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Description of Business and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Feb. 28, 2023

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 ("PAC," which includes Klipsch Group, Inc. and 11 Trading Company LLC), 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 majority-owned subsidiaries, EyeLock LLC ("EyeLock") and Onkyo Technology KK (“Onkyo”). 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®, Integra®, Jamo®, Klipsch®, Mac Audio™, Magnat®, myris®, Oehlbach®, Omega®, Onkyo®, Pioneer®, 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.

The Company's fiscal year ends on the last day of February.

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.

Non-controlling interests represent the equity interests in our consolidated entities that we do not wholly own. Our financial statements reflect 100% of the revenues, expenses, assets, and liabilities (after elimination of intercompany transactions), although we do not own 100% of the equity interests of these consolidated entities. The Company follows FASB ASC 810-10-45-21 to report a non-controlling interest (other than non-controlling interests subject to a put option) in the consolidated balance sheets within the equity section, separately from the Company’s retained earnings. Non-controlling interest represents the non-controlling interest holders’ proportionate shares of the equity of the Company’s majority-owned subsidiary, EyeLock. Non-controlling interest is adjusted for the non-controlling interest holders’ proportionate shares of the earnings or losses and other comprehensive (loss) income, if any, and the non-controlling interest continues to

be attributed their share of losses even if that attribution results in a deficit non-controlling interest balance.

We classify securities with redemption features that are not solely within our control, such as our non-controlling interest that is subject to a put option, outside of permanent equity, specifically the non-controlling shareholder interest in Onkyo. This redeemable non-controlling interest, subject to put option, is recorded at the greater of the non-controlling interest balance determined pursuant to ASC 810-10, “Consolidation,” or the redemption value (which is based upon the greater of a specified formula). Changes in the non-controlling interest due to changes in the redemption amount are immediately recorded as equity transactions and our earnings per share calculation would be adjusted accordingly to treat any redemption adjustment similar to a dividend.

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 (Loss) Income. 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.

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.

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 $6,134 and $27,788 at February 28, 2023, and February 28, 2022, 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 $129 and $762 at February 28, 2023, and February 28, 2022, 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.

Fair Value Measurements and Derivatives

The Company applies the authoritative guidance on "Fair Value Measurements," which among other things, requires enhanced disclosures about investments that are measured and reported at fair value. This guidance establishes a hierarchal disclosure framework that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices, or for which fair value can be measured from actively quoted prices, generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Investments measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 - Quoted market prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable.

Level 3 - Unobservable inputs developed using the Company's estimates and assumptions, which reflect those that market participants would use.

The following table presents assets and liabilities measured at fair value on a recurring basis at February 28, 2023:


			Fair Value Measurements at Reporting Date Using
	Total		Level 1		Level 2		Level 3
Assets:
Cash and money market funds	$	6,134	$	6,134	$	—	$	—
Mutual funds		1,053		1,053		-		-
Derivatives designated for hedging		207		-		207		-

Liabilities:
Contingent consideration	$	4,500	$	—	$	—	$	4,500

The following table presents assets and liabilities measured at fair value on a recurring basis at February 28, 2022:


			Fair Value Measurements at Reporting Date Using
	Total		Level 1		Level 2		Level 3
Assets:
Cash and money market funds	$	27,788	$	27,788	$	—	$	—
Mutual funds		1,231		1,231		-		-

Liabilities:
Derivatives designated for hedging	$	188	$	—	$	188	$	—
Contingent consideration		6,435		-		-		6,435

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.

Contingent consideration is related to the Company’s Onkyo acquisition (see Note 2). The estimated fair value of the contingent consideration is classified within Level 3 and was determined using an income approach. Under this method, potential future purchases applicable to the contingent consideration were determined using internal estimates for growth. The potential future purchases applicable to the contingent consideration were multiplied by the appropriate percentage of payments due to OHEC, and the resulting contingent consideration amounts were adjusted for risk at the appropriate discount rate. The value of the contingent consideration was further discounted to reflect the credit risk of the Company.

