Audiovox 2008 Annual Report Download - page 98

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Audiovox Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
February 29, 2008
(Dollars in thousands, except share and per share data)
12) Financial Instruments
a) Off-Balance Sheet Risk
Commercial letters of credit are issued by the Company during the ordinary course of business through major domestic
banks as requested by certain suppliers. The Company also issues standby letters of credit principally to secure certain
bank obligations and insurance policies. The Company had open commercial letters of credit of $3,803 and $6,056 and
standby letters of credit of $2,399 and $3,252 at February 29, 2008 and February 28, 2007, respectively. The terms of
these letters of credit are all less than one year. No material loss is anticipated due to nonperformance by the counter
parties to these agreements. The fair value of these open commercial and standby letters of credit is estimated to be the
same as the contract values based on the short-term nature of the fee arrangements with the issuing banks.
At February 29, 2008, the Company had unconditional purchase obligations for inventory commitments of
$71,546. These obligations are not recorded in the consolidated financial statements until commitments are fulfilled and
such obligations are subject to change based on negotiations with manufacturers.
b) Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade
receivables. The Company's customers are located principally in the United States, Canada and Germany and consist of,
among others, distributors, mass merchandisers, warehouse clubs and independent retailers. The Company generally
grants credit based upon analyses of customers' financial condition and previously established buying and payment
patterns. For certain customers, the Company establishes collateral rights in accounts receivable and inventory and
obtains personal guarantees from certain customers based upon management's credit evaluation.
At February 29, 2008, two customers accounted for approximately 28% of accounts receivable, while at February 28,
2007, one customer accounted for 18% of accounts receivable. During the years ended February 29, 2008, February 28,
2007, the three months ended February 28, 2006 and the year ended November 30, 2005, no single customer accounted
for more than 10% of net sales.
A portion of the Company's customer base may be susceptible to downturns in the retail economy, particularly in the
consumer electronics industry. Additionally, customers specializing in certain automotive sound, security and accessory
products may be impacted by fluctuations in automotive sales.
c) Fair Value
The carrying value of all financial instruments is deemed to approximate fair value because of the short-term nature of
these instruments. The estimated fair value of the Company's financial instruments is as follows:
February 29, 2008 February 28, 2007
Carrying Fair Carrying Fair
Amount Value Amount Value
Short-term investments $ - $ - $ 140,872 $ 140,872
Investment securities (long-term) 15,033 15,033 13,179 13,179
Bank obligations 3,070 3,070 2,890 2,890
F-39
Source: AUDIOVOX CORP, 10-K, May 14, 2008