Audiovox 2000 Annual Report Download - page 40

gains and losses on the equity collar reflected as a separate compo-
nent of equity. During 1998, the Company sold its equity collar for
$1,499. The transaction resulted in a net gain on hedge of available-
for-sale securities of $929 which was reflected as a separate compo-
nent of stockholders’ equity. Also during 1998, the CellStar stock split
two-for-one, resulting in the equity collar hedging 200,000 shares of
CellStar stock. During 2000, the Company sold 200,000 shares of
CellStar common stock and in connection with the sale of the shares,
recognized $1,499 ($929 net of taxes) representing the net gain on the
hedge of the available-for-sale securities (Note 1(g)(2)).
The Company is exposed to credit losses in the event of nonperformance
by the counter parties to its forward exchange contracts. The Company
anticipates, however, that counter parties will be able to fully satisfy their
obligations under the contracts. The Company does not obtain collateral
to support financial instruments, but monitors the credit standing of the
counter parties.
(B)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 of Audiovox Communications Sdn. Bhd. and
Audiovox Venezuela (Note 12(a)). The Company had open commercial letters
of credit of approximately $41,173 and $65,820, of which $28,727 and
$45,569 were accrued for purchases incurred as of November 30, 1999 and
2000, 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 nature of the fee arrangements with the issuing banks.
The Company is a party to joint and several guarantees on behalf of
G.L.M. which aggregate $300. There is no market for these guarantees
and they were issued without explicit cost. Therefore, it is not practicable
to establish its fair value.
(C)CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentra-
tions of credit risk, consist principally of trade receivables. The Company’s
customers are located principally in the United States and Canada and con-
sist of, among others, wireless carriers and service providers, distributors,
agents, mass merchandisers, warehouse clubs and independent retailers.
At November 30, 1999, three customers, which were wireless carrier and
service providers, accounted for approximately 15.8%, 15.5% and 11.1%,
respectively, of accounts receivable. At November 30, 2000, one cus-
tomer, a wireless carrier and service provider, accounted for approxi-
mately 47% of accounts receivable.
During the year ended November 30, 1998, two customers accounted for
approximately 18.3% and 14.9%, respectively, of the Company’s 1998
sales. During the year ended November 30, 1999, three customers
accounted for approximately 19.6%, 14.9% and 12.7%, respectively, of the
Company’s 1999 sales. During the year ended November 30, 2000, one cus-
tomer accounted for approximately 50.5% of the Company’s 2000 sales.
The Company generally grants credit based upon analyses of its cus-
tomers’ financial position and previously established buying and payment
patterns. The Company establishes collateral rights in accounts receiv-
able and inventory and obtains personal guarantees from certain cus-
tomers based upon management’s credit evaluation.
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. 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 because of the short
maturity of these instruments. The estimated fair value of the Company’s
financial instruments are as follows:
November 30, 1999 November 30, 2000
Carrying Fair Carrying Fair
Amount Value Amount Value
Investment securities $ 30,401 $ 30,401 $ 5,484 $ 5,484
Long-term obligations $107,939 $109,261 $15,000 $15,000
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)