On May 13, 2022, OHEC filed for bankruptcy protection in Japan. On February 10, 2023, the contingent consideration obligation was settled with the bankruptcy trustee of OHEC for $6,000, for a gain of $443 (see Note 2). This settlement relieves Onkyo from the future payments of 2% of the total purchase price of certain future product purchases that were to be made in perpetuity. The $6,000 settlement amount is to be paid in three installments. The first installment of $1,500 was

made in February 2023. The remaining installments totaling $4,500, as of February 28, 2023, are expected to be made in Fiscal 2024 after the completion of the obligation of the bankruptcy trustee of OHEC under the settlement agreement.

The following table provides a rollforward of the Company's contingent consideration balance for the year ended February 28, 2023:



Balance at February 28, 2022	$	6,435
Payments		(1,620	)
Fair value adjustment		50
Purchase price allocation adjustment		1,051
Gain on settlement		(443	)
Foreign currency translation		(973	)
Balance at February 28, 2023	$	4,500

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, 2022, and February 28, 2021, 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 instrument consists of an interest rate swap agreement at February 28, 2023. Forward foreign currency contracts are also utilized by the Company from time to time to hedge a portion of its foreign currency inventory purchases. The forward foreign currency derivatives qualifying for hedge accounting are designated as cash flow hedges and valued using observable forward rates for the same or similar instruments (Level 2). Open foreign currency contracts are classified in the balance sheet according to their terms. There are currently no open forward foreign currency contracts at February 28, 2023. 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, 2023 and February 28, 2022 for derivative instruments:


	Derivative Assets and Liabilities
		Fair Value
	Account	February 28, 2023		February 28, 2022
Designated derivative instruments
Interest rate swap	Other assets	$	207	$	-
	Other long-term liabilities		-		(188	)
Total derivatives		$	207	$	(188	)

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. 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.

During Fiscal 2023 and Fiscal 2022, the Company did not enter into any new forward foreign currency contracts. All forward foreign currency contracts entered into during Fiscal 2021 were settled as of February 28, 2022 and were designated as cash flow hedges. The current outstanding notional value of the Company's interest rate swap at February 28, 2023 is $6,115. 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. No amounts were excluded from the assessment of hedge effectiveness during the respective periods. During the years ended February 28, 2023 and February 28, 2022, 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, 2023, no contracts originally designated for hedge accounting were terminated.

Activity related to cash flow hedges recorded during the twelve months ended February 28, 2023 and February 28, 2022 was as follows:


	February 28, 2023				February 28, 2022
	Gain Recognized in Other Comprehensive Income		Loss Reclassified from Accumulated Other Comprehensive Income		Gain Recognized in Other Comprehensive Income		Loss Reclassified from Accumulated Other Comprehensive Income
Cash flow hedges
Foreign currency contracts	$	-	$	63	$	233	$	(307	)
Interest rate swaps	$	395	$	—	$	258	$	—

Investment Securities

As of February 28, 2023 and February 28, 2022, the Company had the following investments:


	February 28, 2023
	Carrying Value
Investment Securities
Marketable Equity Securities
Mutual funds	$	1,053
Total Marketable Equity Securities		1,053
Total Investment Securities	$	1,053


	February 28, 2022
	Carrying Value
Investment Securities
Marketable Equity Securities
Mutual funds	$	1,231
Total Marketable Equity Securities		1,231
Total Investment Securities	$	1,231

Long-Term Investments

Equity Securities

Marketable equity securities are measured and recorded at fair value with changes in fair value recorded in the Consolidated Statements of Operations and Comprehensive (Loss) Income.

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.

Changes in fair value of equity securities are recorded within the Consolidated Statements of Operations and Comprehensive (Loss) Income.

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. The cash proceeds received by Voxx was subject to a hold-back provision, which was not included in the calculation of the gain recorded on the sale of this investment in Fiscal 2018. 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. These cash proceeds were recorded as an investment gain in Fiscal 2020. 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.

Revenue Recognition

The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.

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.

