Audiovox 2004 Annual Report Download - page 101

AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
November 30, 2002, 2003 and 2004
(Dollars in thousands, except share and per share data)
(14) 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 of Audiovox Communications Sdn. Bhd. (Note
9 of Notes to Consolidated Financial Statements). The Company had open
commercial letters of credit of $2,541 and $959, at November 30, 2003 and
2004 respectively, of which $468 were accrued for purchases incurred as of
November 30, 2003. 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.
At November 30,2004, the Company had unconditional purchase obligations for
inventory commitments of $46,041. 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 and
Canada and consist of, among others, distributors, mass merchandisers,
warehouse clubs and independent retailers.
At November 30, 2003, two customers accounted for 13% and 11% of accounts
receivable. At November 30, 2004, no customer accounted for greater than
10% of accounts receivable.
During the years ended November 30, 2002 and 2004, one customer accounted
for approximately 10% and 11% of the Company's net sales, respectively.
During the year ended November 30, 2003, two customers each accounted for
approximately 10% of the Company's net sales. The Company generally grants
credit based upon analyses of its customers' financial position 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.
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.
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