Audiovox 2006 Annual Report Download - page 79

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Audiovox Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
February 28, 2007
(Dollars in thousands, except share and per-share data)
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 28, 2007, the Company had unconditional purchase obligations for inventory
commitments of $73,484. 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. The Company generally grants credit based upon
analyses of 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.
At February 28, 2007, one customer accounted for 18%of accounts receivable. No single
customer accounted for more than 10%of accounts receivable at February 28, 2006. During
the year ended 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.
During the year ended November 30, 2004, one customer accounted for 11%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 28, 2007 February 28, 2006
Carrying
Amount Fair
Value Carrying
Amount Fair
Value
Short-term investments .................. $140,872 $140,872 $160,799 $160,799
Investment securities (long-term) ......... 13,179 13,179 14,709 14,709
Bank obligations ....................... 2,890 2,890 5,329 5,329
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:
Short-Term Investment/Investment Securities
The carrying amount represents fair value, which is based upon quoted market prices at the
reporting date (Note 1).
Bank Obligations
The carrying amount of the Company’s foreign debt approximates fair value because the
interest rate on the debt is reset every quarter to reflect current market rates.
F-39