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, some of which are manufactured by the Company, are sold both to OEM and aftermarket customers. Our biometric products, primarily consisting of finished goods, are 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, 2023, February 28, 2022, and February 28, 2021. Certain telematic subscription revenues generated by our Automotive Electronics segment are recognized over time. 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 return asset are reported in cost of sales in the Consolidated Statements of Operations and Comprehensive (Loss) Income. See Note 14 for return asset and refund liability balances as of February 28, 2023 and February 28, 2022.

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, 2023 and February 28, 2022.

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:


	February 28, 2023		February 28, 2022
Trade accounts receivable	$	85,268	$	108,915
Less:
Allowance for credit losses		1,398		2,182
Allowance for cash discounts		1,117		1,108
	$	82,753	$	105,625

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 20% of our accounts receivable balance as of February 28, 2023. 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.

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, 2023, February 28, 2022, and February 28, 2021 were approximately $98,300, $89,400, and $100,800, respectively. Fees incurred in connection with these agreements totaled approximately $730, $260, and $330 for the years ended February 28, 2023, February 28, 2022, and February 28, 2021, respectively, and are recorded within Interest and bank charges in the Consolidated Statements of Operations and

Comprehensive (Loss) Income. The Company has the option to suspend and resume its activity under the existing arrangements at any time.

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 $2,811, $2,912, and $2,032 for the years ended February 28, 2023, February 28, 2022, and February 28, 2021, respectively.

Inventories by major category are as follows:


	February 28, 2023		February 28, 2022
Raw materials	$	28,048	$	23,904
Work in process		1,363		1,519
Finished goods		145,718		149,499
Inventory, net	$	175,129	$	174,922

Property, Plant and Equipment

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.

A summary of property, plant and equipment, net, is as follows:


	February 28, 2023		February 28, 2022
Land	$	7,101	$	7,046
Buildings		44,669		44,177
Property under finance lease		2,754		2,503
Furniture and fixtures		4,600		4,489
Machinery and equipment		10,514		10,287
Construction-in-progress		748		3,341
Computer hardware and software		46,313		41,962
Automobiles		681		710
Leasehold improvements		3,008		2,718
		120,388		117,233
Less accumulated depreciation and amortization		73,344		67,439
	$	47,044	$	49,794

Depreciation is calculated on the straight-line method over the estimated useful lives of the assets as follows:


Buildings and improvements	20	-	40 years
Furniture and fixtures	5	-	15 years
Machinery and equipment	5	-	15 years
Computer hardware and software	3	-	5 years
Automobiles			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.

Depreciation and amortization of property, plant and equipment amounted to $6,282, $5,890, and $5,607 for the years ended February 28, 2023, February 28, 2022, and February 28, 2021, respectively. Included in depreciation and amortization expense is amortization of computer software costs of $1,659, $1,547, and $1,252 for the years ended February 28, 2023, February 28, 2022, and February 28, 2021, respectively.

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 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 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 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 Company tested its indefinite-lived intangible assets as of February 28, 2023, as part of its annual impairment testing and concluded that the fair value of one indefinite-lived asset in the Automotive Electronics segment was less than the amount recorded, and accordingly, recorded a non-cash impairment charge of $1,300 in the fourth quarter of the fiscal year ended February 28, 2023. This impairment was the result of reductions in projected volumes from OEM customers. The impairment test on the remaining indefinite-lived assets concluded that none of these indefinite-lived assets were impaired for the year ended February 28, 2023. To perform these quantitative impairment analyses, the respective fair values were estimated using a relief-from-royalty method, applying royalty rates ranging from 1.25% to 5.5% 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 13.5% to 16.5% were appropriately developed using a weighted average cost of capital analysis. The long-term growth rates ranged from 1.5% to 2.5%.

There were no indefinite-lived asset impairments in the fiscal year ended February 28, 2022. At February 28, 2021, one of the indefinite-lived asset 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 additional impairment as of February 28, 2021.

As a result of the Fiscal 2023 and 2021 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. No impairments of related long-lived assets were noted for the fiscal years ended February 28, 2023, February 28, 2022, and February 28, 2021.

As of February 28, 2023, as a result of reductions in projected volumes from OEM customers related to the impaired tradename, the Company determined the useful life of the tradename was no longer indefinite. Beginning in the first quarter of Fiscal 2024, the Company will amortize this tradename over its estimated useful life. Management determined that the current lives of its remaining indefinite and long-lived assets are appropriate.

