Audiovox 1998 Annual Report Download - page 41

buying and payment patterns. The Company establishes
collateral rights in accounts receivable and inventory and
obtains personal guarantees from certain customers based
upon management’s credit evaluation. At November 30, 1998
and 1997, 34 and 43 customers, representing approximately
74% and 69%, respectively, of outstanding accounts receiv-
able, had balances owed greater than $500.
A portion of the Company’s customer base may be sus-
ceptible to downturns in the retail economy, particularly in
the consumer electronics industry. Additionally, customers
specializing in certain automotive sound, security and acces-
sory products may be impacted by fluctuations in automo-
tive sales. A relatively small number of the Company’s
significant customers are deemed to be highly leveraged.
(d) Fair Value
The carrying value of all financial instruments classified as
a current asset or liability is deemed to approximate fair
value, with the exception of current installments of long-
term debt, because of the short maturity of these instru-
ments. The estimated fair value of the Company’s financial
instruments are as follows:
November 30, 1998 November 30, 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
Investment securities............. $17,854 $17,854 $22,382 $22,382
Equity collar (derivative)........ — — $ 1,246 $ 1,246
Long-term obligations
including current
installments ........................ $23,831 $24,202 $30,491 $30,910
Forward exchange
contract obligation
(derivative) .......................... — $ 5,352 — $26,125
The following methods and assumptions were used to
estimate the fair value of each class of financial instruments
for which it is practicable to estimate that value:
Investment Securities
The carrying amount represents fair value, which is based
upon quoted market prices at the reporting date (Note 6).
Equity Collar (Derivative)
The carrying amount represents fair value, which is based
upon the Black Scholes option-pricing model.
Long-Term Debt Including Current Installments
The carrying amount of bank debt under the Company’s
revolving credit agreement and Malaysian Credit Agreement
approximates fair value because of the short maturity of the
underlying obligations. With respect to the Subordinated
Debentures, fair values are based on published statistical data.
Forward Exchange Contracts (Derivative)
The fair value of the forward exchange contracts are
based upon exchange rates at November 30, 1998 and 1997
as the contracts are short term.
Limitations
Fair value estimates are made at a specific point in time,
based on relevant market information and information
about the financial instrument. These estimates are subjec-
tive in nature and involve uncertainties and matters of signif-
icant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect
the estimates.
(18) Contingencies
The Company is a defendant in litigation arising from the
normal conduct of its affairs. The impact of the final resolu-
tion of these matters on the Company’s results of operations
or liquidity in a particular reporting period is not known.
Management is of the opinion, however, that the litigation in
which the Company is a defendant is either subject to prod-
uct liability insurance coverage or, to the extent not covered
by such insurance, will not have a material adverse effect on
the Company’s consolidated financial position.
The Company has guaranteed certain obligations of its
equity investments and has established standby letters of
credit to guarantee the bank obligations of Audiovox
Communications and Audiovox Venezuela (Note 17(b)).
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