Audiovox 2006 Annual Report Download - page 33

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Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements, transactions, obligations or other
relationships with unconsolidated entities that would be expected to have a material current or future
effect upon our financial condition or results of operations.
Impact of Inflation and Currency Fluctuation
To the extent that we expand our operations into Europe, Latin America and the Pacific Rim, the
effects of inflation and currency fluctuations could impact our financial condition and results of
operations. While the prices we pay for products purchased from our suppliers are principally
denominated in United States dollars, price negotiations depend in part on the foreign currency of
foreign manufacturers, as well as market, trade and political factors.
Seasonality
We typically experience seasonality in our operations. We generally sell a substantial amount of
our products during September, October and November due to increased promotional and advertising
activities during the holiday season. Our business is also significantly impacted by the holiday season
and electronic trade shows in December and January.
Related Party Transactions
During 1998, 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%. On November 1, 2004, we
entered into an agreement to sublease the building to UTStarcom for monthly payments of $46 until
November 1, 2009. We also lease another facility from our principal stockholder which expires on
November 30, 2016. Total lease payments required under all related party leases for the five-year
period ending February 28, 2012 are $6,089.
Recent Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48.
‘‘Accounting for Uncertainty in Income Taxes’’ (‘‘FIN 48’’). FIN 48 clarifies the accounting for
uncertain income tax positions that are recognized in the Company’s financial statements in
accordance with the provisions of FASB Statement No. 109, ‘‘Accounting for Income Taxes’’. FIN 48
also provides guidance on the derecognition of uncertain positions, financial statement classification,
accounting for interest and penalties, accounting for interim periods and new disclosure requirements.
FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently
evaluating the impact that the adoption of FIN 48 will have on its financial position and the results of
operations.
In September 2006, the Securities and Exchange Commission (‘‘SEC’’) issued Staff Accounting
Bulletin No. 108, ‘‘Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements’’ (‘‘SAB 108’’). SAB 108 requires registrants to
use both a balance sheet approach and an income statement approach when evaluating and
quantifying the materiality of a misstatement. SAB 108 provides guidance on correcting errors under
the dual approach as well as providing transition guidance for correcting errors. The Company
adopted the provisions of SAB 108 as of February 28, 2007. The adoption of SAB 108 did not impact
our financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157, ‘‘Fair Value Measurements’’ (‘‘SFAS 157’’).
SFAS 157 defines fair value, establishes guidelines for measuring fair value and expands disclosures
regarding fair value measurement. SFAS 157 does not require any new fair value measurements, but
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