Approximately 17.7% ($9,872) of the carrying value of the Company's remaining indefinite lived trademarks are at risk of impairment and sensitive to changes and assumptions as of February 28, 2023 (exclusive of the impaired tradename that is now long-lived). There can be no assurance that our estimates and assumptions made for purposes of impairment testing as of February 28, 2023, 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 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.

During the year ended February 28, 2023, Voxx's reporting units that carried goodwill were Invision, Rosen, VSM, DEI, Klipsch, and Onkyo. 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 and Onkyo reporting units are located within the Consumer Electronics segment.

The Company performed its annual impairment test for goodwill as of February 28, 2023 and concluded that the fair value of the Invision reporting unit was less than its carrying value, and accordingly recorded a non-cash goodwill impairment charge of $7,373 in the fourth quarter of Fiscal 2023. This impairment was the result of reductions in projected volumes from OEM customers. As a result of this impairment the Company no longer has any goodwill attributable to the Invision reporting unit. The annual impairment test on the remaining goodwill reporting units concluded that their fair values were in excess of their carrying values, with no further goodwill impairment indicated as of February 28, 2023. The discount rates (developed using a weighted average cost of capital analysis) used in the goodwill quantitative tests ranged from 14.9% to 25.0%. No goodwill impairment charges were recorded during the years ended February 28, 2022 and February 28, 2021. The goodwill balances of Klipsch, Rosen, VSM, DEI, and Onkyo at February 28, 2023 are $46,532, $880, $572, $1,600, and $15,724, respectively.

Goodwill

The change in the carrying value of goodwill is as follows:


	February 28, 2023			February 28, 2022			February 28, 2021
Beginning of period	$	74,320		$	58,311		$	55,000
Goodwill acquired (see Note 2)		—			18,160			3,290
Adjustments to goodwill acquired, net (see Note 2)		1,051			(1,353	)		21
Impairment charge		(7,373	)		—			—
Foreign currency translation		(2,690	)		(798	)		—
End of period	$	65,308		$	74,320		$	58,311

Gross carrying value	$	104,844		$	106,483		$	90,474
Accumulated impairment charges		(39,536	)		(32,163	)		(32,163	)
Net carrying value	$	65,308		$	74,320		$	58,311


	February 28, 2023			February 28, 2022			February 28, 2021
Automotive Electronics
Beginning of period	$	10,425		$	11,778		$	8,467
Goodwill acquired (see Note 2)		—			—			3,290
Adjustments to goodwill acquired, net (see Note 2)		—			(1,353	)		21
Impairment charge		(7,373	)		—			—
End of period	$	3,052		$	10,425		$	11,778

Gross carrying value	$	10,425		$	10,425		$	11,778
Accumulated impairment charge		(7,373	)		—			—
Net carrying value	$	3,052		$	10,425		$	11,778

Consumer Electronics
Beginning of period	$	63,895		$	46,533		$	46,533
Goodwill acquired (see Note 2)		-			18,160			-
Adjustments to goodwill acquired (see Note 2)		1,051			-			-
Foreign currency translation		(2,690	)		(798	)		—
End of period	$	62,256		$	63,895		$	46,533

Gross carrying value	$	94,419		$	96,058		$	78,696
Accumulated impairment charge		(32,163	)		(32,163	)		(32,163	)
Net carrying value	$	62,256		$	63,895		$	46,533

Total goodwill, net	$	65,308		$	74,320		$	58,311

Note: The Company's Biometrics segment did not carry a balance for goodwill at February 28, 2023, February 28, 2022, or February 28, 2021.

