Audiovox 2006 Annual Report Download - page 12

promotional activities by our customers during the holiday season. If the economy faltered in these
periods, if our customers altered the timing or frequency of their promotional activities or if the
effectiveness of these promotional activities declined, particularly around the holiday season, it could
have a material adverse effect on our annual financial results.
A Decline in General Economic Conditions Could Lead to Reduced Consumer Demand for the
Discretionary Products We Sell.
Consumer spending patterns, especially discretionary spending for products such as mobile and
consumer electronics, are affected by, among other things, prevailing economic conditions, energy
costs, wage rates, inflation, consumer confidence and consumer perception of economic conditions. A
general slowdown in the U.S. economy or an uncertain economic outlook could have a material
adverse effect on our sales.
Acquisitions and Strategic Investments May Divert Our Resources and Management Attention; Results
May Fall Short of Expectations.
We intend to continue pursuing selected acquisitions of and investments in business, technologies
and product lines as a key component of our growth strategy. Any future acquisition or investment
may result in the use of significant amounts of cash, potentially dilutive issuances of equity securities,
incurrence of debt and amortization expenses related to intangible assets. Acquisitions involve
numerous risks, including:
• difficulties in the integration and assimilation of the operations, technologies, products and
personnel of an acquired business;
• diversion of management’s attention from other business concerns;
• increased expenses associated with the acquisition; and
• potential loss of key employees or customers of any acquired business.
We cannot assure you that our acquisitions will be successful and will not adversely affect our
business, results of operations or financial condition.
We have recorded goodwill and other intangible assets as a result of acquisitions, and changes in future
business conditions could cause these investments to become impaired, requiring substantial write-downs
that would reduce our operating income.
Goodwill and other intangible assets recorded on our balance sheet as of February 28, 2007 was
$75,388. We evaluate the recoverability of recorded goodwill and other intangible asset amounts
annually, or when evidence of potential impairment exists. The annual impairment test is based on
several factors requiring judgment. Changes in our operating performance or business conditions, in
general, could result in an impairment of goodwill and/or other intangible assets, which could be
material to our results of operations.
We Depend Heavily on Existing Directors, Management and Key Personnel and Our Ability to Recruit
and Retain Qualified Personnel.
Our success depends on the continued efforts of our directors, executives and senior vice
presidents, many of whom have worked with Audiovox for over two decades, as well as our other
executive officers and key employees. We have no employment contracts, with any of our executive
officers or key employees. The loss or interruption of the continued full-time service of certain of our
executive officers and key employees could have a material adverse effect on our business.
In addition, to support our continued growth, we must effectively recruit, develop and retain
additional qualified personnel both domestically and internationally. Our inability to attract and retain
necessary qualified personnel could have a material adverse effect on our business.
We Are Responsible for Product Warranties and Defects.
Even though we outsource manufacturing, we provide warranties for all of our products for which
we have provided an estimated liability. Therefore, we are highly dependent on the quality of our
supplier’s products.
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