523 5,330 11,291 3,022 880
Total contractual cash
obligations $ 30,218 $ 5,904 $ 12,439 $ 5,000 $ 6,875
Other Commitments
Bank obligations (3) $ 182,541 $ 16,856 $ - $ 165,685 $ -
Stand-by and commercial letters
of credit (4) 732 732 - - -
Other (5) 15,518 8,778 4,987 857 896
Contingent earn-out payments
(6) 5,656 3,389 2,267 - -
Pension obligation (7) 6,756 133 1,843 445 4,335
Unconditional purchase
obligations (8) 107,752 107,752 - - -
Total other commitments $ 318,955 $ 137,640 $ 9,097 $ 166,987 $ 5,231
Total commitments $ 349,173 $ 143,544 $ 21,536 $ 171,987 $ 12,106
1. Represents total payments (interest and principal) due under a capital lease
obligation which has a current (included in other current liabilities) and
long term principal balance of $161 and $5,849, respectively at November 30,
2012.
2. We enter into operating leases in the normal course of business.
3. Represents amounts outstanding under the Company's Credit Facility and the
Audiovox Germany Euro asset-based lending facility at November 30, 2012.
4. We issue standby and commercial letters of credit to secure certain purchases
and insurance requirements.
5. This amount includes amounts due under a call-put option with certain employees of Audiovox Germany; amounts outstanding under a loan agreement for
Audiovox Germany; an assumed mortgage on a facility in connection with our
Klipsch acquisition; and amounts outstanding under mortgages for facilities
purchased at Schwaiger and Klipsch.
6. Represents contingent payments in connection with the Thomson Audio/Video,
Invision, and Klipsch acquisitions.
7. Represents the liability for an employer defined benefit pension plan
covering certain eligible Hirschmann employees, as well as a retirement
incentive accrual for certain Hirschmann employees.
8. Open purchase obligations represent inventory commitments. These obligations
are not recorded in the consolidated financial statements until commitments
are fulfilled given that such obligations are subject to change based on
negotiations with manufacturers.
32--------------------------------------------------------------------------------9. At November 30, 2012, the Company had unrecognized tax benefits of $4,655. A
reasonable estimate of the timing related to these liabilities is not
possible, therefore, such amounts are not reflected in this contractual
obligation and commitments schedule.
We regularly review our cash funding requirements and attempt to meet those
requirements through a combination of cash on hand, cash provided by operations,
available borrowings under bank lines of credit and possible future public or
private debt and/or equity offerings. At times, we evaluate possible
acquisitions of, or investments in, businesses that are complementary to ours,
which transactions may require the use of cash. We believe that our cash, other
liquid assets, operating cash flows, credit arrangements, and access to equity
capital markets, taken together, provide adequate resources to fund ongoing
operating expenditures. 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.
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.
Acquisitions
On March 14, 2012, the Company, through its wholly-owned subsidiary, VOXX
International (Germany) GmbH, acquired all of the issued and outstanding shares
of Car Communication Holding GmbH and its worldwide subsidiaries ("Hirschmann")
for a total purchase price of $114 million plus related transaction fees,
expenses and a working capital adjustment. Hirschmann is a recognized tier-1
supplier of communication and infotainment solutions, primarily to the
automotive industry. The acquisition of Hirschmann increases Voxx's distribution
network, both domestically and abroad, and provides the Company with entry into
the automotive antenna and digital tuner installation market.
The Company amended its credit agreement with Wells Fargo Capital Finance, LLC,
increasing the aggregate principal amount to $205 million, to fund the
acquisition and future working capital needs, as applicable. The acquisition and
all related transaction costs, including the repayment of the remaining balance
outstanding on the previous credit facility of $27.8 million, were funded with
approximately $148 million borrowed under the Amended Facility.
Management is in the process of determining the final purchase price. Details of
the preliminary tangible and intangible assets acquired are outlined in Note 2
of the consolidated financial statements herein.
Related Party Transactions
During 1996, we entered into a 30-year capital lease for a building with our
principal stockholder and chairman, which was the headquarters of the
discontinued Cellular operation. Payments on the capital lease were based upon
the construction costs of the building and the then-current interest rates. This
capital lease was refinanced in December 2006 and the lease expires on November
30, 2026. The effective interest rate on the capital lease obligation is 8%. The
Company subleases the building to Airtyme Communications LLC for monthly
payments of $60 for a term of three years, which expires October 15, 2015. We
also lease another facility from our principal stockholder which expires on
November 30, 2016.
As a result of the acquisition of Klipsch, the Company assumed a lease for the
facility housing the Klipsch headquarters in Indianapolis. The lessor was
Woodview, LLC ("Woodview"), of which certain partners are executives of Klipsch.
On April 20, 2012, the Company purchased this building from Woodview for $10.9
million. The Company paid cash of $3.1 million at closing plus $106 in closing
costs, and assumed the mortgage held by Woodview in the amount of $7.8 million.
The mortgage is due in May 2013 and bear interest at 5.85%.
Total lease payments required under all related party leases for the five-year
period ending August 31, 2017 are $6,167.
New Accounting Pronouncements
We are required to adopt certain new accounting pronouncements. See Note 22 to
our consolidated financial statements included herein.
33--------------------------------------------------------------------------------
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