Intangible Assets

At February 28, 2023 and February 28, 2022, intangible assets consisted of the following:


	February 28, 2023
	Gross Carrying Value		Accumulated Amortization		Total Net Book Value
Finite-lived intangible assets:
Customer relationships (10-15.5 years)	$	53,790	$	42,786	$	11,004
Trademarks/Tradenames (5.5-10 years)		21,205		3,360		17,845
Developed technology (7-10 years)		19,434		14,645		4,789
Patents (7-13 years)		6,736		5,845		891
License		1,400		1,400		-
Contracts		1,556		1,556		-
Total finite-lived intangible assets	$	104,121	$	69,592		34,529
Indefinite-lived intangible assets
Trademarks						55,908
Total intangible assets, net					$	90,437


	February 28, 2022
	Gross Carrying Value		Accumulated Amortization		Total Net Book Value
Finite-lived intangible assets:
Customer relationships (4-15.5 years)	$	54,138	$	39,669	$	14,469
Trademarks/Tradenames (5.5-10 years)		17,466		1,927		15,539
Developed technology (7 years)		20,413		13,179		7,234
Patents (4-13 years)		6,736		5,562		1,174
License		1,400		1,400		-
Contracts		1,556		1,556		-
Total finite-lived intangible assets	$	101,709	$	63,293		38,416
Indefinite-lived intangible assets
Trademarks						63,034
Total intangible assets, net					$	101,450

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 $6,848, $6,508, and $5,426 for the years ended February 28, 2023, February 28, 2022, and February 28, 2021, respectively. At February 28, 2023, the estimated aggregate amortization expense for all amortizable intangibles for each of the succeeding five fiscal years is as follows:


Fiscal Year	Amount
2024	$	6,215
2025		5,948
2026		5,848
2027		3,616
2028		3,144

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:

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			Year Ended			Year Ended
	February 28, 2023			February 28, 2022			February 28, 2021
Accrued sales incentives, opening balance	$	23,755		$	25,313		$	12,250
Accruals		50,056			58,490			67,337
Payments and credits		(51,894	)		(59,644	)		(54,102	)
Reversals for unearned sales incentives		(139	)		(404	)		(172	)
Accrued sales incentives, ending balance	$	21,778		$	23,755		$	25,313

The majority of the reversals of previously established sales incentive liabilities pertain to sales recorded in prior periods.

Advertising

Excluding co-operative advertising as discussed in Note 1(l) above, the Company expensed the cost of advertising, as incurred, of $5,448, $5,376, and $4,605 for the years ended February 28, 2023, February 28, 2022, and February 28, 2021, respectively.

Research and Development

Expenditures for research and development are charged to expense as incurred. Such expenditures amounted to $9,419, $12,115, and $7,940 for the years ended February 28, 2023, February 28, 2022, and February 28, 2021, respectively, net of customer reimbursement, of $936, $58, and $120, respectively, and are included within Engineering and Technical Support expenses on the Consolidated Statements of Operations and Comprehensive (Loss) Income. 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. The increases in customer reimbursements for the year ended February 28, 2023 were a result of higher reimbursements from certain OEM customers in the Automotive Electronics segment, as well as a reimbursement from one customer in the Biometrics segment.

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 $5,845 and $4,470 is recorded in Accrued expenses and other current liabilities in the accompanying Consolidated Balance Sheets as of February 28, 2023 and February 28, 2022, 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 $914 and $1,152 is recorded as a reduction to inventory in the accompanying Consolidated Balance Sheets as of February 28, 2023 and February 28, 2022, respectively. Warranty claims and product repair costs expense for the years ended February 28, 2023, February 28, 2022 and February 28, 2021 were $6,525, $4,583, and $3,065, respectively.

Changes in the Company's accrued product warranties and product repair costs are as follows:


	Year Ended			Year Ended			Year Ended
	February 28, 2023			February 28, 2022			February 28, 2021
Beginning balance	$	5,622		$	5,290		$	4,748
Liabilities (adjusted) acquired during acquisitions		-			(352	)		1,200
Accrual for warranties issued during the year and repair cost		6,525			4,583			3,065
Warranty claims settled during the year		(5,388	)		(3,899	)		(3,723	)
Ending balance	$	6,759		$	5,622		$	5,290

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, 2023, February 28, 2022 and February 28, 2021, the Company recorded total net foreign currency transaction (losses) gains in the amount of $(3,674), $(635) and $(862), respectively. Foreign currency losses for the year ended February 28, 2023 were primarily driven by declines in the Japanese Yen, which impacted the remeasurement of the Company's Onkyo subsidiary intercompany loans and interest payable, which are not of a long-term investment nature.

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 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 (Loss) Income.

Uncertain Tax Positions

Net (Loss) Income Per Common Share

Basic net (loss) income per common share attributable to VOXX International Corporation is calculated by dividing net income attributable to Voxx, adjusted to reflect changes in the redemption value of redeemable non-controlling interest, by the weighted-average number of common shares outstanding during the period. Diluted net (loss) income per common share reflects the potential dilution that would occur if common stock equivalent securities or other contracts to issue common stock were exercised or converted into common stock. No redemption value adjustment was made to the redeemable non-controlling interest for the years ended February 28, 2023, February 28, 2022, or February 28, 2021.

A reconciliation between the denominator of basic and diluted net (loss) income per common share is as follows:


	Year Ended		Year Ended		Year Ended
	February 28, 2023		February 28, 2022		February 28, 2021
Weighted-average common shares outstanding (basic)		24,325,938		24,287,179		24,201,221
Effect of dilutive securities:
Restricted stock units, market stock units, and stock grants		-		-		448,885
Weighted-average common and potential common shares outstanding (diluted)		24,325,938		24,287,179		24,650,106

Restricted stock units, market stock units, and stock grants totaling 378,454, 737,513 and 12,757 for the years ended February 28, 2023, February 28, 2022 and February 28, 2021, respectively, were not included in the net (loss) income per common share calculation because the settlement price of the restricted stock units, market stock units, and stock grants 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.

Other (Expense) Income

Other (expense) income is comprised of the following:


	Year Ended			Year Ended			Year Ended
	February 28, 2023			February 28, 2022			February 28, 2021
Foreign currency (loss) gain	$	(3,674	)	$	(635	)	$	(862	)
Interest income		36			72			83
Rental income		911			678			739
Miscellaneous		672			208			786
Total other, net	$	(2,055	)	$	323		$	746

Foreign currency losses included within Foreign currency (loss) gain, net, for the year ended February 28, 2023 were primarily driven by declines in the Japanese Yen, which impacted the re-measurement of the Company's Onkyo subsidiary intercompany loans and interest payable, which are not of a long-term investment nature. The total foreign currency loss attributable to these re-measurements for the year ended February 28, 2023 was $3,267. Interest income for the years ended February 28, 2023 and February 28, 2022 decreased as compared to the year ended February 28, 2021 as a result of a lower balance of money market funds available to invest.

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 goodwill and intangible assets in connection with the Company’s annual impairment testing for the years ended February 28, 2023 and February 28, 2021. There were no impairments of definitely-lived intangible assets or long-lived assets recorded in accordance with ASC 360 during the years ended February 28, 2023, February 28, 2022 and February 28, 2021.

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 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, 2023, approximately 1,049,275 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, 2023, February 28, 2022, or February 28, 2021. During the years ended February 28, 2023, February 28, 2022, and February 28, 2021 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, 2023 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, 2023, February 28, 2022, and February 28, 2021, an additional 46,556, 48,527, and 48,269 RSU’s were granted under the 2014 Plan, respectively. The fair market value of the RSU’s, $8.28, $13.59, and 5.76 for Fiscal 2023, Fiscal 2022, and Fiscal 2021, respectively, were determined based on the mean of the high and low price of the Company's common stock on the grant dates.

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 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 in July 2019 under the 2012 Plan.

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 $157 and $409 was recognized during the years ended February 28, 2022, and February 28, 2021, respectively, based upon the grant fair value of $4.15 per share using the graded vesting attribution method. For the year ended February 28, 2023, there was no remaining compensation expense recognized related to these awards. On March 1, 2020, 100,000 of these stock grants vested, resulting in 100,000 shares of the Company’s Class A Common Stock being issued to Mr. Lavelle. On March 1, 2021, an additional 100,000 of these stock grants vested, resulting in 60,653 shares of Class A Common Stock being issued to Mr. Lavelle and 39,347 shares being withheld for taxes. On March 1, 2022, the final 100,000 of these stock grants vested, resulting in 61,337 shares of Class A Common Stock being issued to Mr. Lavelle and 38,663 shares being withheld for taxes.

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 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. The award may be settled in shares or in cash upon mutual agreement between the Company and Mr. Lavelle. 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 $91, $241, and $241 for the years ended February 28, 2023, February 28, 2022, and February 28, 2021, respectively, related to these MSU’s using the graded vesting attribution method over the performance period. On March 1, 2022, 80% of this MSU award vested and was settled in cash, resulting in a payment made to Mr. Lavelle in the amount of $4,000 during the year ended February 28, 2023. As of February 28, 2023, 20% 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.

Grant of Shares to President

On February 6, 2023, Voxx appointed Beat Kahli, the Company’s largest shareholder, President of the Company. The Company entered into an employment agreement with Mr. Kahli effective February 6, 2023 with a term ending on February 29, 2024. Under the terms of the employment agreement, in addition to a $300 yearly salary, Mr. Kahli was granted the right to receive

stock-based compensation in the form of a stock grant of 20,000 shares of the Company's Class A Common Stock to be issued on each of June 30, 2023, September 30, 2023, December 31, 2023 and March 31, 2024. The grant fair value of these shares was $10.66 per share and compensation expense is recorded using the graded vesting attribution method.

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, 2023:


	Number of shares			Weighted Average Grant Date Fair Value
Unvested share balance at February 29, 2020		715,152		$	5.07
Granted		88,269			7.18
Vested		(99,697	)		7.21
Vested and settled		(100,000	)		4.15
Forfeited		—			—
Unvested share balance at February 28, 2021		603,724		$	5.18
Granted		48,527			13.59
Vested		(197,891	)		5.76
Vested and settled		(100,000	)		4.15
Forfeited		—			—
Unvested share balance at February 28, 2022		354,360		$	6.30
Granted		66,556			9.00
Vested		(33,930	)		6.10
Vested and settled		(100,000	)		4.15
Forfeited		—			—
Unvested share balance at February 28, 2023		286,986		$	7.70

At February 28, 2023, there were 501,505 shares of vested and unissued shares under the 2014 Plan with a weighted average fair value of $6.79. During the years ended February 28, 2023 and February 28, 2021, vested RSU awards for former employees of the Company, totaling 8,634 and 105,123 award units, respectively, were settled in cash in amounts totaling $81 and $575, respectively. During the year ended February 28, 2022, no RSU awards were settled in cash.

During the years ended February 28, 2023, February 28, 2022 and February 28, 2021 the Company recorded $609, $907, and $1,749, 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, 2023, unrecognized stock-based compensation expense related to unvested RSU’s was approximately $1,270 and will be recognized over the requisite service period of each employee.

Accumulated Other Comprehensive Loss


	Foreign Currency Translation (Losses) Gains			Pension plan adjustments, net of tax			Derivatives designated in a hedging relationship, net of tax			Total
Balance at February 29, 2020	$	(17,739	)	$	(887	)	$	(429	)	$	(19,055	)
Other comprehensive income (loss) before reclassifications		4,365			18			(470	)		3,913
Reclassified from accumulated other comprehensive loss		—			—			165			165
Net current-period other comprehensive income (loss)		4,365			18			(305	)		4,078
Balance at February 28, 2021	$	(13,374	)	$	(869	)	$	(734	)	$	(14,977	)
Other comprehensive (loss) income before reclassifications		(3,317	)		158			485			(2,674	)
Reclassified from accumulated other comprehensive loss		-			-			148			148
Net current-period other comprehensive (loss) income		(3,317	)		158			633			(2,526	)
Balance at February 28, 2022	$	(16,691	)	$	(711	)	$	(101	)	$	(17,503	)
Other comprehensive (loss) income before reclassifications		(1,876	)		390			352			(1,134	)
Reclassified from accumulated other comprehensive loss		-			-			(43	)		(43	)
Net current-period other comprehensive (loss) income		(1,876	)		390			309			(1,177	)
Balance at February 28, 2023	$	(18,567	)	$	(321	)	$	208		$	(18,680	)

During the years ended February 28, 2023, February 28, 2022 and February 28, 2021, the Company recorded other comprehensive income (loss), net of associated tax impact of $171, $(40) and $(74), respectively, related to pension plan adjustments, and $20, $(101) and $106, respectively, related to derivatives designated in a hedging relationship.

The other comprehensive (loss) income before reclassification for foreign currency translation of $(1,876), $(3,317), and $4,365, respectively, includes the remeasurement of intercompany transactions of a long term investment nature of $1,639, $320 and $(1,244), respectively, with certain subsidiaries whose functional currency is not the U.S. dollar, and $(3,515), $(3,637) and $5,609, 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 (losses) gains in Other comprehensive (loss) income for the years ended February 28, 2023, February 28, 2022 and February 28, 2021, the Company recorded total (losses) gains of $(1,660), $(2,728), and $4,136, respectively, related to the Euro; $(193), $(245), and $261, respectively, related to the Canadian Dollar; $57, $25 and $(53), respectively, for the Mexican Peso, as well as $92, $(120) and $21, respectively, for various other currencies. For the years ended February 28, 2023 and February 28, 2022, Other comprehensive (loss) income also included foreign currency (losses) gains of $(173) and $(249) from the Japanese Yen, generated by the Company’s Onkyo subsidiary, which was established in September 2021 and was not present in all previous fiscal years presented. These adjustments were caused by the strengthening/(weakening) of the U.S. Dollar against the Euro, Canadian Dollar, Mexican Peso, and the Japanese Yen between -10% and 19% in Fiscal 2023, -2% and 8% in Fiscal 2022, and -10% and 6% in Fiscal 2021.

New Accounting Pronouncements

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 ASU No. 2021-01, “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. These optional expedients and exceptions are effective as of March 12, 2020 through December 31, 2024. The Company's Credit Facility with Wells Fargo transitioned to SOFR in conjunction with the amendment executed in February 2023 with no impact to the Company's consolidated financial statements (see Note 7). On May 1, 2023, VOXX HQ LLC, a wholly owned subsidiary of the Company, consented to a First Amendment to the Indenture of Trust relating to the Florida Industrial Revenue Bonds for the purpose of transitioning from a LIBOR based interest rate to a SOFR based interest rate (see Note 7). Effective May 3, 2023, VOXX HQ LLC entered into an Amended and Restated Confirmation of Swap Transaction with Wells Fargo Bank N.A. related to the interest rate swap that hedges the Company's interest rate exposure on the Florida Industrial Revenue Bonds. The swap contract was amended to reference SOFR, as well as set a new fixed rate equal to 3.43%.

In October 2021, the FASB issued ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts With Customers,” which amends the accounting for contract assets acquired and contract liabilities assumed from contracts with customers in business combinations (“acquired contract balances”). The update requires contract assets and contract liabilities from contracts with customers that are acquired in a business combination to be recognized and measured as if the acquirer had originated the original contract. Previously, acquired contract assets and liabilities were measured at fair value. The ASU is effective for fiscal years beginning after December 15, 2022. Early adoption is permitted. We do not expect the adoption to have a material impact on our consolidated financial statements.

In June 2022, the FASB issued ASU No. 2022-03, "Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions," which clarifies and amends the guidance of measuring the fair value of equity securities subject to contractual restrictions that prohibit the sale of the equity securities. The guidance will be effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. We do not expect the adoption to have a material impact on our consolidated financial statements.

In March 2023, the FASB issued ASU No. 2023-01, "Leases (Topic 842): Common Control Arrangements." The amendment clarifies the accounting for leasehold improvements associated with common control leases, by requiring that leasehold improvements associated with common control leases be amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset through a lease. Additionally, leasehold improvements associated with common control leases should be accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. The guidance will be effective for annual and interim periods beginning after December 15, 2023. We do not expect the adoption to have a material impact on our consolidated financial statements.

In March 2023, the FASB issued ASU No. 2023-02, "Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investment Tax Credit Structures Using the Proportional

Amortization Method." The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. This guidance will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company is currently evaluating the impact this update may have on its consolidated financial statements.